SCENESETTER FOR CODEL REID'S AUGUST 4-6 VISIT TO

UNCLAS SECTION 01 OF 03 BISHKEK 000784 SENSITIVE SIPDIS H PLEASE PASS CODEL REID E.O. 12958: N/A TAGS: PGOV PREL ECON OVIP OTRA KG SUBJECT: SCENESETTER FOR CODEL REID'S AUGUST 4-6 VISIT TO KYRGYZSTAN BISHKEK 00000784 001.2 OF 003 ¶1. (SBU) Summary: Embassy Bishkek warmly welcomes the August 4-6 visit of CODEL Reid to Kyrgyzstan. Kyrgyzstan is an important ally of the United States, hosting the Manas Coalition Air Base, which serves as a crucial logistical hub for Operation Enduring Freedom in Afghanistan. The U.S.-Kyrgyz bilateral relationship is cooperative in several areas, and our assistance programs focus on promoting economic growth, improving governance, and strengthening security. The recently launched Millennium Challenge Account Threshold Country Program is targeting reforms in the judiciary, criminal justice, and law enforcement. ¶2. (SBU) Since its independence over 16 years ago, Kyrgyzstan has been noteworthy for the relative openness of its political discourse and vibrancy of its civil society. However, democratic and economic reform has slowed, as the government has moved to consolidate political power. The deeply flawed parliamentary elections in December 2007 gave President Bakiyev's party complete control of the parliament. The government claimed that its stronger authority would allow it to move ahead on reforms, but to this point we have not seen that progress. Kyrgyzstan faces a deteriorating economic situation, with rising inflation, a growing budget shortfall, and possible energy shortages. The government is seeking increased foreign assistance to help prepare for what could be a very difficult winter. ¶3. (SBU) Your visit will emphasize to the Kyrgyz the importance we place on our relationship with them, as well as underline our appreciation of Kyrgyzstan's support for the Manas Coalition Air Base. You will be meeting with President Bakiyev, as well as with members of the political opposition. Following is a brief overview of the main political, economic, and commercial issues in the country. We look forward to briefing you in greater detail about our USAID assistance programs, our military-to-military cooperation and assistance, our exchange and public diplomacy programs, and our Peace Corps program after your arrival in country. End Summary. Political Developments -------------- ¶4. (SBU) Following the March 2005 overthrow of former President Askar Akayev, Kurmanbek Bakiyev won the July 2005 presidential elections with over 88% of the vote, running on a platform that promised constitutional and economic reforms. Opposition groups held a series of demonstrations in 2006 and 2007 to protest the lack of progress on reforms. Over the past year, President Bakiyev has moved to consolidate political power and to divide the opposition. A Bakiyev-proposed new version of the constitution, adopted through a flawed referendum in October 2007, strengthened the power of the presidency. Deeply flawed elections in December 2007 gave Bakiyev's new Ak Jol party complete control of the parliament, with the "constructive opposition" Social Democrats and the Communists gaining a few seats each and the largest opposition party, Ata Meken, excluded altogether. The political opposition remains disunited and disorganized. ¶5. (SBU) Government officials have said that the increased authority -- and increased stability -- would allow them to undertake economic, judicial, and law enforcement reforms. The government has moved forward quickly with legislation to reform the judicial system, as envisioned in Kyrgyzstan's Millennium Challenge Account Threshold Program. For example, the new Judicial Council, composed of judges, will have substantial authority over training and discipline in the judicial system, as well as over budgeting and administration, if the law is fully implemented. ¶6. (SBU) However, there have also been a number of apparent BISHKEK 00000784 002.2 OF 003 steps backwards with legislation. President Bakiyev signed amendments to the broadcasting law which give the president full control over the board of the state radio and television broadcasting company, ending the promise of establishing a public interest broadcaster. Strangely, as Bakiyev signed the bill, he instructed the Ministry of Communications to consider further amendments that would take into account the many criticisms of the bill. Citing a need to reduce the number of political parties, Parliament passed a new political party law which makes party registration