The Foreign Service Journal, April 2003

central planning to government-guided regulation of mixed, public and private sectors. And third, they had to press forward with perestroika-inspired political and social reforms, while at the same time rebuilding their nations as sovereign states. None of these fundamental transitions is yet complete. A Devastating Blow The Soviet Union’s disintegration was a devastating blow to the Central Asian nations, partly because of their geography. This fact has long been underestimated. Trade and transit were disrupted by new borders, increased transportation costs, and the loss of traditional, guaranteed markets, especially in Russia. The reduced access to essential inputs and markets seriously hurt industrial and agricultural output. Further, the new nations suddenly lost Soviet subsidies as high as 30 percent of GDP for budgets, enterprises and households — subsidies that were paid directly and indirectly through social transfers and subsi- dized energy, food, and transport prices. In addition, as the traditional Soviet republican and communist party apparatus fell apart, there was a serious loss of administrative capacity. Because many Russians and other ethnic minorities left, the ranks of skilled labor were reduced at the same as new national institutions had to be established. Finally, the Central Asian nations inherited serious environmental burdens — industrial, biological, chemical and nuclear — the most dramatic and visible of which were the drying up of the Aral Sea and the nuclear test sites at Semipalatinsk. Tajikistan also experienced a post- independence civil war for several years. As a result of all these disruptions, from 1990 to 1999 the Central Asia states suffered declines in economic growth and output equivalent to 20-60 percent of GDP. For some perspective on what this means, the losses far exceed those experienced by Americans during the Great Depression of the 1930s. Macroeconomic Instability Replacing a state controlled, centrally planned econo- my with a market-based one was — and remains — a major challenge for all five Central Asia states. Unlike the formerly communist countries of East and Central Europe, the Central Asian states had virtually no modern experience of market economics. Thus, like all post-Soviet states, they were initially confronted with severe macro- economic imbalances, although most were able to bring hyperinflation under control relatively quickly. However, implementation of market-oriented economic policy reforms has been uneven. By most measures, Kazakhstan and Kyrgyzstan have advanced most, and Turkmenistan and Uzbekistan least. Market institution- and capacity-building have advanced slowly, with progress in such areas as setting up central banks and payments systems, as well as basic national administrative structures and legal systems. But fundamental structural weaknesses remain, especially the lack of a truly independent civil service, weak fiscal man- agement, inadequate regulatory agencies and judiciaries, and a growth in corruption. Progress in establishing representative, democratic institutions, promoting civil society and developing social capital has been slow and uneven. In some countries, there have arguably been reversals, although the growing strength of civil society — including a vibrant nongovern- mental sector — has been noteworthy in some countries, especially in Kyrgyzstan. Serious Poverty In terms of economic performance, there has been sig- nificant recovery since the mid-1990s, although this was dramatically interrupted by the Russian financial crisis of mid-1998. Since 2000, there has been modest growth, propelled in part by Russia’s recovery, giving some hope that the worst may be over. But some countries, especial- ly Kyrgyzstan and Tajikistan, are still suffering from the lasting impact of the earlier post-Soviet economic shock. Their high debt burdens and low per capita incomes place them among the poorest of the developing countries. All countries suffer from serious poverty problems, which are most severe in Tajikistan where 70-80 percent of the population are poor, and most face increased inequali- ty. Social sector spending by governments is very low by international standards and compared to Central European countries and even Russia. Within the region, the disintegration of “economic space” due to lack of cooperation is dramatic. For exam- ple, the maintenance of dams and irrigation systems is grossly inadequate, with a large waste of scarce water and F O C U S A P R I L 2 0 0 3 / F O R E I G N S E R V I C E J O U R N A L 33 David Pearce is the World Bank’s country manager for Uzbekistan, based in Tashkent.