Kyrgyzstan: The Cameras of June (2010) - Part II

Welcome back to the second part of the three-part series on understanding Russia's options vis-à-vis the June events in Kyrgyzstan.  With this part, we complete erecting the fact-framework that is necessary to surge ahead at full steam with the analysis of Russia's options.

Glaciers move at the the rate of a few feet or higher per year.  This motion occurs due to the effect gravity and thermal energy has on glacial deformation, thermal energy has on relative coefficient of friction, the effect of earthquakes (glaciers can themselves induce earthquakes, for example, when glacial beds have a spatial water-absorption or brittleness differential) and gravity-induced sliding.  In a hard to quantify but metaphorically similar manner, the key choices of protagonists in geopolitical games remain the same for a long period of time since those choices are shaped by the key interlocking interests of the main players, the forces of history, the logic of geographic and cultural proximity (or distance), topography, the macroeconomic environment and other factors that tend to change, at a glacial pace.  The June story has not turned sour yet (aren't you glad for that!). 

Yours, thinking about Malaysia risks-and-opportunities Analyst,

AA

  

PART II - INTEREST OF KEY PLAYERS IN KYRGYZSTAN

This section discusses the interest of key players in Kyrgyzstan.  It is however non-trivial to a casual observer who these players are.  So, let us identify these first before we head straight to address the title of this section.

Russia belongs right at the top of the list for two reasons - Kyrgyzstan was part of the Soviet Union for seven decades until the latter’s dissolution in 1991 and because Kyrgyzstan became independent not because it fought for, or even chose, it but because the center could not hold.  With Russia’s reemergence in the past decade, the logic of geography and historical links are reasserting.

China shares a 1,100km long border with Kyrgyzstan.  It is the second most important foreign player and its influence in Kyrgyzstan, unlike that of Russia, is growing.  While several mutual desirables are the cause and reinforcers, China’s influence has three main underpinnings - its interest in acquiring rare earth metals, elite consensus in Kyrgyzstan that favors increasing the extent and diversifying the source of foreign stakeholdership in its economic and security matters, and Russia’s interest in promoting non-Western [1] trade interests in Central Asia.

The US comes third.  Its interest in Kyrgyzstan is mainly transactional [2] and therefore even while its influence is substantial at times; it can unexpectedly wane, or wax.  This may appear surprising given that US’ principal goal in Central Asia, which is to build the foundations for the emergence and self-sustenance of liberal democracies [3], entails a rather long-term endeavor.

Canada, Germany and South Korea have significant mining interests in Kyrgyzstan.  Their activities are however those of a profit-seeking agent in a still-nascent industry.  While they bring the technical skills and financial capital that are much needed in Kyrgyzstan, there are several other countries that could fill the gap should they leave.  As a result, their interest in Kyrgyzstan does not generate a strategic surplus.  Therefore we do not further discuss their interests in this paper.

India is a minor player in Kyrgyzstan.  However a substantial rise in its activities in the region will have profound geopolitical implications since it can only happen on the back of a land route that connects Central Asia through Afghanistan and Iran to the Iranian ports in the Indian Ocean.  Such a route will mark the ultimate realization of the 300 year old Tsarist dream (see the section on Russia), make the ‘Pakistan question’, a question that dominated India’s strategic thought for much of its six decades since independence, irrelevant, and bring China and India in the same landmass for the first time [4], in direct competition in a resource rich region.  Therefore we also discuss India’s core strategic interests in Kyrgyzstan.

Kazakhstan and Uzbekistan are large countries [5] that border Kyrgyzstan - this alone warrants the discussion of their key strategic interests in this section.  However as framed by the cameras of June [6], Russia’s choices in Kyrgyzstan are not impacted by their interests.  Therefore we leave their interests in Kyrgyzstan out of this paper.

In the subsections below we discuss the key strategic interests of each of the main players mentioned above.  Often, we will refer to their regional, and not their Kyrgyzstan-specific interests since their interests are shaped for the most part by their regional view as opposed to a Kyrgyzstan-specific view.

RUSSIA

Russia Folds Up  Kyrgyzstan was a Soviet state for seven decades until the USSR collapsed in 1991.  In the consequent demographic shock, the pool of military manpower of its successor state, Russia, shrunk by over 40% and Russia’s economy suffered a sharp decline during the long and painful transition from the organizing principles of state-instituted collectives to a free-market economy.  With unfavorable demographic and economic conditions and a loss of ideological moorings stacked up against a considerably weakened spirit, Russia folded up its military presence from Kyrgyzstan [7], rather abruptly; back then one could have pat the bear without the fear of being mauled.

