KYRGYZ PLEDGE TO JOIN HIPC INITIATIVE

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 001750

SIPDIS

SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: DECL: 12/12/2016
TAGS: ECON EFIN EINV PGOV PREL KG
SUBJECT: KYRGYZ PLEDGE TO JOIN HIPC INITIATIVE

REF: BISHKEK 1692

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Classified By: Amb. Marie L. Yovanovitch, Reason 1.4 (b) and (d).


1. (C) Summary: World Bank-led discussions with a Kyrgyz
negotiating team headed by PM Kulov yielded an agreement
December 9 on Kyrgyzstan's accession to the HIPC initiative.
The Kyrgyz Government has yet to make any public announcement
about the agreement, but the World Bank country manager
believed it unlikely that President Bakiyev might veto the
accord. We understand that parliament will debate, but not
vote on, the agreement. The HIPC trigger list has been
narrowed, but retains the energy and mining sectors. The
World Bank manager anticipates final approval by World Bank
directors in March and plans to "nag" Kyrgyz officials
monthly regarding the implementation of the agreed program of
triggers. Given continued public hostility to HIPC, we
should avoid any statements which could inflame HIPC
opponents until the government establishes a public course of
action on HIPC. End summary.

Kyrgyz Commit to HIPC
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2. (C) In a December 11 conversation with the Ambassador,
World Bank Country Manager Roger Robinson revealed that
Heavily Indebted Poor Countries (HIPC) initiative
negotiations with the Kyrgyz team headed by Prime Minister
Kulov concluded satisfactorily December 9. The parties
agreed to specific HIPC triggers and content, and discussed
the parameters of the government's public announcement
regarding its decision to join the initiative. Given the
contentious nature of the negotiations, Robinson requested
and is expecting the Kyrgyz side to provide a "modest letter
of intent" signed by President Bakiyev, PM Kulov or FM
Jekshenkulov to document the Kyrgyz position. (Note:
Robinson, in a December 8 briefing, described this letter as
a "short-term tactical device" designed to mollify World Bank
directors in Washington. End note.)


3. (C) Robinson cautioned that President Bakiyev retains
final veto authority over the agreement, but thought it
unlikely due to presidential confidant Kurmanbek Ukolov's
participation in the negotiations. The government does not
plan to seek parliamentary approval of the HIPC initiative,
he noted, but likely intends to consult with individual
members to obtain "soft approval." Kyrgyz media December 12
quoted pro-HIPC Minister of Economy and Finance Japarov
saying Parliament would discuss, but not vote on, the HIPC
initiative. Parliamentarian Beknazarov told us the
discussion would take place December 15.

Moscow Gives its Blessing
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4. (C) International Monetary Fund (IMF) Resident
Representative James McHugh informed the Ambassador December
8 that President Bakiyev, during the recent Commonwealth of
Independent States summit in Minsk, asked Russian President
Putin about HIPC. Putin reportedly advised Bakiyev to send a
team to consult with the Russian Ministry of Finance.
Subsequently, PM Kulov, Deputy PM (and HIPC critic) Usenov
and a third individual traveled to Moscow, and received a
positive assessment from Russian officials.

Causes for Delay
--------------


5. (C) Robinson, in a December 8 briefing to the donor
community, explained that the Kyrgyz side requested a
reduction in the number of HIPC triggers. While he declined
to reveal the entire list, he confirmed that energy, mining,
and public procurement remained and that customs reform had
been dropped. With reference to customs reform, Robinson

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reasoned that certain items, which were already included in
other donor programs, could justifiably be removed from the
HIPC initiative. The mining sector, he said, had been the
last sticking point.


6. (C) In the briefing, Robinson identified the main
HIPC-related misconceptions and stumbling blocks he has
encountered since arriving to Kyrgyzstan: 1) a belief that
the World Bank would somehow assume ownership of assets; 2)
an inability to disassociate HIPC from previous events in
Kyrgyzstan (Note: This could be a reference to Akayev-era
debts, which some HIPC opponents claim the current government
should renounce. End note.); and 3) a desire to audit all
projects in Kyrgyzstan dating back to independence. He found
the last point "disconcerting," and pledged "to remedy this
situation in the new year so that the Kyrgyz understand the
operational fiduciary controls relating to our interventions."

The Way Forward
--------------


7. (C) With agreement reached, Robinson told the Ambassador
that World Bank officials are drafting the necessary
documents for Washington-based World Bank officials to issue
final approval in mid-March. The Kyrgyz government, he
informed attendees of the December 8 briefing, is not
required to do anything at this point, "except work with
civil society and implement triggers." (Note: HIPC
opponents, including many civic organizations, held another
protest rally December 12. End note.) Robinson noted that
the Kyrgyz government can withdraw from the initiative prior
to the decision point without impacting World Bank and IMF
programs. He said the Kyrgyz had requested HIPC-related
technical assistance, and anticipated much work in areas such
as pensions. Although the government promised to provide
quarterly progress reports, Robinson pledged to "nag" the
Kyrgyz for monthly feedback.

Opening the Door to More Participants
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8. (C) Addressing representatives of other donor
organizations attending the briefing, Robinson said he
planned to reach out to the Asian Development Bank (ADB) and
European Bank for Reconstruction and Development (EBRD). He
mentioned it would be new ground for the ADB and EBRD, and
noted that it would be "tough to add new items from the EBRD
and ADB to the HIPC agreement now." EBRD resident
representative Dan Berg (Amcit, please protect) later
complained to emboff about this "take it or leave it"
approach.

Comment
--------------


9. (C) While the government appears committed to the HIPC
initiative, parliamentary opposition to HIPC could turn this
issue into a rallying point against the government. Recent
pronouncements indicate that Deputy PM Usenov is moderating
his anti-HIPC stance, but questions remain regarding other
prominent opponents (reftel) and how many fissures remain in
the government's position. Beknazarov told us that while he
was against HIPC, it would be politically useful for him for
Kyrgyzstan to accept the program, so he could use the issue
to criticize the government since he can no longer complain
about the need for a new constitution. To avoid complicating
a sensitive political issue, we should reserve substantive
public comment on Kyrgyzstan's HIPC position until President
Bakiyev and Parliament have expressed themselves publicly,
and a specific course of action has been agreed.
YOVANOVITCH