Identifier
Created
Classification
Origin
06BISHKEK435
2006-03-30 11:13:00
CONFIDENTIAL
Embassy Bishkek
Cable title:  

BUSINESS AS USUAL - KYRGYZ PRIVATE SECTOR

Tags:  KCOR PGOV PREL KCRM EAID ECON KG 
pdf how-to read a cable
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FM AMEMBASSY BISHKEK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7048
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 0515
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1461
RUEHBUL/AMEMBASSY KABUL PRIORITY 0164
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHMFISS/USCENTCOM INTEL CEN MACDILL AFB FL PRIORITY
RUEHNO/USMISSION USNATO BRUSSELS BE PRIORITY
RUEHVEN/USMISSION USOSCE PRIORITY 1840
RUCNDT/USMISSION USUN NEW YORK PRIORITY 1223
RUEKJCS/SECDEF WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
RUEKJCS/OSD WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000435 

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/29/2016
TAGS: KCOR PGOV PREL KCRM EAID ECON KG
SUBJECT: BUSINESS AS USUAL - KYRGYZ PRIVATE SECTOR
FRUSTRATED BY GOVERNMENT CORRUPTION

REF: A. 05 BISHKEK 1677

B. BISHKEK 132

Classified By: Ambassador Marie L. Yovanovitch, reasons 1.4 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000435

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/29/2016
TAGS: KCOR PGOV PREL KCRM EAID ECON KG
SUBJECT: BUSINESS AS USUAL - KYRGYZ PRIVATE SECTOR
FRUSTRATED BY GOVERNMENT CORRUPTION

REF: A. 05 BISHKEK 1677

B. BISHKEK 132

Classified By: Ambassador Marie L. Yovanovitch, reasons 1.4 (b) and (d)


1. (C) SUMMARY: Although corruption seemed to subside
immediately after the March, 2005 overthrow of the Akayev
government, local and foreign businesspeople now complain
that government corruption is the same as under Akayev, or in
some cases worse. Many blame below subsistence-level
government salaries that force employees to demand bribes
from businesspeople. Others note that they don't mind paying
a bribe, but gripe about the fact that since the March "Tulip
Revolution," it has become unclear whom to pay and how much.
Clearly corruption is a serious impediment for American
businesses and businesspeople due to the Foreign Corrupt
Practices Act. Most of the local and many of the
non-American foreign businesspeople, however, see corruption
as just another cost of doing business in Kyrgyzstan. END
SUMMARY.

CORRUPTION TAKES A (SHORT) VACATION . . .
--------------


2. (C) Immediately following the March, 2005 "Tulip
Revolution," then-Prime Minister Bakiyev spoke out decisively
during televised speeches against corruption and promised
that government corruption would no longer be tolerated.
These statements actually may have had a positive (if
temporary) effect. Local and foreign businesspeople noted
that, in the months following the March events, corrupt
behavior by Kyrgyz government officials appeared to subside.


3. (C) Traffic police who routinely extorted money from
businessmen driving expensive foreign automobiles began
pulling over only those who actually broke the traffic rules,
and then provided receipts for the fines. Importers reported
that customs officials had stopped requesting bribes and
goods were clearing customs in hours, rather than weeks.
Stephen Ansel, the then-General Manager of the Bishkek Hyatt
Regency, said his hotel's importers noticed a significant

decrease in the time and fees needed to clear their shipments
through customs.

. . . BUT COMES BACK WORSE THAN EVER
--------------


4. (C) Unfortunately, government corruption levels quickly
rebounded, and the administration's anti-corruption efforts
(noted in reftel) proved hollow. Initially, government
anti-corruption efforts appeared to focus on taking revenge
against those businesses believed (in some cases,
erroneously) to be associated with the Akayev family. Umar
Shavurov, Executive Director of Kyrgyzstan's International
Business Council (IBC) provided Pol/Econ Chief the results of
a survey the IBC conducted in February 2006 of its members on
government corruption. The survey results indicated that 17
percent of IBC member-respondents noted less corruption since
the revolution, 39 percent reported no change, 13 percent
reported slightly more corruption, and 30 percent noted much
more corruption. Shavurov commented that some of the IBC
members have complained about an increase in visits by tax
and other government inspectors.

CORRUPTION PRESENT AT ALL LEVELS OF GOVERNMENT
-------------- -


5. (C) Although corruption is present at all levels of
government, medium to small-scale businesses encounter
corruption most when dealing with low-level bureaucrats.
Shavurov told Pol/Econ Chief that IBC members most often
experienced corruption when dealing with government officials
who handle taxes, inspections, customs, and the provision of
licensing. Ermek Niyazov, director of Ermex, a computer firm
in Bishkek, noted that corrupt tax and customs officials
cause him the largest amount of grief. He said that since
those officials have the legal right to inspect every single

BISHKEK 00000435 002 OF 003


fiscal transaction or every imported item, they often drag
out the customs clearance or tax inspection process
indefinitely until they are offered a bribe.