more difficult. Parliament also passed a new law on public assembly, which restricts when and where public meetings can be held. Bakiyev has not yet signed the political party or public assembly bills. The government is also drafting a new law on religion, which in its current form could restrict the rights of minority religious groups and ban religious conversions. Economic Difficulties -------------- ¶7. (SBU) Despite robust 8% GDP growth, increased government revenues, and a steady flow of remittances from Kyrgyz working abroad, the Kyrgyz economy may be heading into a difficult period. Inflation, pushed by the rise in world commodity prices, may reach 30% this year. As a result of faster-than-expected government spending in the first part of the year, the government has mandated a 20% spending cut across all ministries. A spring frost and a locust infestation have contributed to concerns about food security. Most seriously, the water level of the Toktogul Reservoir, which feeds the main hydro-electricity generation cascade (as well as provides irrigation water to Uzbekistan and Kazakhstan) is at a historic low. As a result, Kyrgyzstan faces the real possibility of widespread electricity shortages by the winter. ¶8. (SBU) At a July 24 government meeting, President Bakiyev publicly criticized several cabinet ministers and government officials for their slow reaction to rising prices and over the lack of preparations for the coming winter. Bakiyev complained that too much time was spent "studying problems" rather than acting on them. Bakiyev suggested that those "well-off people" in large houses could afford to switch from electricity to coal-burning heating systems. The government has instituted a number of measures, including electricity rationing and establishment of a food security working group, and it has appealed to international donors to provide additional assistance. The IMF recently approved a $14-million extension to its program, which ended in May, to assist with fiscal difficulties. The World Bank has approved $10 million to help Kyrgyzstan address food security difficulties. Manas Air Base -------------- ¶9. (SBU) Manas Coalition Air Base was stood up in December 2001 to support Coalition efforts in Operation Enduring Freedom in Afghanistan. Kyrgyz government officials have expressed their commitment to the continued presence of Manas Airbase, but there are a number of difficult issues connected to the base. Compensation, which was renegotiated in 2006, remains an issue, and the Kyrgyz government has repeatedly requested a new radar for the airport. Other issues include the completion of a USAF investigation into the December 2006 shooting of a Kyrgyz fuel truck driver by a base airman, as well as Kyrgyz requests for compensation for alleged environmental damage caused by the base. Commercial Relations -------------- BISHKEK 00000784 003.2 OF 003 ¶10. (SBU) The Kyrgyz are keen to develop stronger business relations with the United States. The Embassy recently organized a "Doing Business with the United States" seminar for over 150 Kyrgyz businesses, and the American Chamber of Commerce in Kyrgyzstan, which has more than 70 U.S., Kyrgyz, and international members, seeks to inform U.S. firms about conditions and opportunities here. U.S. data show that bilateral trade amounted to only $50 million in 2007, but Kyrgyz data show a much higher figure, perhaps due to U.S. goods transshipped through third countries. ¶11. (SBU) While we continue to broaden business ties, the business and investment climate suffers from high levels of corruption, administrative harassment, and weak rule of law. Continued discord between the Kyrgyz government and the Canadian-run Kumtor gold mine, which represents the largest foreign investment in Kyrgyzstan, has given many investors reason to delay decisions regarding doing business in Kyrgyzstan. Recent difficulties for the Hyatt Regency Hotel, which represents the largest private U.S. investment in Kyrgyzstan, have also damaged the business climate. On July 14, the Bishkek Mayor's office demanded that the Hyatt remove its perimeter security fence, claiming this was necessary to provide public access to a statue on the hotel's ground. On July 16, the city shut off water to the hotel, and on July 24, the city tore down the hotel's fence. The Mayor has since said that the fence can be restored if the Hyatt agrees to renegotiate the terms of its long-term land lease from the city. As of July 31, the issue remains unresolved. LITZENBERGER