Russia Returns  As Russia turned inwards, communism receded from the Eurasian landmass and new sovereigns emerged.  These states needed aid, an admission into the international system and a re-jig of their trade relations.  The US was best positioned to provide that, or at least, the hope for it.  In the backdrop of such a benign environment the US forayed into the ideological vacuum [8] to lay the institutional foundations of future liberal democracies.  In the military space, with the inclusion of the Czech Republic, Hungary and Poland into the NATO alliance in 1999, the US advanced for the first time into regions that formerly fell within sphere of exclusive Soviet dominance.  These advances however remained limited to the west of the Caucasus until 4Q2001 when the US took over the Karshi-Khanabad and Termez airbases in Uzbekistan and the Manas airbase in Kyrgyzstan in support of its war against Afghanistan.  The fear of another US expansion into its sphere of influence, this time in its southern underbelly, brought Russia back into the region after a 12 year hiatus with the establishment of its first overseas base in Kant, Kyrgyzstan, just 30km from the US airbase in Manas.

Origins of Russia's Interests in Central Asia  Russia’s interests in the region go back to the seventeenth century when naval power began to emerge as a prime determinant of international power.  Russia however lacked warm water ports necessary to compete effectively with the European and the Ottoman navies.  It therefore set its eyes on expanding in three directions - towards the Yellow Sea in the Far East, the Black Sea and the Mediterranean Sea to the west of the Caucasus and the Indian Ocean to the east of the Caucasus.

The Yellow Sea is removed from the Russian core by over 7,000km and was not on any major sea trade route until the late nineteenth century [9]. Towards the west of the Caucasus, Russia’s attempts to establish dominance were stalled by the Ottoman Empire or, whenever the latter appeared as if it would be routed in war, by the timely interventions by the British and the French.  Towards the east of the Caucasus however, Russia was able to silence the Khanates, including those in present day Kyrgyzstan.  By the late 19^th century, Russia had reached the northern borders of Afghanistan, within 1,000km of the warm ports in the Indian Ocean.

Russia's Strategic Interests  With an eye fixated on warm water ports for over 300 years, Moscow has looked at the world rather differently from how it appears in standard cartographic depictions.  This fixation calls for developing land routes that connect its core with ports in southeastern Iran, neutralizing Islamist influences in Afghanistan and keeping Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan within its sphere of military influence.

Map 1: A Moscow-centric world

Russia has three additional interests in the region - keep Islamic fundamentalism in check, dominate the Central Asian land trade routes and, in the context of the several decades of weak demographics it faces, reduce drug-related fatalities [10] by checking contraband drug trade that originates in the Af-Pak region.

The first calls for denying political space to Islamism through the development of regional multilateral institutions to anchor Central Asia into cooperative economic and security arrangements, counterbalancing the Sunni Arab influence by supporting Iran's ambitions for emerging as a regional power and weakening terror groups in the Af-Pak region by working with the Northern Alliance, India and Iran and striking at contraband trade in narcotics, one of the primary sources of terrorist financing.

The second calls for establishing permanent military bases in the Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan and denying similar opportunities to others, particularly to the US and China.

And the third calls for firming up border controls in Kyrgyzstan, Tajikistan and Uzbekistan, strengthening their government machinery, cooperating with Iran on border control measures and ensuring that foreign powers in the Af-Pak region do not condone narco-capitalism in cutting deals with the local powers.

CHINA

The Virtuous Cycle and China’s Trade Policies  The ‘virtuous cycle’ of access to cheap credit, a decade of low consumer price inflation and rise in asset prices in the US well above their historical means was enabled by a massive redirection of household savings in China and arbitrage in laws relating to the environment, labor rights, workplace safety standards and land ownership.  Its decades-long policies of keeping the Renminbi undervalued, of financial repression [11] and of instituting the dominance of the banking system in retail savings services discouraged private consumption.  Thus the counterpart of the virtuous cycle experienced in the US, in China, was a huge rise in productive capacity and dollar-denominated assets and a massive expansion of the infrastructure.  Low labor costs and labor inflexibility [12] yielded an industrial sector that has high operating leverage.  While the financial leverage of China’s industrial sector is not high, it is not hedged against a protracted downturn in its principal markets.  China’s private sector must therefore diversify its export earnings and the destination of its investments overseas.  Thus one can speak of two constants in China’s trade policies - it would seek alternative export markets and it would get increasingly mercantilist.  For commodities with strategic value, China would bypass the markets and instead acquire mines [13] and agricultural lands or lease the use of such assets on a long-term basis [14].

