MAXIM BAKIYEV SUPPORTS JOINT ECONOMIC DEVELOPMENT

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 001208 SIPDIS STATE FOR SCA/CEN E.O. 12958: DECL: 11/21/2019 TAGS: PGOV PREL ECON ENRG EINV KG SUBJECT: MAXIM BAKIYEV SUPPORTS JOINT ECONOMIC DEVELOPMENT FUND AND OUTLINES ECONOMIC REFORMS REF: (A) BISHKEK 1201 Classified By: Ambassador Tatiana C. Gfoeller, for Reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: During a November 13 courtesy call, Maxim Bakiyev, the Director of the newly created Central Agency for Development, Investment and Innovation briefed Ambassador Gfoeller on Kyrgyzstan's planned economic reforms, including boosting investment in the energy sector with participation of U.S. companies. In addition, Bakiyev and the Ambassador discussed the joint Economic Development Fund, with Bakiyev indicating that he wanted to move quickly to get it in operation as soon as possible. Bakiyev considers himself an economic reformer and is interested in diversifying the economy to provide long-term economic and social stability. END SUMMARY. ¶2. (C) On November 13, Ambassador paid a courtesy call on Maxim Bakiyev, President Bakiyev's son and the newly appointed Director of the Central Agency for Development, Investment and Innovation. The Ambassador's discussion with Bakiyev regarding the construction of a joint counter-terrorism training center in Batken province was reported in reftel A. Bakiyev briefed the Ambassador on his vision for developing the Kyrgyz economy, including boosting investment in the energy sector. Bakiyev highlighted that energy sector development was necessary for the development of the country and the region. Noting that U.S. companies were not interested in investing in "small projects" in Kyrgyzstan, Bakiyev believed that the large-scale projects in the energy sector could provide significant enough investment opportunities to attract U.S. companies. Bakiyev highlighted the critical role the energy sector plays in the stability and security of the country. ¶3. (C) Turning to the joint U.S.-Kyrgyzstan Economic Development Fund (EDF),Bakiyev said that he had reviewed the Memorandum of Understanding (MOU) and said that his Agency would provide a detailed response to the U.S. side shortly. The Ambassador carefully explained the role of USAID in the EDF, disbursing funds once the joint board of directors had decided on projects. Bakiyev said that he understood and that Kyrgyzstan was ready to move forward and finalize the details in the MOU. He said that he would seek co-financing opportunities with the World Bank and other international lenders for EDF projects. ¶4. (C) As one of the first projects funded by the EDF, Bakiyev proposed hiring one of the top international consulting/economic advisory firms to perform a detailed micro- and macro-economic review of the Kyrgyz economy, to help identify the position the Kyrgyz economy should take in the global economy and highlight sectors and reforms on which the government should focus its efforts. Bakiyev stressed that he wanted the EDF to invest in serious projects and also work with the Kyrgyz Development Fund on projects to diversify the economy. ¶5. (C) Bakiyev briefed the Ambassador on his plans to provide low interest mortgage loans to home buyers, extend financing to farmers, provide leased equipment to the agricultural sector, and expand the authority of the state controlled company that buys agricultural products from farmers. In each case, he spoke of using market mechanisms to accomplish state goals. For example, in the case of mortgage loans, he said the government would use its development fund to make low interest loans to private banks, which would then make mortgage loans, taking both the profit and the risk. ¶6. (C) Bakiyev highlighted the important role the private sector plays in driving Kyrgyzstan's economic development and said that he plans to undertake thoroughgoing economic reform. "We will privatize everything," he said, "and we will significantly reduce regulation of the private sector." ¶7. (C) Comment: Eighteen years after independence, much of the economy of Kyrgyzstan is still government controlled, and a substantial portion continues to be government owned. Bakiyev's suggestion of a strong reform push is certainly welcome. That said, many believe that Bakiyev is interested only in his own welfare and that reforms, to the extent they are undertaken, will be focused on increasing his personal BISHKEK 00001208 002 OF 002 wealth, and not the well-being of the population. That is something we will need to monitor closely, even as we continue to work with him and with the government to promote market reform and economic development. GFOELLER