UNECE
CONTINUES REVIEW OF SITUATION IN CAUCASUS
AND CENTRAL ASIA
Afternoon Meeting Focuses on Privatization, Regulatory Reform,
Living Standards and Social Policy
Geneva, 8 May 2001
The United Nations Economic Commission for Europe (UNECE) completed a day-long
discussion of the status of transition countries in Central Asia and the Caucasus by
reviewing issues related to privatization, regulatory reform, enterprise development,
living standards, and social policy.
Economists joined Government officials from the region in noting that
privatization efforts needed to be expanded, social protections augmented, corruption
reduced, informal economic activities made legitimate, and legislation related to business
activities made transparent and thorough.
The session, along with one held this morning that provided a general
overview of the situation, marked the opening of the ECE's fifty-sixth annual gathering,
which will conclude Friday, 11 May. The day's discussion was entitled "Business
enterprise and economic growth in the Central Asian and Caucasian countries: creating a
supportive and secure environment".
The first of two afternoon panel debates, entitled "Privatization,
regulatory reform and enterprise development in Central Asian Republics and Caucasian
Republics", featured an address by Zhannat Zh. Ertlessova, Deputy Head of the
Presidential Administration of Kazakhstan, who reviewed efforts by the Kazakh Government
to reform social and pension systems and to encourage privatization and the development of
new enterprises.
Also on the panel was Rasim Hasonov, Director of the Center for
Economic Reforms of Azerbaijan, who remarked that privatization was quite justly called
the keystone of transition -- it changed the basic economic system and property relations,
changing all else as a result. But he added that problems of privatization were not only
economic but broader and deeper, involving questions of authority, of how citizens
defended their interests, of corruption, and of social impacts; and he said that in most
transition countries, including Azerbaijan, there had been tremendous mistakes made in
privatization programmes.
The second panel discussion, on living standards and social policy,
began with an address by Munira Inoyatova, Secretary of State and Adviser to the President
of Tajikistan, who said among other things that despite dire circumstances that including
recovering from a civil war and coping with extensive poverty, the country had focused on
political reform and democratization and on bolstering social protections. She noted that
political reforms had had social payoffs in terms of strengthening democracy and
establishing a free media, while extensive measures to enhance economic performance had
recently achieved encouraging results.
She was joined by Jane Falkingham, Director of the ESRC SAGE Research
Group, London School of Economics (United Kingdom), who remarked that economic transition
had been hard on the children of the Central Asian Republics -- that the region, which was
already poor before independence from the Soviet Union, had since become poorer; that
health and education budgets had been trimmed; and that figures showed, among other
things, that 70 per cent of children in Tajikistan and 50 per cent in Kyrgyzstan lived
below the poverty line, and that undernourishment in the region was so pronounced that
many children were suffering stunted growth.
Summarizing the day's discussion, Commission Chairman Harald Kreid said
that it had been clear from the addresses made how intricate and difficult it was to carry
out transition programmes; clear that among the consequences of transition were that
vulnerable sectors of society were particularly the victims of weakened social safety nets
and eliminated institutions -- that the human cost of transition had been high, and that
this had to be remedied; that there was a need for further assistance to the transition
process in the region, as through development cooperation and the provision of technical
advice; and that the ECE, for its part, could do more to support integration programmes in
the Caucasus and Central Asia.
The next public plenary of the Commission was scheduled for 9:30 a.m.
Thursday, 10 May.
Panel discussion on privatization, regulatory reform and enterprise
development in Central Asian and Caucasian Republics
ZHANNAT ZH. ERTLESSOVA, Deputy Head of the Presidential Administration
of Kazakhstan, said among other things that her country had just achieved 10 years of
independence -- 10 difficult years under which it had had to do many things, such as
establishing an independent currency and major economic reforms. Now it was embarked on a
second-stage policy aimed at ensuring stable long-term economic growth. Recent figures on
such matters as inflation, industrial growth, and trade balances were encouraging.
However, global prices had had a strong impact on fuel exports with major positive effects
for the country that perhaps couldn't be expected to continue.
The banking sector was now quite stable; in the sphere of State
finances a treasury had been established, extra-budgetary funding measures and special
accounts practices had been eliminated, and a State investment programme had been set up.