6. (C) Bermet Karabekova, Enterprise Development Specialist
of USAID contractor Pragma, told the Embassy that the Kyrgyz
tax and customs regulations are very complicated, and corrupt
officials use the complexity to confuse or intimidate
businesspeople. She also noted that the registration of a
new business takes several months and often requires dozens
of official certificates and licenses. She has heard of
instances when corrupt officials will propose to streamline
the process for a "fee." Many businesspeople will pay this
bribe to save time.

LOW WAGES, LACK OF POLITICAL WILL FUEL CORRUPTION
-------------- --------------


7. (C) A principal cause of mid and low-level government
corruption appears to be that salaries are too low to
support a government employee's family without
"enhancements." Omurbek Abdrakhmanov, President of the
Bishkek Business Council, lamented the pervasiveness of
official corruption. But he did not place blame on corrupt
low-level official, whom he said had to find some way to feed
his family. Abdrakhmanov blamed a bloated bureaucracy, which
has not substantially changed since Soviet times, and low
wages for creating a system that stifles business. Computer
Company Director Niyazov echoed the view that bureaucratic
positions need to be eliminated, but noted that increasing
the salaries of many customs officials even to $1,000 per
month would have no effect since their illegal income is
sometimes $10,000 per month. He believes the only way to
fight corruption is for the Kyrgyz government to demonstrate
real political will to severely punish corrupt officials.

"INSTABILITY IS WORSE THAN CORRUPTION"
--------------


8. (C) Some local and non-American foreign businesspeople
expressed dismay over the prevalence of government
corruption, but they still plan to pay whatever bribe needs
to be paid. Shavurov noted that most IBC members felt that
political instability, civil unrest, and the government's
inability to protect a business' assets are greater risks to
doing business than corruption. Abdrakhmanov also said that
local businesspeople feared instability more than corruption,
and in the end would pay a bribe if it would save them money
or time. This attitude puts American investors at a
disadvantage because they are subject to the U.S. Foreign
Corrupt Practices Act, which criminalizes bribery. Large
investors such as the Hyatt have enough political and
financial clout to rebuff corrupt officials, yet smaller
investors find it more difficult.


9. (U) The American Chamber of Commerce in Kyrgyzstan,
created in January 2005, has grown from six dues-paying
members to more than 45 in the last year. This steep growth
is in part due to the fact that it has become more active in
publicly speaking out against improper behavior of government
officials. Its recently-developed website has an area where
members can report government corruption. The Chamber has
been directly involved in issuing open letters and organizing
media events that have spoken out against issues ranging from
harassment of American corporate officials to artificial
delays of imports by customs officials.


10. (U) The European Union-funded International Business
Council (IBC) of Kyrgyzstan is older, larger, and takes a
much more conservative approach, preferring to issue policy
papers and organize working groups on various issues, rather
than directly criticize the government. Interestingly,
Eduard Rausch, Chairman of the International Business
Council, has also joined Amcham. Rausch joined after having
been impressed with AmCham's effective advocacy on behalf of
U.S.-owned tobacco fermenter Dymon Tobacco, which was
experiencing problems with the tax authorities. David

BISHKEK 00000435 003 OF 003


Larson, AmCham Director in Kyrgyzstan, told Pol/Econ Chief
that other IBC members had joined Amcham for similar reasons.

COURAGE TO SPEAK OUT
--------------


11. (C) Although many local and foreign business leaders are
uncomfortable speaking publicly against corruption, there is
a greater willingness to protest via a business council.
Yusuf Ugur, the president of Beta Stores, (Kyrgyzstan's
largest supermarket) noted diplomatically that he has never
had problems with present or past Kyrgyz leadership. (NOTE:
his supermarket was completely gutted and partially burned
during the looting of March 24, 2005, causing millions of
dollars in damage. END NOTE.) However, he did admit that
corruption and the present perception of political
instability was a problem that did not encourage investment.


12. (C) COMMENT: Many local and foreign investors believe
that corruption is a permanent part of the Kyrgyz investment
landscape and are reluctant to stand up alone against corrupt
officials. Business councils such as AmCham, the IBC, and
Bishkek Business Council can provide cover and defense for
businesses struggling with corruption. Initiatives such as
the Millennium Challenge Threshold program, which encourage
the government to make serious efforts to combat government
corruption, can also serve to strengthen Kyrgyz political
will to address structural problems that foster corruption
within its government. END COMMENT.
YOVANOVITCH