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and clothing result in some loss to US. industry, but are relatively insignificant. Pirated computer software is available but use is not yet widespread. However, the use of pirated desktop software, i.e., Microsoft Windows, WordPerfect, etc., does ap.
be widespread and increasing rapidly. Ilegal software development and manufacture does
not occur in Kazakhstan due to limited local availability of advanced products. This appears to apply to other advanced technologies as well.
In addition, pirated satellite broadcasts are common and availability and use appears to be generally widespread. Many television stations routinely broadcast U.S. and western programs and news reports pirated via satellite dish.
Despite lax enforcement of current laws and delays in approving new legislation, overall intellectual property losses to U.S. firms currently appear to be small. However, counterfeiting and pirating of U.S. and western goods is increasing. Without more rigorous enforcement of intellectual property laws and new legislation, future losses to U.S. industry could be significant and potential export and investment opportunities could be lost. 8. Worker Rights
a. The Right of Association. The new labor code, along with the Kazakhstan constitution, guarantees basic workers' rights, including the right to organize and the right to strike. The law does not, however, provide mechanisms to protect workers who join independent unions from threats and harassment from enterprise management or from the state-run unions. Kazakhstan joined the International Labor Or. ganization (ILO) in 1993, but the Supreme Soviet has not yet ratified the ILO conventions.
b. The Right to Organize and Bargain Collectively:—There are significant limits on the right to organize and bargain collectively. Most industry remained state. owned in 1994 and was subject to the state's production orders. Although collective bargaining rights are not spelled out in the law, in some instances unions have successfully negotiated agreements with management. If a union's demands are not acceptable to management, they may be presented to an arbitration commission comprised of management, union officials, and independent technical experts. There is no legal protection against anti-union discrimination.
c. Prohibition of Forced or Compulsory Labor.-Forced labor is prohibited by law. In some places, however, compulsory labor is used. Some persons were required to provide labor or the use of privately owned equipment with no, or very low, compensation to help gather the annual grain harvest.
d. Minimum Age of Employment of Children.-The minimum age for employment is 16. A child under age 16 may work only with the permission of the local administration and the trade union in the enterprise at which the child would work. Such permission is rarely granted. Abuse of child labor is generally not a problem, except that child labor is reportedly used during the harvest, especially the cotton harvest in the south.
e. Acceptable Conditions of Work.-As of October 1, 1994 the official minimum wage is 200 tenge (slightly less than four dollars) per month. The legal maximum work week is 48 hours, although most enterprises maintain a 40-hour work week with at least a 24-hour rest period. Worker and safety conditions in Kazakhstan's industries are substandard. Safety consciousness is low. The regulations concerning occupational health and safety, enforceable by the Ministry of Labor and the statesponsored unions, are largely ignored by management.
f. Rights in Sectors with U.S. Investment.--Rights and conditions in sectors with U.S. investment do not differ substantially from other sectors. However, workplaces or enterprises with U.S. investment have significantly improved working conditions.
Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993
(Millions of U.S. dollars)
Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis 1993—Continued
(Millions of U.S. dollars)
Income, Production and Employment:
Real GDP (1990 prices)
Unemployment Rate (pct.)
Money Supply (M1)
Exports to U.S.
Imports from U.S.
0.0 26.4 15.7 83.6 N/A 45.6
8.9 18.8 75.0 43.0
0.0 N/A - 44.5
2.2 N/A 51.2
2.1 583.6 28.0 79.3 24.1
NA-Not available. *All figures used are from Kyrgyz government sources. * Nine month data in millions of Kyrgyz soms unless otherwise noted. Average annual interest rate for 1994 was not available. The base interest rate on October 15, 1994 was 185 percent. Six-month data for 1994.
Fiscal year 1994. 1. General Policy Framework
After the disintegration of the former Soviet Union (FSU) and the achievement of independence in 1991, the Kyrgyz Republic (Kyrgyzstan) inherited an economy which had been highly dependent on the Soviet economy and on budget subsidies from Moscow. Kyrgyzstan is one of the poorest of the FSU republics both in terms of output and resource base. As a result, there was a sharp deterioration of economic activity in 1994. GDP for the first nine months of the year dropped 27.5 per. cent over the same period of 1993, though it is expected that 1994 GDP will reach the projected figure of 9.38 billion soms (about $900 million) for the entire year.
During 1992 and 1993 the Kyrgyz government took some major steps in transforming the economy from one dominated by central planning to a market oriented economy. A number of progressive changes were made to the legal system, including the adoption of laws on privatization, joint ventures, foreign concessions and investment, and free economic zones. Most prices were liberalized in January 1992, although bread prices were not freed up until February 1994.
