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Bahtiyar Bakas uulu, Candidate of Economic Sciences, independent expert Hotbeds of Corruption in Kyrgyzstan’s Financial System In the economic sectors of Kyrgyzstan, the magnitude of corruption varies. The most corrupt areas are the system of relations related to the collection and distribution of state revenue and property, as well as the system of licensing and permissions. On the other hand, the banking sector, a progressive area in terms of reforms, is least affected by corrupt factors. The main danger of corruption in the country’s financial system is that it destroys economic security. This is aggravated by the fact that Kyrgyzstan already has a huge external debt and holes in its budget, which makes it an attractive off-shore financial center for money laundering. General roots of corruption in financial system One of the nation’s priorities is to provide national security, including for its economic component. However, the financial system is subject to constant exposure to a large number of factors that may destabilize financial situation/reliability in the country. Of these factors, the biggest threat is corruption since it resonates most destructively in the financial sphere. That is why it is sometimes discussed as a financial security indicator in any country. Corruption is quite complex, particularly in the financial market. Along with trivial bribes are other forms, such as abuse of official position while “transferring” government funds, benefits to “friendly” companies, redeployment of government resources, abusive practices during privatization process, government tenders, issuance of permits, etc. Improper and contradictory legislation in the sphere of economic regulation, and a non-transparent complicated tax system that leads to the appearance of shady businesses, are the bases for corruption. Existing legal norms suffer from the ambiguity of law enforcement practices, which results in low capacity of their implementation and constructs an excessive number of administrative barriers. The economic consequences of corruption emerge in various ways. Competitive environment decreases, the shady economy increases because it is one shelter from bureaucratic pressure, government budget stops being a management tool, and instead becomes a mechanism for the distribution of corruption. Prices for goods and services grow as sellers must include unofficial payments into the price of goods or services. Potential investors lose confidence in their future profits and slow entrepreneur initiatives. This is due to bureaucratic delays in solving productive-economic issues, the inability of the government to safeguard manufacturers’ activity, corporate raiding, 158
protectionism, unfair competition, an excessive number of regulations and government inspections. The result of all this is the growing cost of government projects, a decrease in economic efficiency, and the development of the shadow economy. Corruption in budget relations The highest level of corruption can be seen in the spheres of budget and government property. This process is fostered by the inefficiency of the government sector, inconsistency of the actions of its bodies, unmanageable administration, and the low level of transparency in the process of government decision-making. The handling of unclear legislation actions also results in the growth of corruption crimes. That is why corruption is undoubtedly present in practically all interactions between entrepreneurial companies and the government. Governmental bodies still carry the burden of “old” problems, such as a lack of division of authorities and responsibilities at the level of decision-making and implementation, duplication of functions by different government bodies. Subjective factors that encourage corruption due to an inability of the government to comply with market conditions include low salaries that provoke official bribe-taking. Declared counter-corruption measures are actually only measures to fight its outcomes, and not its causes. The multiplicity of government bodies is also a basis for corruption: Kyrgyzstan is similar to China in the number of its different ministries and agencies. Basic corruption schemes in budgetary relations are the deduction of government resources, overestimated costs of services, goods and materials provided to the government, allocation of budget resources on non-target issues, participation of only “friendly” companies in tenders. Government procurement and logistic procedures seem to be a gold mine for corrupt elements. Another widespread technique of plundering budgetary resources is a “cut economy” (a corruption tool when a certain part of budget money is transferred to an official for a positive or favourable decision). In the sphere of government procurement/ logistics alone, the percentage of stolen funds via “cuts” is at least 15 percent. A very vivid example may be the purchase of cars for newly-elected Jogorku Kenesh (Parliament) of Kyrgyzstan. In accordance with the data from the Chamber of Accounts that made an audit of Jogorku Kenesh at the end of 2007, they had announced a tender for the purchase of “Toyota Camry” cars 75 each at 836,000 KGS each (only 55 were purchased), at a total cost of 62.7 million KGS. It should be noted that the price for each car was approximately $22,600, and, according to Internet sources, the price for each of these car in the UAE is $20,000, which indicates an obvious cost overestimation. Another corruption technique is the sale of government property at underestimated values. We can offer the outcomes of Chamber of Accounts audit, made in JSC Kyrgyztelecom, as an example. One infringement was that this JSC sold their industrial base without the permission of the State Property Fund– a proprietor– at 5 million KGS, which is 75 million KGS lower than the market price. Thus, the underestimated amount was 70 million KGS or 2 million USD [1]. Entrepreneurship also suffers from the pressure of government bodies that have the authority to hold inspection and auditing procedures. According to Taalaybek Koychumanov (Chief of Investment Council under President of the Kyrgyz Republic, Doctor of Economy), “they carry out more than 65 thousand of absolutely unnecessary, and from our view point economically inexpedient or even harmful, audits and inspections in the country” [2]. 159
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Social Research Center American Uni
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The Social Research Center (SRC) at
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policy, but on the politics of loya
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them set up with the sole aim of ac
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has been made. As democratization i
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For a country where the main active
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seemingly happen to form regionally
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• Support the development of self
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synonymous with civil society. Thes
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and to the fact that it is popularl
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in a politically-advanced society w
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Galina Plakhotnikova, Aida Kurbanov
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For such individuals, personal sati
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to focus on donors’ priorities, w
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Sheradil Baktygulov, Independent Ex
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among decision-makers and in genera
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New Middle Classes Classes are anta
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References and Sources 1. Bates R.
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Kyrgyzstan, they did not have a cle
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impossible. Even though the Moldova
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- national programs and projects; -
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awareness of implementation of thes
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also tried to participate in develo
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and its regional programs, to devel
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development in both urban and rural
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the participants of public hearings
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Social Development as the spokesper
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Nookatbek Idrisov, Director of the
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membership fees, donations, grants)
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and (2) the Law on Charity doesn’
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its founders, members, participants
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and property at its balance-sheet v
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Kanykey Jailobaeva, PhD Candidate a
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NGOs to involve the government and
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over the implementation of its init
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His advice on the legislative basis
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presence of those major elements of
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arises; this problem is now apparen
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not a decision-maker, but rather
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Central and Eastern European and Ba
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the vocational-education system sho
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force and its profile, since all th
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is employed in jobs that do not req
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