A national oil fund acted as a stabilizing force for the State budget and helped to set up
financial security for the future. On the other hand, a further reform of state finances
was required, programming for State planning and the budget were inadequate, and it was
necessary to have a good system of inter-budgetary relations. Specific changes were needed
in budgetary planning -- currently stress was being laid on having local authorities
administer budgets with the resources they had; and there had to be better distribution of
tax revenues, including through allowing local authorities to more effectively administer
tax systems. Pension reforms had begun based on monetary benefits instead of payments in
kind. The existing system of social benefits was based on the idea of high social
solidarity but benefits and individual contributions had to be brought more closely
together. Today all citizens received equal State benefits regardless of their incomes or
whether they were working at all.
Legislation had to be made more complete and transparent, and to be
based on meeting needs rather than based on subsidies, Ms. Erlessova said. Discussions had
begun on reforming the system of social protection so that it had a "mixed"
character, reflecting some aspects of social solidarity and also reflecting payments made
into the system by employees. The area of least reform was the sector of goods and
services; natural monopolies existed which had to be addressed, as they affected the
enterprise culture of the country. Again incomplete legislation was a problem, and
monitoring of existing legislation was weak. International and regional action was needed
to ease problems related to water and energy supplies in Kazakhstan and in nearby
countries. There also were problems related to corruption and to the country's informal
sector, which was large and influential.
RASIM HASANOV, Director of the Centre for Economic Reforms of
Azerbaijan, said that in many transition countries, privatization was quite justly called
the keystone of the process -- it changed the basic economic system and property
relations, changing all else as a result. The problems of privatization were not only
economic but broader and deeper: they involved questions of authority, among other things,
and changed the pattern by which citizens defended their own interests. Privatization
meant shifting the economy to new structures. It was profoundly social and in most
transition countries mistakes had been made; Azerbaijan had been among them,
unfortunately. Among the problems were a lack of laws and resources; and ignorance of
rules of the game had made things more difficult for the foreign entrepreneurs the country
had managed to attract. Often workers in privatized enterprises had had to be laid off,
causing social problems; and the country had learned that simply selling off a State-owned
business wasn't enough to ensure its success. In addition, the balance-sheet value of such
enterprises had often turned out to be higher than their actual value -- finding a fair
price had been difficult, and buyers had frequently found they had inherited large and
unexpected debts. Many investors, faced with these difficulties, either had found new
buyers or had failed to meet their payment obligations to the State.
Finding markets for products had been difficult in a number of
situations, since they were saturated with competing products, Mr. Hasonov said. Things
simply hadn't fallen into place successfully for many privatized firms. Taking into
account social and political aspects of privatization, the Government of Azerbaijan had
opted for massive privatization; but the economic outcomes had not been good, those
citizens holding privatization coupons had received little in return on them, and there
had been mounting opposition to the privatization process. The first six years of
transition had been further marred by Armenian aggression, the Armenian occupation of
Ngorno-Karabakh, and instability elsewhere in the country. Still, privatization shares had
been provided to citizens, and further shares made available for purchase. The process had
had its flaws, and some of the enterprises privatized had not been attractive to
investors. Problems of corruption had surfaced, leading to regrettable consequences. To
date, privatization had focused on smaller enterprises; larger operations would be the
next target, and perhaps given the lessons learned the process would go more smoothly.
Recently, meanwhile, new small enterprises had been forming at an encouraging rate.
Comments from the floor included reviews of privatization programmes
carried out in Belarus and Georgia. Speakers noted that privatization should result in
"real" owners with dedicated and profound interest in their properties and
endowed with the extensive rights that went with property ownership, whether the owners
were foreign or domestic; and that international assistance and advice were important for
privatization, as such undertakings were unfamiliar and complicated.
Ms. Ertlessova said in response that the state of development of
Kazakhstan could be discerned not only by looking at growth rates and financial measures
but at the rate of creation of institutions. It was true that the country was in
relatively good shape among countries of the region; and Kazakhstan was certainly
interested in further economic integration with its neighbours. As for privatization, the
most important thing wasn't privatizing but establishing an environment where privatized
firms could prosper and grow. That was the much more difficult challenge.