In May 1993 an independent national currency, the som, was introduced. At the same time, a stabilization and structural adjustment program was initiated with support and assistance from the IMF, and the World Bank, the United States and other donor countries. Tightened monetary policy, beginning at the end of 1993, resulted in a steady decline in monthly inflation rates (from 33 percent in October 1993 to 0.2 percent in September 1994).
However, the government was unable to meet IMF inflation targets and other performance goals for the end of 1993. The IMF stand-by facility was therefore replaced with an ESAF (Enhanced Structural Adjustment Facility) in July 1994. The ESAF runs three years and its loans are at concessional rates.
The system of government procurement at fixed prices (the so called "state order") was abolished in early 1994 and was replaced by a system where government procurement of a limited range of goods will be accomplished through freely negotiated contracts with suppliers.
Kyrgyzstan's ESAF program requires the government to finance the budget deficit primarily through foreign loans, not the central bank. The budget deficit was 8.2 percent of GDP in September 1994. The deficit arises from social programs (52.5 percent of all budget expenditures) and financing of state owned enterprises (15 percent). To increase revenues, the Kyrgyz government is restructuring the entire tax system. In 1994, the Ministry of Finance was empowered to exercise control over all revenue raising agencies, such as the State Tax Inspectorate and State Customs Administration, both of which are now structural units of the Ministry of Finance. The Tax Police Department, also established in 1994, reports directly to the government. It is expected that a new treasury system will cover all budget transactions nationwide by December 1994. 2. Exchange Rate Policy
Interbank foreign exchange auctions were held twice a week, with the exchange rate of the som depreciating from 8.03 soms to the dollar in January to 10.6 soms in October. The highest point of depreciation was observed in May when the dollar was traded for 12.45 soms.
Since early 1994 all foreign exchange bureaus along with the commercial banks have been permitted to buy hard currency without any restrictions. This resulted in a sharp narrowing to about three percent of the margin between the official auction rate and those of the commercial banks, exchange bureaus and the black mar. ket. At the end of October the latter ranged from 10.6 to 10.9.
The NBK intends to eventually replace foreign exchange auctions by direct sales and purchases in the fledgling interbank market.
3. Structural Policy
In 1994 Kyrgyzstan continued its privatization program. To date, 4,800 small and medium size enterprises, constituting about fifty percent of all state enterprises, have been privatized. The rate of privatization is highest in the service sector (99 percent), followed by trade and public catering (93 percent), and then industry (46.5 percent). Privatized enterprises make up 38.1 and 34.5 percent of the construction and agricultural sectors, respectively, and a much smaller percentage in the transportation and wholesale sectors.
Pricing Policies: Priæ liberalization continued in 1994. The list of goods and services whose prices continued to be regulated was further reduced. Prices for electricity were doubled both for residential and industrial consumers in September 1994, whereas natural gas prices were raised fivefold. However, prices for electricity, natural gas, and heat remain partially subsidized. The government will adjust them in stages with the objective of full coverage of the cost of energy by the end of 1995. Liberalization of bread prices on February 17, 1994 caused prices to double; by September they had risen another 50 percent. State subsidies for bread are scheduled to be eliminated by mid-1995 when state-owned bakeries are privatized.
Tax Policies: Kyrgyzstan's major source of government revenue is the value-added tax (VAT-20 percent) and enterprise profit taxes (35 percent). In order to reverse the rapid decline in tax revenues, the government intends to broaden the base of the VAT, impose a higher excise tax on imported luxury goods, and introduce other taxes and fees. As a temporary emergency measure, in September 1994, the govern. ment introduced a five percent sales tax on retail transactions. Imported raw materials and components labeled for foreign investment production are exempt from customs duties.
Foreign Investment: Under Kyrgyzstan's foreign investment law, the legal status and conditions of foreign investment will never be less favorable than the status and conditions of investment by juridical persons and citizens of the Kyrgyz Republic.” In May 1993, Kyrgyzstan's parliament adopted several amendments to the law on foreign investment of February 1992. The new version of the law extends tax exempt status to foreign investors in all sectors with the following grace periods: five years in manufacturing and construction; three years in mining, agriculture, transportation and communications; and, two years in trade, tourism, banking, and insurance. After expiration of the initial tax-free period, the taxes imposed on profits will be reduced, as follows: by 50 percent on profits reinvested in Kyrgyzstan; by 25 percent if no less than 50 percent of the enterprise's products and services are exported; by 25 percent if not less than 50 percent of production is derived from imported raw materials and components; and by 25 percent is no less than 20 percent of the profit is spent on professional training. The law also guarantees the right of foreign investors to repatriate their profits. In 1993, a special commission on foreign investment was created under the government (Goskominvest) with responsibility for registering and assisting foreign investors.
