The Economies of Central Asia.

The Economies of Central Asia. – book reviews

Andrew Apostolou

This book is a useful overview of the Central Asian economies. Based on what appears to have been a frustrating year as a UN ESCAP (the UN Economic and Social Commission for Asia and the Pacific) economic adviser, it provides some basic background material, followed by chapters on Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan. The book ends with discussions of possible development strategies, the limited relevance of Chinese reforms, the collapse of the ruble zone, regional economic ties and problems requiring co-ordinated action.

The book is very useful for general readers or those seeking a quick overview. The chapters are brief and the observations sharp. Relevant economic theories are explained simply. Better still, Pomfret has no axes to grind for or against the local dictators, or various outside powers interested in the region. However, some of the best insights are confined to footnotes. Specialists may find the book too general, but will enjoy Pomfret’s insights.

The coverage of events ends in early 1994. Much has happened since then, such as successful stabilisation and messy privatisation programmes in Kazakhstan and the Kyrgyz Republic. It is a shame that Pomfret was not able to cover more recent events, as his judgements are often acute. He is frank about the vacuum of ideas in the region. The impression given is that many local policy makers are unable or unwilling to understand either the necessity or the benefits of economic reform. Readers who have had the misfortune to meet local policy makers can make their own choice. Pomfret’s harsh views of economic policy in Turkmenistan and Uzbekistan have also been borne out by events. His judgment that ‘the personal interest of many officials in the existing system helps to explain the absence of economic experiments in Central Asia’ (p. 42) applies both to the perestroika era of which it was written and to Uzbekistan and Turkmenistan today. Refreshingly, the author is not led astray by claims of vast natural resource endowment or the prospect of large-scale foreign investment.

In addition to the useful background material, the book issues two warnings to policy makers, particularly in brazenly anti-reformist Turkmenistan and Uzbekistan. The first is to steer clear of the mistakes of developing countries in the 1950s and 1960s. Pomfret argues against developing protected domestic markets, prestigious but uncompetitive industrialisation and is scathing about the supposed benefits of preferential trade areas such as the ECO or CIS. A perfect illustration of the folly that Pomfret detected in his year in Central Asia is Uzbekistan and Turkmenistan’s quest for self-sufficiency in grain. The disastrous Uzbek grain harvest of 1995 and the subsequent sacking of the prime minister vindicate his analysis.

Second, Pomfret warns against being misled by Chinese reforms. Superficially China is attractive to Central Asia, as it has so far managed rapid economic growth combined with job security for the political leadership. But unlike the Central Asian republics, the Chinese government tackled agriculture first, gave up control over more and more of the economy and devolved policy making to the provinces. On closer inspection, China contrasts sharply with Turkmenistan and Uzbekistan, as government control in these Central Asian republics is so extensive that economic policy cannot be debated.

Indeed, economic policy in most former communist economies remains highly interventionist. Given the lack of information as to what is happening in the economy, the rapid changes in economic relationships and the general inefficacy of economic policy, the dangers of taking the wrong decision are substantial. Pomfret correctly warns that ‘small changes can have a cumulative effect’ (p. 163).

Unsurprisingly, Pomfret concludes that Central Asia’s future looks less than rosy. Government economic policies and choices matter, and the governments in Ashgabat and Tashkent seem determined to make the wrong choices. The governments in Almaty and Bishkek ‘may already be on the right track’ (p. 169), although Pomfret questions the depth of their commitment to reform. It is worth adding that for reform to be successful assumes that the governments of the Central Asian economies and their army of advisers will choose the correct policies, and in the correct sequence, and that the international economic environment will remain largely benign while these economies engage in often wrenching changes. But, whatever the misgivings over reform, avoiding it will simply make matters worse.

Pomfret is also scathing about the mistakes of foreign advisers. The ruble zone turned out not to be an optimal common currency area, as the IMF thought in 1992, but instead a horrifying example of the free rider paradox.

The book has an unfortunate tendency to hide insights in the footnotes. A marvellous illustration of the inadequacies of local policy – President Karimov’s closure of Tashkent’s kebab stands after the July 1993 cholera outbreaks – is confined to a footnote instead of enlivening the text. Similarly, the Central Asian republics are described as having introduced VAT. The vital detail that VAT in Central Asia is origin-based rather than destination-based and the ensuing effect on import prices and government revenues is again shuffled away in a footnote.

There are a few criticisms of what overall is a sensible book. Terming Almaty an emerging ‘regional financial centre’ (p. 60) is a little too generous. The conclusion that ‘In sum, Kazakhstan’s long-term economic prospects are bright’ (p. 96) is belied by comments that resource endowment is not linked to economic success. Also, Chevron’s problems in Kazakhstan did not flow from a ‘leaky pipeline’ (p. 157) but pressure from Russian companies exerted through the Russian government. Similarly, Pomfret claims that Ukraine under Kravchuk illustrates the problems of gradual reform. But he also more accurately portrays Ukraine as a case of anti-reform policies.

Nor did GNP in Turkmenistan rise by 20% in 1992 – it fell. It is also unlikely that national income in Turkmenistan was higher in 1993 than in 1991 because of terms of trade improvement. In practice CIS customers did not pay, meaning that the output collapse probably more than outweighed the terms of trade improvement – they have encouraged a fiscal binge. Dutch disease has not been a short-term problem for Turkmenistan, but could be a long-term problem for both Turkmenistan and to a lesser degree for Kazakhstan.

But these are minor quibbles and this is a useful book. I’m sending a copy to President Karimov.

ANDREW APOSTOLOU The Economist Intelligence Unit

COPYRIGHT 1997 Carfax Publishing Co.

COPYRIGHT 2004 Gale Group