Panel discussion on living standards and social policy
MUNIRA INOYATOVA, Secretary of State and Adviser to the President of
Tajikistan, said among other things that the countries of the region were confronting
problems related to living standards and social policy every day; she thought the papers
presented to the ECE session should be translated into the languages of Central Asian
countries and distributed, as such expert input was valuable. Tajikistan was mountainous,
with only 7 per cent of its territory populated, and the characteristics of the national
terrain had led the country to establish a university project for the study of economic
development in high, mountainous regions, and to train entrepreneurs to establish
enterprises in such an environment. Currently, 42 per cent of the country's
population was under age 14. There were many problems. Unemployment was high, and a high
percentage of citizens worked in agriculture. In GDP per capita, Tajikistan was at the
bottom of the list among Central Asian countries -- most people were very poor. There were
great natural resources, but also a lot of snow and ice which limited access to those
resources. The country did have, thanks to its mountains, clean and abundant water
resources, and that was not a small thing these days. Exploitation of coal and mineral
resources would require attention to the environmental effects.
Current difficulties were based in part on recent history: Tajikistan
had received much of its income from the former Soviet Union, which then collapsed; the
country's civil war had killed 50,000 people and had nearly completed the destruction of
what remained of social services; the war also had caused more than US$7 billion in
damages; and the region had been the poorest section of the former USSR to begin with. The
situation had worsened after independence. In these difficult circumstances, the country
had focused on political reform and democratization; on economic reform; on establishing
peace; and on bolstering social protections. It was unfortunately true that the economic
sector generally took precedence over the social sector. This runs counter to aspirations
around the world that development in the new century would be truly people-centred.
Nonetheless, political reforms had had social payoffs: strengthening democracy and
establishing a free media had resulted in the social goods that sprang from wide
participation in government and from the exercise of free expression. An emergency
economic reform programme had targeted absolutely essential problems, such as ensuring
there was enough food to alleviate famine. Land had been sold off to small farmers; a
credit system had been established; and foreign trade had been liberalized.
Religious and cultural ideas, along with thousand-year-old traditions,
made enacting change in the country difficult, Ms. Inoyatova said. It had been decided
that highest priority should be given to fighting poverty, in the logic that economic
growth would follow. Anti-poverty efforts and programmes to enhance standards of living
had been coordinated into a policy document developed in cooperation with international
organizations.
JANE FALKINGHAM, Director of the ESRC SAGE Research Group, London
School of Economics (United Kingdom), focused on child poverty in Central Asia. As the
transition process had begun, little attention had been paid to the effects that it would
have on poorer populations -- on the relative shares of the pie, rather than the overall
size of the pie. Over time it had become clear that lack of attention to this matter could
threaten social cohesion, national development, and overall economic progress. Children
were numerous in Central Asia -- there were over 23 million under age 18 in the Central
Asian Republics; they ranged from 35 per cent of the population in Kazakhstan to 48 per
cent in Tajikistan. Today's children were tomorrow's citizens, and if they suffered too
much economic and social exclusion, there could be major consequences in the future.
Increasing unemployment, rapid inflation, and declining wages hit
children hard, Ms. Falkingham said; children also, under transition systems, suffered
losses in kind as governments cut budgets for social programmes. Children depended heavily
on health, education and social services. Providers could respond to social cuts by
increasing the costs to the users, leading to a vicious circle where poor children were
concerned -- lower household income coupled with higher costs for education and health
services. Parents, after a while, tended to withdraw children from school; or schools
ceased to function normally: the teachers were often absent working a second, paying job;
or schoolhouses were too cold for lack of fuel; or children were too undernourished to
learn. Even prior to independence the Central Asian Republics had been poor; but afterward
poverty had deepened considerably. Over 70 per cent of children in Tajikistan now lived in
poverty; in Kyrgyzstan the figure was 50 per cent. Rates of anaemia and malnutrition were
high and in many cases the growth of children was stunted as a result of chronic
undernourishment.