In September 1994 a presidential decree was issued amending the Foreign Investment Law and providing further investment incentives. In particular, foreign investors are exempt from a five percent tax imposed on exported profits. 4. Debt Management Policies
In a July 1992 bilateral agreement, the Russian Federation took over responsibility for Kyrgyzstan's share of the former Soviet Union's external debt in return for Kyrgyzstan's share of the former Soviet Union's external assets.
Loans from foreign countries and international financial organizations amounted to $197.5 million, of which 24.1 million (interest payments) were to be paid in 1994. Thus as a percentage of GDP, the external debt is expected to increase from 17.9 percent in 1993 to 19.3 percent in 1994. 5. Significant Barriers to U.S. Exports
Kyrgyzstan lacks hard currency and, despite liberalized foreign exchange laws, repatriation of earnings is difficult. Kyrgyzstan's ability to import goods and technologies which require payment in hard currency is therefore severely limited. In addition, inadequate telecommunications and banking facilities as well as extremely high transportation costs add further practical barriers to exporters.
To normalize its trade and investment relations with the Kyrgyz Republic, the United States has proposed a new network of bilateral economic agreements. The U.S.-Kyrgyz trade agreement, which provides reciprocal most-favored-nation (MFN) status, was concluded and entered into force in August 1992.
The same year, the trade agreement was followed by the conclusion of an Overseas Private Investment Corporation (OPIC) incentive agreement offering political
risk insurance and other programs to U.S. companies interested in investing in Kyrgyzstan. In January 1993, a U.S.-Kyrgyz bilateral investment treaty (BIT) was signed establishing a bilateral legal framework to stimulate investment in each other's country. The Treaty came into effect in December
1993. Further discussions are needed on the bilateral tax treaty, which would provide businesses relief from double taxation. 6. Export Subsidies Policies
Kyrgyzstan inherited the Soviet legacy of subsidization of state enterprises but these subsidies are aimed at maintaining employment and production, and not specifically at making exports more competitive.
In 1992, the U.S. Department of Commerce made a preliminary finding that uranium from Kyrgyzstan was being dumped in the United States. In October 1992, Commerce signed an agreement with Kyrgyzstan to suspend the dumping investigation. 7. Protection of U.S. Intellectual Property
A package of laws intended to protect intellectual property rights was introduced in Kyrgyzstan's parliament. However, the extraconstítutional dissolution of the parliament by the president in September 1994 prevented the parliament from completing action on the measure. A newly structured parliament is to be chosen in February 1995 and is expected to review this proposed legislation. The U.S.-Kyrgyz trade agreement includes commitments on protection of intellectual property. 8. Worker Rights
a. The Right of Association.-In February 1992 the government adopted a comprehensive law which included provisions protecting the rights of all workers to form and belong to trade unions. The law requires a minimum of five workers to form a union. There is no evidence that government policy sought to obstruct the formation of independent unions. Unions are legally permitted to form and join federations and to affiliate with international trade union bodies.
b. The Right to Organize and Bargain Collectively. The law recognizes the right of unions to negotiate for better wages and conditions. While the right to strike is not codified, strikes are not prohibited. In most sectors of the economy, wage levels continued to be set by government decree. Union members are protected by the law from antiunion discrimination.
c. Prohibition of Forced and Compulsory Labor.-Forced or compulsory labor is forbidden except in government prisons.
d. Minimum Age for Employment of Children. The minimum age of employment is 18. Students are allowed to work up to six hours per day in the summer or at part time jobs from the age of 16. The law has been largely observed. However, rapidly deteriorating economic conditions in the country have resulted in a growing number of children working to help support the family.
e. Acceptable Conditions of Work.—The standard workweek is 41 hours, usually within a five-day week. An April 1992 law established occupational health and safety standards as well as enforcement procedures. Nonetheless, safety and health conditions in factories are far behind Western standards.
f. Rights in Sectors with U.S. Investment.--Rights and conditions in sectors with U.S. investment do not differ substantially from other sectors. However, work places or enterprises with U.S. investment have much better conditions of work than the norm. U.S. companies have already improved conditions at some job sites.
Key Economic Indicators
Income, Production and Employment:?
Real GDP (1993 prices)?