MAXIM BAKIYEV ON ECONOMIC AND SECURITY REFORMS

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 001274 SIPDIS DEPT FOR SCA/CEN E.O. 12958: DECL: 12/04/2019 TAGS: PREL PGOV ECON KG SUBJECT: MAXIM BAKIYEV ON ECONOMIC AND SECURITY REFORMS REF: A. BISHKEK 1224 AND PREVIOUS ¶B. BISHKEK 1208 AND PREVIOUS Classified By: CDA Larry L. Memmott, Reason 1.4 (b) and (d). ¶1. (C) SUMMARY: In a meeting on November 24, Maxim Bakiyev, head of the Central Agency for Development, Innovation, and Investment expressed his views on the framework for implementation of the proposed U.S.-Kyrgyz Economic Development Fund, reiterated his interest in technical support to outline the reforms necessary for the Kyrgyz economy, suggested that the country needs extensive market-based reform and deregulation, expressed forcefully his commitment to strengthening and deepening bilateral relations with the U.S., and expressed interest in pursuing a radical agenda of defense reform. The wide-ranging conversation demonstrated someone who is well informed, highly influential, and has tremendous political ambition -- someone who clearly sees himself as a future president of Kyrgyzstan. For discussion of the FSN arrest case, see ref ¶A. End Summary. ¶2. (C) Embassy received on November 18 extensive written comments from the staff of Maxim Bakiyev on the proposed MOU on the EDF. The comments centered on removing USAID and its contractors from the management of the Fund, replacing them with management by the Development Fund of the Kyrgyz Republic, which has been established by the Government to manage $300 million loaned to the Government by Russia earlier this year. We requested a meeting with Bakiyev to explain to him the need to have USAID manage the fund. ¶3. (C) Bakiyev agreed to the meeting, but surprised us by scheduling it for the evening at his sumptuous private office on the top floor of the Bank of Manas building. We spent two hours discussing a wide variety of issues. EDF - Start With Economic Policy Review -------------- ¶4. (C) During the discussion of the proposed MOU for the U.S.-Kyrgyz Economic Development Fund (EDF),Bakiyev appeared to be particularly concerned about the overhead cost of USAID management. If a way could be found to use the full $20 million for projects, he would be much more amenable to USAID management, he said. ¶5. (C) Bakiyev's other major sticking point was his insistence that the board have authority to give final approval for projects. We explained that U.S. laws and regulations would have to be complied with in order for USG funds to be disbursed. That meant that USAID would have to approve disbursement of funds. However, if that were done as a step prior to board approval, our legal requirements would be met while his desire to have board approval be final would also be fulfilled. ¶6. (C) Bakiyev asked how soon the fund could be brought into operation. We noted that it would take some time to get all the management procedures into place. However, as we knew that he wanted to move quickly on a diagnostic consultancy project targeted at putting together a plan for economic reform, we could look at breaking that project out of the regular operation of the fund and might be able to have it in operation in some six months. Bakiyev agreed that it would be good to move that project quickly, as he said it was necessary in order to orient his economic team and everything they are trying to do. ¶7. (C) We agreed to hold a meeting between USAID and Central Agency staff during the next week to agree on further details of the mechanism for putting the EDF into operation. ¶8. (C) Bakiyev said he wanted to move quickly on deep economic reform. "You can't use the term publicly anymore, he said, but I think of myself as a 'neo-liberal.'" He BISHKEK 00001274 002 OF 002 repeated his statement (ref b),that he intends to "privatize everything." Bakiyev Suggests Fundamental Security Reforms -------------- ¶9. (C) Bakiyev suggested that economic reform "touches everything." As an example, he used the Ministry of Defense. "With the Border Guards defending the borders, Ministry of Interior Forces keeping internal order and the State Security Service protecting government officers and offices, what is the Ministry of Defense doing?" he asked rhetorically. "Eating money," he answered himself. "And do the mothers and fathers of the conscripts forced into the military thank us for taking away their sons? Hardly! We need to move to an all-volunteer service," he concluded, pointing out that the country's security would be much better protected by "professional soldiers." ¶10. (C) We noted that there were benefits to organizing to international standards. While a more professional military would certainly be a boon and might be less expensive, as well, there were advantages to structuring the military under a Ministry of Defense. Perhaps an alternative would be to move all military-type forces into a single structure under a revamped Ministry of Defense, eliminating those which are duplicative or unnecessary. For the U.S., our ability to provide military assistance to units which are not part of the Ministry of Defense is more limited. Bakiyev clearly took this concern seriously. Building the Bilateral Relationship -------------- ¶11. (C) Following up on the subject of U.S.-Kyrgyz military cooperation, Bakiyev said that our goal should be a continuous broadening and deepening of the bilateral relationship. We should make it our goal to get to a place where "you could keep your Transit Center forever! In fact, you could make it a full-fledged military base." We agreed that broader and deeper cooperation is our aim. Comment: Confident and Ambitious -------------- ¶12. (C) Bakiyev again clearly stated his desire to work for fundamental changes in Kyrgyzstan, not only in economic development, but also in areas well outside his (current) official authority. His desire for an independent, outside review of Kyrgyzstan's economic policies is welcome. Of course, any comprehensive review would once again highlight the need to implement improved rule of law and anti-corruption policies. On the Economic Development Fund it is clear to us that not all concerns about the management of the Fund have been resolved and the proposed structure will still need to be developed in discussions with Bakiyev and his staff. MEMMOTT