RISING BREAD PRICES SPUR KYRGYZ GOVERNMENT ACTION

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 001087

SIPDIS

SIPDIS

DEPT FOR SCA/CEN (GEHRENBECK)

E.O. 12958: DECL: 08/29/2017
TAGS: ECON EAGR SOCI KG
SUBJECT: RISING BREAD PRICES SPUR KYRGYZ GOVERNMENT ACTION

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Classified By: Ambassador Marie Yovanovitch for Reasons 1.4 (b) and (d)


1. (C) Summary: Amidst a 20-40% increase in bread prices
due in part to a three-fold increase in the price of imported
Kazakh wheat, Kyrgyz Prime Minister Atambayev and other
senior officials have criticized bakers for raising bread
prices. However, PM Atambeyev's government has moved beyond
populist rhetoric to pursue several remedies: releasing wheat
reserves, reducing taxes on wheat imports and baked goods,
purchasing additional Kazakh wheat and subsidizing future
bread production. While pursuing such remedies, PM Atambayev
also told the Ambassador that he was considering increasing
salaries and pensions, a move which would increase
inflationary pressures in the Kyrgyz economy. End summary.

Too Much Yeast in Bread Prices?
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2. (U) Kyrgyz bread prices, which have risen by 20-40% in
recent months, have captured not only the media spotlight,
but also the attention of senior Kyrgyz officials. Front
page newspaper articles have questioned the price increases,
and led to accusations of price gouging and hoarding. As
prices for Kazakh wheat have nearly tripled to roughly $200
per ton, Kyrgyz dependence on annual imports of 250,000 tons
of Kazakh wheat has impacted bread prices. According to data
from a Ministry of Agriculture official, this reliance on
Kazakh wheat is heightened by the steep decline in Kyrgyz
wheat production from 1.3 million tons in 2001 to 790,000
tons in 2007. (Note: Kazakh wheat is considered superior to
Kyrgyz varieties for bread preparation. End note.)

Whipping Bakers into Shape
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3. (C) While bread is still widely available, Prime Minister
Atambayev, Finance Minister Japarov and senior officials of
the Bishkek city government have chastised bakers for raising
prices and mooted the imposition of price controls. PM
Atambayev's August 14 decree authorizing the release of
15,000 tons of wheat from the state reserve resulted in
rumors, which quickly disappeared from the media, that the
state reserves had been previously emptied. PM Atambayev
told the Cabinet that few bakers have accepted subsidized
government wheat because they are unable to provide proof
they have paid taxes. Bakers have responded to official
criticism by offering smaller loaves and reportedly using
inferior grades of wheat to control prices. The suitability
of the quality of state wheat supplies for bread production
has also been questioned.

The Government's Cookie Cutter Approach
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4. (U) In addition to an ad hoc working group chaired by
Finance Minister Japarov and charged with developing a
program to bring bread production "out of the shadows" by
early September, the Kyrgyz government is considering the
temporary reduction of taxes on wheat imports and baked
goods, the purchase of additional Kazakh wheat and allocating
funds to subsidize future bread production. The government
also announced August 29 the imposition of licensing
requirements on bakers.


5. (C) PM Atambayev, eyeing an unexpected surplus in budget
revenues, told the Ambassador he is contemplating a package
of salary and pension increases to combat rising costs for
not only bread, but also other staples such as fruits,
vegetables and meat. The Central Bank and other government
officials, however, caution that Kyrgyzstan may soon
experience an inflationary spiral that salary and pension
increases would exacerbate. Separately, Chief of Staff Medet

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Sadyrkulov told the Ambassador that President Bakiyev was
also opposed to wage and pension hikes, and would make this
clear when he returns from vacation next week.

Comment
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6. (C) The government is clearly seeking solutions to rising
bread prices. With the average monthly salary well under
$100 per month, substantial price increases for staple foods
can generate widespread grumbling. While Bishkek city
officials have advocated a command approach to curbing the
price increases, the Embassy has detected a more measured
approach from White House officials. We note that Deputy
Minister of Defense Orozbayev believes the bread crisis could
become serious, especially in regions where people might not
be able to afford bread. However, we have not noticed
movement in this direction.


7. (SBU) The Embassy will monitor conditions and advise the
Department of any developments that signal the need for
external assistance.

YOVANOVITCH