Wednesday, July 13, 2011
Friday, July 1, 2011
Fiscal Challenges in Kyrgyz Republic
After reading Alisher Hamidov's piece on Eurasianet.org (http://www.eurasianet.org/node/63760), I felt compelled to write this short rebuttal. Journalists, political scientists, and sociologists generally express their sharply defined feelings about economic problems in good prose. I often prefer their writing style over awkward juxtaposition of dry and jargon-rich statements by economists. Unfortunately, often the juicy articles by non-economists about an economic problem tends to have the same effect on me as the Victoria Secret's "Very Sexy" push-up bra with gel curves has on a boy who reaches the second base with a girl on a prom night.
Hamidov's article can be summarized as follows: (1) Kyrgyz government is on a spending spree; (2) the current fiscal deficit is a sure way to economic crisis; (3) much needed foreign aid may not come if the government fails to be transparent. Where are the gel curves in all of this?
Hamidov provides no reason why this year's fiscal deficit is any different than fiscal crises that Kyrgyz Republic faced back in 1998, 1999, and 2000, when the external debt averaged at about 130% of the GDP and the debt service payments averaged at about 23% of the GDP. If we haven't fallen to oblivion then, why should we expect this time to be any different?
Hamidov implies that increasing wages to teachers and doctors is part of the government's lavish spending spree. According to Hamidov, raising the wages of school teachers from 100 USD to 300 USD ( 300% increase) in the environment where the monthly cost of living for a family of three far exceeds 300 USD is fiscally irresponsible. When one considers rising prices for staple goods, it is understandable why families who are barely making ends meet may disagree with Hamidov's definition of lavish spending. But that is not where we see the gel curves. A responsible commentator would look at the budget and assess what proportion of this deficit spending is attributable to wage increases for teachers and doctors. My guess is this expenditure item makes up less than 5% of the 460 million USD deficit. A better question is to ask, what is new in this budget relative to previous budgets. Then, perhaps, we can talk about 'haram' pork.
The gel curves are most visible in Hamidov's implications that the disbursement of foreign aid--manna from Washington, D.C.-- is being delayed because of 'transparency' and 'poor management of public funds' concerns. Need I remind young Mr. Hamidov that the same organizations have more than doubled grants and subsidized loans in 1999 and 2000 to a corrupt regime of former President Akaev? The same organizations have upped their conditional and unconditional transfers to Bakiev's regime in 2005 and 2006. One needs not a Ph.D. in 'gubnment' studies to understand that delay in release of funds has very little to do with how developing nations manage their public funds.
Mr. Hamidov is right that fiscal discipline, transparency, and responsible management of public funds are important. The problem with Hamidov's article is that it sounds more like a poor adaptation of good op-eds about the US budgetary challenges to a country that has a completely different set of constraints: state the obvious, add few comments by some officials, throw in some meaningless numbers, use some popular words, and you have yourself an American Kyrgyz fiscal apple pie story.
Here is my two cents on fiscal problems in Kyrgyz Republic. The current government is no better or worse than any previous Kyrgyz government in managing public funds. Arguing that the fiscal problems are exacerbated by this government's incompetence is no different from arguing that monkeys throw bananas at zoo visitors because they are not intelligent. Even my grandma knew that governments are incompetent in managing public funds, and she had only two years of schooling. The real problem is this: if the government officials know that in previous cases of budgetary insolvency the financial aid was readily available, what incentives do they have to spend in fiscally responsible manner?
Hamidov's article can be summarized as follows: (1) Kyrgyz government is on a spending spree; (2) the current fiscal deficit is a sure way to economic crisis; (3) much needed foreign aid may not come if the government fails to be transparent. Where are the gel curves in all of this?
Hamidov provides no reason why this year's fiscal deficit is any different than fiscal crises that Kyrgyz Republic faced back in 1998, 1999, and 2000, when the external debt averaged at about 130% of the GDP and the debt service payments averaged at about 23% of the GDP. If we haven't fallen to oblivion then, why should we expect this time to be any different?
Hamidov implies that increasing wages to teachers and doctors is part of the government's lavish spending spree. According to Hamidov, raising the wages of school teachers from 100 USD to 300 USD ( 300% increase) in the environment where the monthly cost of living for a family of three far exceeds 300 USD is fiscally irresponsible. When one considers rising prices for staple goods, it is understandable why families who are barely making ends meet may disagree with Hamidov's definition of lavish spending. But that is not where we see the gel curves. A responsible commentator would look at the budget and assess what proportion of this deficit spending is attributable to wage increases for teachers and doctors. My guess is this expenditure item makes up less than 5% of the 460 million USD deficit. A better question is to ask, what is new in this budget relative to previous budgets. Then, perhaps, we can talk about 'haram' pork.
The gel curves are most visible in Hamidov's implications that the disbursement of foreign aid--manna from Washington, D.C.-- is being delayed because of 'transparency' and 'poor management of public funds' concerns. Need I remind young Mr. Hamidov that the same organizations have more than doubled grants and subsidized loans in 1999 and 2000 to a corrupt regime of former President Akaev? The same organizations have upped their conditional and unconditional transfers to Bakiev's regime in 2005 and 2006. One needs not a Ph.D. in 'gubnment' studies to understand that delay in release of funds has very little to do with how developing nations manage their public funds.
Mr. Hamidov is right that fiscal discipline, transparency, and responsible management of public funds are important. The problem with Hamidov's article is that it sounds more like a poor adaptation of good op-eds about the US budgetary challenges to a country that has a completely different set of constraints: state the obvious, add few comments by some officials, throw in some meaningless numbers, use some popular words, and you have yourself a
Here is my two cents on fiscal problems in Kyrgyz Republic. The current government is no better or worse than any previous Kyrgyz government in managing public funds. Arguing that the fiscal problems are exacerbated by this government's incompetence is no different from arguing that monkeys throw bananas at zoo visitors because they are not intelligent. Even my grandma knew that governments are incompetent in managing public funds, and she had only two years of schooling. The real problem is this: if the government officials know that in previous cases of budgetary insolvency the financial aid was readily available, what incentives do they have to spend in fiscally responsible manner?
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