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Kyrgyzstan Today: The New Administration’s Pressing Problems

Politics / GeoPolitics May 07, 2010 - 12:12 AM GMT

By: OilPrice_Com


Best Financial Markets Analysis ArticleKyrgyzstan’s interim government, having toppled the corrupt regime of former President Kurmanbek Bakiyev in Bishkek on April 7-8, faces many daunting challenges, from the economy gutted by Bakiyev’s insiders to reestablishing security in the country. It is in the interest of the three major outside players there – Russia, U.S. and China, to assist Otumbayeva’s administration, but it seems problematic at this point whether they will be able to lay aside their traditional rivalry to do so. Such being the case, it would seem that Kyrgyzstan faces a long, hot summer.

The new Kyrgyz provisional government is caught between a rock and a hard place, trying to gain international legitimacy while maintaining its domestic popularity. Bakiyev left behind a state bankrupted by massive corruption and crime, which generated deep public resentment. For outside powers, the suddenness of the collapse of the Bakiyev administration collapsed is a stark reminder, particularly for Washington, of the inherent risks of focusing obsessively on Western security concerns in framing policy towards the region while ignoring the democratic values proclaimed at each and every opportunity.


The first priority of the interim administration was to re-establish law and order against wide-scale looting and anarchy. On 8 April, the first day of its ascension to power, the interim government’s Interior Minister Bolot Sherniyazov said on state television, “Today I have permitted weapons to be used against looters. I appeal to people of the capital to join people's militias and rise to the defense of the property of the city, companies and people.” The harsh measure apparently worked, as no deaths were reported.

After noting that on 7 April the Kyrgyz Armed Forces “took the side of the people and started to tackle their tasks obeying demands and orders issued by the interim government,” Acting Defense Minister Ismail Isakov stated that “army units and divisions have been put on high alert. Apart from fulfilling their own duties, they are playing a huge role in the Interior Ministry's efforts to bring order back both to Bishkek, Osh and Jalal-Abad.” Seeking to identify the rioters and looters on 30 April interim government First Deputy Prime Minister Almazbek Atambayev said that the government was prepared to pay a bounty to those assist authorities to catch suspects facing criminal charges in connection with the 6-8 April events.

As if to underline the fragility of the situation however, the same day that Atambayev spoke 300 Kyrgyz police officers visited the Interior Ministry to demand a meeting with the ministry administration, with one demonstrator noting, “We demand the payments that were promised to us by the interim government to compensate for the physical damage done to the police officers hurt in the 6-8 April events.”


During a 29 April interview with Interfax Otumbayeva laid out her administration’s priorities. Topping the list is the drawing up of a new constitution, to be submitted to the electorate in a national referendum on 27 June. The Kyrgyz electoral commission plans to spend almost $3 million on the referendum. The new draft constitution envisages transforming Kyrgyzstan into a parliamentary republic with a multi-party democratic system. Interim government deputy Prime Minister Omurbek Tekebayev said that the new document substantially reduces presidential powers and that the Prime Minister will be the key figure in the new political system.

A lack of formal recognition is hobbling the new administration, as it precludes approaching major international investment agencies for assistance. Otumbayeva said, “Our power is still not legitimate. Not legitimate in the sense that we have still not covered the entire path necessary for a law-governed state that would permit us to declare our government a people's government, and our state -- democratic. Formally we are still members of all the international organizations: the United Nations, the Commonwealth of Independent States, the Collective Security Treaty Organization, the Shanghai Cooperation Organization and so forth. But the absence of legal formalities prevents us from exercising all the rights that membership in these organizations offers. For example, international financial institutions, to put it politely, are in no hurry to issue the credits that we need so much. Unfortunately that is the case.”


The interim government is moving swiftly to document the political crimes and economic corruption of the previous administration. On 28 April the General Prosecutor’s Office issued a list of those to be charged with criminal responsibility for the 7 April shootings in Bishkek’s Ala-Too central square, which killed 85 and wounded more than 1,000. The list includes Bakiyev’s brother Zhanybek, former head of the State Security Service (SSS); Marat Bakiyev, the President’s eldest son and former State National Security Service (SNSS) Assistant Chairman; former deputy SSS chief Daniyar Dunganov; former SSS First Deputy Chairman Nurlan Temirbaev; Bakiyev’s cousin, former Minister of Defense Baktybek Kalyev, former SNSS Chairman Murat Sutalinov; former Prime Minister Daniyar Usenov; Bakiyev’s former advisor on defense and security Elmurza Satybaldiev and former Minister of Internal Affairs Moldomusa Kongantiev. Dunganov, Kalyev and Kongantiev are in the SNSS pre-trial detention center and Satybaldiev is cooperating with authorities. Zhanybek and Marat Bakiyev, Temirbayev, Sutalinov and Usenov have all been charged in absentia and the government is seeking them.


The scale of the depredations of Bakiyev’s inner circle beggars the imagination. Ironically, according to the Commonwealth of Independent States interstate statistics committee, Kyrgyzstan ranked first among the CIS members state in terms of industrial growth in the first three months of 2010, achieving a 78.8 percent growth rate against the same period last year.
The rise was due to the Kumtor gold mine, the largest western gold company operating in Central Asia, which contributes 10 percent of Kyrgyzstan’s gross domestic product, resuming full-scale operation, in 2009 producing 525,042 ounces of gold.

