Identifier
Created
Classification
Origin
07BISHKEK724
2007-06-14 03:36:00
CONFIDENTIAL
Embassy Bishkek
Cable title:  

CORRUPTION, ENERGY AND RULE OF LAW HEADLINE KYRGYZ

Tags:  EAID ECIN ECON EFIN EINV ENRG PREL PHUM KG 
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C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000724 

SIPDIS

SIPDIS

DEPT FOR SCA/CEN (GEHRENBECK),SCA/FO (DEUTSCH)

E.O. 12958: DECL: 06/14/2017
TAGS: EAID ECIN ECON EFIN EINV ENRG PREL PHUM KG
SUBJECT: CORRUPTION, ENERGY AND RULE OF LAW HEADLINE KYRGYZ
DEVELOPMENT FORUM


BISHKEK 00000724 001.2 OF 003


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

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000724

SIPDIS

SIPDIS

DEPT FOR SCA/CEN (GEHRENBECK),SCA/FO (DEUTSCH)

E.O. 12958: DECL: 06/14/2017
TAGS: EAID ECIN ECON EFIN EINV ENRG PREL PHUM KG
SUBJECT: CORRUPTION, ENERGY AND RULE OF LAW HEADLINE KYRGYZ
DEVELOPMENT FORUM


BISHKEK 00000724 001.2 OF 003


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


1. (SBU) Summary: President Bakiyev and Prime Minister
Atambayev emphasized the rule of law, the battle against
corruption and enhancing the business environment in a
day-long discussion of the Kyrgyz Country Development
Strategy (CDS) with the international donor community May 31.
Bakiyev also pledged substantial reform of the energy
sector, and proclaimed that parliamentary action to
nationalize the Kumtor gold mine "would go nowhere." The
recently adopted CDS incorporates many of the benchmarks and
goals of the Kyrgyz Millennium Challenge Threshold Country
Proposal. Russia acknowledged its "beginner" donor status
before criticizing previous international assistance to
Kyrgyzstan and announcing its planned emphasis on poverty
reduction, health care and education. Chinese diplomats also
attended the Forum and the donor dinner the night before but
spoke not a word, even when invited to do so by the World
Bank at the latter event. End summary.


2. (U) Kyrgyz President Kurmanbek Bakiyev, accompanied by
Prime Minister Almaz Atambayev, Minister of Finance Akylbek
Japarov, Minister of Economic Development and Trade Sabyrbek
Moldokulov, Supreme Court Chairman Kurmanbek Osmonov and
numerous other officials, attended the full day-long World
Bank-organized "Development Forum for the Kyrgyz Republic"
May 31. Representatives from 15 other countries and 12 donor
organizations participated in the event. EUR/ACE Coordinator
Tom Adams led the U.S. delegation, which included Ambassador
Yovanovitch, Deborah Klepp from EUR/ACE, and Jeffrey Baker
from U.S. Treasury.

President Bakiyev Identifies Priorities

--------------


3. (C) In his prepared remarks, Bakiyev outlined the four
components of Kyrgyzstan's recently adopted Country
Development Strategy (CDS): 1) enhancing the economy, 2)
combating corruption, 3) human and social development, and 4)
environmental sustainability. He stressed the importance of
the rule of law, the battle against corruption, the
protection of property and improving the business
environment. He added that private investment, cuts in the
value added tax, a revamp in regulation, and an automated
taxation system would help Kyrgyzstan trim its external debt.
Somewhat surprisingly, Bakiyev and his team followed World
Bank advice and avoided calling for total debt forgiveness,
as had been foreshadowed in pre-forum meetings and media
coverage. However, in a private meeting with Adams, PM
Atambayev requested U.S. assistance with debt forgiveness.
Atambayev pledged that the Kyrgyz government will meet all
Heavily Indebted Poor Countries (HIPC) initiative triggers,
and asked that in return the Multilateral Debt Relief
Initiative be made available to Kyrgyzstan. Adams responded
that it was his understanding from discussions with U.S.
Treasury and the international financial institutions (IFIs)
that there was no way that this was technically possible.

Donor Concerns Generate Rebukes from Bakiyev
--------------


4. (SBU) In his remarks, International Monetary Fund
Assistant Director for the Middle East and Central Asia Paulo
Neuhaus cautioned against "indiscriminate" state intervention

BISHKEK 00000724 002.2 OF 003


in the economy, highlighted "dilapidation" in electricity
sector infrastructure and expressed concern about the impact
of the recent lowering of the retirement age on pension
obligations.