Primary school enrolment rates in the region remained relatively high,
Ms. Falkingham said, but those figures told only part of the story; attendance was
often spotty, schools often lacked teachers or supplies, and children often lacked the
shoes and clothing they needed to go to school. Gender equality in school attendance was
also beginning to erode. Steps that might protect children in the region included
fostering labour-intensive economic growth, so that parents could have jobs; ensuring
immediate material needs, so that food and shelter were available through cash and in-kind
benefits if necessary; restoring and maintaining access to basic social services; and, as
progress was made, exploring new ways for targeting and delivering social protections.
Among comments from the floor were that more attention had to be paid
to the situations of rural populations, who tended to suffer extensively from transition
efforts; that the relation should be explored between poverty among children and trade
policy, as the closing of markets through trade barriers often affected agricultural
producers and their children in extremely negative ways; that programmes related to
economic transition and poverty eradication should be gender-sensitive; and that fostering
entrepreneurship among women could have useful results for reducing poverty and improving
the situation of children.
Ms. Inoyatova, responding, said among other things that Tajikistan had
modified its tax code to make it more effective; that the country's local authorities were
acquiring expanded power and responsibilities, many of them related to social spending and
programmes; that four internationally backed programmes were now under way to improve the
education system and increase access to education; and that many women in the country
didn't work, not because they couldn't or were blocked from doing so in various ways, but
because of tradition and because they preferred to remain at home.
Ms. Falkingham said among other things that improvements in taxation
systems and tax collection did appear to have positive effects on child welfare; that
reduction in income inequality appeared to be more effective in improving the situation of
children than did increasing economic growth per se; that attention to the
agricultural situation of a country, and to gender equality, was effective in helping
children; and that it appeared to be especially helpful if aid programmes for agricultural
families delivered their benefits to the women of those households.
Completion of morning discussion on "General review of progress
and problems in the transition process since 1991" in Central Asia and the Caucasus
Several representatives of international and regional agencies unable
to contribute to the morning discussion for lack of time, offered remarks at the beginning
of the afternoon meeting, saying among other things that it wasn't necessarily true that
economic regression was the cause of conflict since conflicts were also present in a
number of countries with thriving economies, including Northern Ireland and Spain in the
Basque region; that a regional strategy for sustainable development needed to be
established, focusing on local, national and regional peculiarities and strengths; that
the region was one where the concerns of the Commonwealth of Independent States (CIS) and
the ECE overlapped, and it was important that the two work effectively together; and that
efforts were under way, with some difficulty, to establish a free-trade area in Central
Asia and the Caucasus.
Concluding remarks
HARALD KREID, Chairman, summarizing the day's debate, said among other
things that the countries of Central Asia and the Caucasus for the day's discussion seemed
to have certain things in common, including being on the periphery of the Soviet Union and
suffering especially difficult circumstances as a result of the collapse of the Soviet
Union. They had had to build new institutions and transform their economies and
governments. It had been clear from the presentations how intricate and difficult it was
to carry out transition programmes. It also had been made clear that among the
consequences of transition were that vulnerable sectors of society had suffered most
because of the lack of social safety nets and eliminated institutions. It was obvious that
this had to be remedied, for among other reasons, in the interest of national cohesion.
Among the difficulties faced by these countries had been conflicts,
mutual distrust leading to breakdowns in regional cooperation resulting in costly
breakdowns in trade. It was a priority to re-establish regional cooperation, to resolve
conflicts, and re-establish trust among neighbouring countries. It had been clear that
there were differences in transition approaches -- some had gone quickly, while others had
proceeded cautiously; but all, it appeared, were ready to undertake transformation and to
establish viable democratic systems of governance.
From the outside, it appeared there was a need to help in a political
way with resolving ongoing conflicts; there was a need for assistance to the transition
process, as through development cooperation and the provision of technical advice; and
there was a case to be made for the solid integration of these countries into various
global organizations and systems. It was clear that the ECE, for its part, could do more
to support integration programmes in the region.
For further information please contact:
Economic Analysis Division
United Nations Economic Commission for Europe (UNECE)
Palais des Nations
CH - 1211 Geneva 10, Switzerland
Tel: (+41 22) 917 27 78
Fax: (+41 22) 917 03 09
E-mail: [email protected]
Website: http://www.unece.org/ead/ead_h.htm
Ref: ECE/GEN/01/16