But little of this largesse entered state coffers. By late February the Kyrgyz government was Kumtor’s largest shareholder, controlling around 33 percent of Kumtor’s operation, but the government’s share in the Kyrgyzalten gold concern, which held the government’s share of Kumtor, was controlled by the Central Agency for Development, Investment, and Innovation, headed by President Bakiyev’s son Maksim, who was appointed to the post last October. The interim government is still trying to determine who much of the revenue was diverted to accounts controlled by Maksim and his inner circle.

Upon opening the safe in President Bakiyev’s suite of offices, investigators from the General Prosecutor’s Office found and confiscated 11,139,900 million soms ($246,212), $52,887 in U.S. currency, 25,340 euro ($33,788) as well as Russian and Belrussian rubles, Czech koruna and Hungarian forints, all of which was handed over to the National Bank. According to provisional government Deputy Chairman and Finance Minister Temir Sariyev, investigators also discovered nearly $14.5 million in two commercial banks in accounts controlled by Maksim, his brother Marat and cousin Kalyyev.

These amounts pale into insignificance with what was hurriedly sent out of the country when the unrest broke out. According to Natsional’nyi bank Kyrgyzstana Acting Chairman Zair Chokoev, during 7-8 April the country’s largest commercial bank, AziiaUniversalBank (AUB), controlled by Maksim, sent $200 million out of the country before Finance Ministry officials were able to shut down the server.


The Pentagon is facing a long, hot summer over its cozy relationship with the Bakiyev regime and its no-bid fuel contracts for the Manas Transit Center channeled through companies owned by Bakiyev’s family. The contracts are a growing source of investigation both in Bishkek and Washington.

On 1 May the Kyrgyz transport prosecutor's office launched a criminal investigation under the Kyrgyz Criminal Code's Article 303 (Corruption) in connection to the contracts. Initial findings of the Prosecutor-General's Office found that, according to a governmental decree dated 2 November 2004, a draft law "On excise duty rates for excise goods imported and produced by legal entities and individuals in Kyrgyzstan" stipulated an excise duty for jet fuel imports of $43.86 per ton. Bakiyev subsequently signed a law setting a zero excise duty for importing jet fuel. The Kyrgyz government, importing 1,807,200 tons of jet fuel for Manas since 2005, subsequently lost nearly $80 million in excise revenues.

According to investigators, the two airbase suppliers bought fuel from six Kyrgyz companies, who in turn bought fuel from Russia. The main suppliers to Manas under investigation are foreign firms Red Star Enterprises Ltd and Mina Corp. Ltd, registered in London and Gibraltar; in Kyrgyzstan Manas Fuel Services, Kyrgyz Aviaeyshn, Central Asia Fuel, Avieyshn Fuel Service, Air Craft Petrol Ltd. and Central Asia Trade groups, which imported jet fuel duty free.

Expect the case to spread faster than the Louisiana oil slick in both Bishkek and Washington.

Nor is this the only potential for squirming in Washington as two former U.S. senators, Bob Dole (R-KS) and J. Bennett Johnston (D-LA), both served on AziiaUniversalBank’s board of directors.

It is now clear that Washington’s fixation on maintaining its presence at Manas at any cost led it into unsavory dealings with the Bakiyev administration – a completely new paradigm is needed if Washington wishes to repair its severely tarnished reputation with the Kyrgyz people and interim administration.

First and foremost, the Pentagon must deal honestly and openly with the congressional investigations and let the chips fall where they may, proving to the Otumbayeva administration that all U.S. government agencies are in fact subject to the rule of law and be willing to make immediate amends, whatever the embarrassment to the Department of Defense.

Secondly, Washington should help the new government track, locate and repatriate the funds stolen by Bakiyev insiders, and exert itself to the utmost to ensure that the Otumbayeva administration receives access to the international financial institution with which the U.S. government has the most clout, such as the World Bank and International Monetary Fund in providing immediate emergency financial assistance to the interim government.

Washington might even throw some Pentagon spare change in the interim government’s direction. On 28 April, EU Ambassador Chantal Hebberecht stated after meeting with Minister Sariyev, “The European Union will allocate €12 million ($16 million) for Kyrgyzstan’s budget deficit payments.” Given that Maksim skimmed as much as $8 million a month from daily jet fuel sales to the Manas Transit Center, the Pentagon could match Brussels’ largesse without breaking into a cold sweat and begin to buy back some of the goodwill with the Kyrgyz people it so blatantly squandered.

Last but not least, the U.S. administration should move from words to deeds; instead of hectoring Central Asians with clearly hypocritical lectures on democracy and human rights it should assist the Otumbayeva administration in its constitutional referendum next month as well as the joint parliamentary and presidential elections scheduled for 10 October, swallow hard and be willing to work openly and honestly with whatever regime emerges.


This article was written by Dr. John CK Daly for who offer detailed analysis on Crude Oil, Geopolitics, Gold and most other commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit:

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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