5. (SBU) Bakiyev, in response, pledged that pending
legislation would transform the energy sector and stated that
parliamentary consideration of the nationalization of the
Kumtor gold mine "would go nowhere." (Note: We understand
the energy legislation, which would allow private sector
involvement in the Kambarata hydroelectric projects, may
receive parliamentary approval sometime in June. End note.)
He added that negotiations with the Canadian operator of
Kumtor were a government responsibility and would conform
with the rule of law. Bakiyev bristled when Kumtor was
raised again later, and repeated his assurances that Kumtor
would not be nationalized. He defended the government's
recent decision to reduce the retirement age. Bakiyev was
also upset by Neuhaus's reference to the Kyrgyz government
not following through on certain "understandings" reached
with the IFIs. When challenged to explain, Neuhaus cited as
one example promises to raise the costs of energy to stem the
largest single drain on the state budget.

Prime Minister Speaks His Mind
--------------


6. (SBU) Prime Minister Atambayev revealed his views on a
wide range of topics in a 10-minute speech late in the forum.
He endorsed the export of electricity to Pakistan, called
for the construction of an alternate natural gas line into
Kyrgyzstan, said that non-governmental organizations would be
members of the new public television oversight board, and
requested donor assistance in establishing "independent
economic courts." In addition, referring to the stoning of
his entourage during a visit to the disputed Jerooy gold mine
in western Kyrgyzstan, Atambayev announced he had ordered the
release of protestors who had been detained at Jerooy, and
also denounced the blockading of roads and bridges (measures
recently employed by protestors at the Kumtor gold mine).

Highlighting Kyrgyzstan's Millennium Challenge Program
-------------- --------------


7. (SBU) The Kyrgyz CDS, developed in consultation with the
donor community, contains significant references to efforts
to combat corruption and implement legal reforms as
previously outlined in the Kyrgyz Millennium Challenge
Threshold Program. The CDS repeats many of the Threshold
Program benchmarks. Interestingly, several donors have
approached Embassy personnel to report that their programs to
enhance the rule of law and implement related reforms will
track with the goals of the Kyrgyz Threshold Program.


8. (SBU) In concluding remarks, Coordinator Adams noted how
U.S. government assistance supports the many positive
elements in the CDS, noting that the United States looks
forward to seeing benchmarks that will allow U.S. assistance
programs to support CDS implementation even more effectively.
Adams commended the CDS's emphasis on reforms in the energy
sector, particularly the proposed tariff structure, planned
privatization of electricity distribution companies, and the
creation of an independent regulatory system. Adams
concluded by speaking about four areas in which the United

BISHKEK 00000724 003.2 OF 003


States also looks forward to working with the Kyrgyz
Republic: consolidating improvements in local government
administration; tapping into the power of a strong and well
informed civil society; making the judiciary truly
independent; and continuing to improve the electoral process.
In each area, he praised progress to date and highlighted
priority areas for future efforts.

Russians Pledge a New Path for Assistance
--------------


9. (SBU) The Russian delegation, headed by Deputy Minister
of Finance Sergei Storchak, acknowledged Russia's "beginner"
status as a donor and announced that Russia had committed
$600 million globally in assistance last year. While seeking
to "harmonize" Russian aid with other donors, Storchak said
previous international assistance to Kyrgyzstan had produced
"worrisome" results that were "not satisfactory." He added
that Russian assistance to Kyrgyzstan would focus on 1)
poverty reduction, 2) health care and 3) education. The
Russian intervention contrasted with the decision by Chinese
diplomats to avoid making any statements during the forum.

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


10. (C) Remaining engaged throughout the forum, both
President Bakiyev and Prime Minister Atambayev seemed focused
on allaying donor concerns as well as demonstrating a
commitment for responsible actions. Overall, both the
President and his Prime Minister accepted donor criticism
with better grace than their predecessors at the prior
Consultative Group Meeting two years earlier. While the
discussions were not groundbreaking, the forum provided a
useful overview of economic and business issues. Bakiyev's
participation in this event reinforces his recent emphasis on
improving business conditions in Kyrgyzstan. He has since
trumpeted a new executive order ("ukaz"),which has been
welcomed by business representatives, that restricts
inspectors from interfering with business. While Bakiyev's
prepared remarks emphasized needed reforms (and cited USAID
for the transparency of its operations),Bakiyev reverted to
form in his off-the-cuff concluding remarks, exhorting donors
to build roads and factories.


11. (C) The focus on improved business conditions combined
with Atambayev's previous pledges to implement energy sector
reforms outlined in the rejected HIPC initiative will be
scrutinized in the coming weeks as the government's energy
proposals face parliamentary consideration. A key indicator
will be if the energy legislation solely benefits certain
Kazakh and Russian firms that have been eyeing the Kambarata
project, or opens Kambarata and the sector to broader private
sector participation.


12. (U) This cable has been cleared by Tom Adams'
delegation.

LITZENBERGER