China’s Interests in Kyrgyzstan: an offshoot of its Trade Policies  China’s strategic interest in Central Asia, including Kyrgyzstan, is a direct manifestation of its trade policy - export goods to the region and use its dollar holdings to gain control of the region’s vast mineral and energy resources.  It is financing the construction of an extensive network of energy pipelines connecting fields in Turkmenistan, Uzbekistan and Kazakhstan with its westernmost province, the Xinjiang Uyghur Autonomous Region (XUAR) [15], [16], [17].  Due to the difficult topography of Kyrgyzstan, these networks mostly bypass Kyrgyzstan (see Part 1).

Map 2: China and O&G pipeline network in Central Asia

How the Region Views China’s Engagements?  China’s engagement has been viewed positively by the Central Asian governments.  There are three reasons for this; Russia dominates the security affairs of this region.  China’s presence is viewed as an important counterweight [18].  Second, China’s investments are not conditioned on progress on the issues relating to human rights of transparency of governance.  This gives the Central Asian republics room to maneuver in their trade relations with the Europeans.  Third, the global financial crisis of 2008-09 hit the Central Asian republics hard.  Their construction and consumer spending boom was driven by cheap foreign currency loans from foreign banks.  As the crisis hit, these banks withdrew lines in order to shore up their liquidity positions back home.  This in turn induced a severe liquidity crunch and a sharp depreciation in local currencies in the Central Asian markets. In the mean time, Russia, which otherwise would have supported the CIS countries, was suffering from Ruble depreciation and a rapid fall in its own foreign currency reserves, triggered by a combination of fall in commodity prices, sharp risk aversion and withdrawal of foreign currency lines by international banks.  The EU’s continuing problems that began with the crisis are all well-known.  In addition to action of banks and a sharply reduced ability of the US, Russia or the EU to extend help, the Central Asian countries suffered from a sharp fall in worker remittances, particularly, Kyrgyzstan, Tajikistan and Uzbekistan where the remittance to GDP ratios are 27%, 30% and 8%, respectively [19], a fall in international aid, a sharp drop in asset prices and a spike in borrowing rates as money flowed out in search of safe havens.  In such a difficult time, China was the only nation that had both, the wherewithal and the interest, to extend strategic economic aid and make investments needed to sustain the exploitation of energy and mineral resources in the Central Asian region.

Strategic Benefits to China  The infrastructure links with Central Asia will reduce China’s concentration in oil imports from the Middle East, Sudan and Libya which stand at 58% [20] and make land-based access [21] to the Iranian oil and gas reserves feasible.  These potentialities are consistent with China’s principal long term goal vis-à-vis energy security which is to lower its dependence on the use of sea routes for energy imports as they pass through choke points [22] dominated by the US navy, and now, increasingly by the Indian navy. 

Potential Risks to China  The infrastructure can support the flow of nuisance just as well as it would support the flow of goods and mineral wealth, and people-to-people contacts can help nurture trade links just as well as they can fan sympathies and deeper support for separatist movements [23].  China is therefore working with the governments of Kazakhstan, Kyrgyzstan and Tajikistan, to step up border control measures directed at arms and narcotics smuggling and illegal border crossings, and encouraging them to deny political space to groups sympathetic to the idea of an independent Uyghur homeland.

USA

The End of the Cold War and US Overseas Force Deployment  The Cold War ended in the breakup of the Soviet State and the world woke up to an inward looking Russia.  With the Russian threat removed, Germany spent its immense energies over the next decade in absorbing the cost of German reunification and the EU project.  The US channelized its surplus diplomatic energies into furthering and deepening the international commitment to the concept of free trade and creating conditions necessary for the emergence of liberal democracies in Russia’s periphery.  The economic boom that followed pushed the question of both, the relevance of US force deployment in Western Europe and the utility of US’ military surplus into the background, until 9/11 happened.

The US Invades Afghanistan  US-led allies attacked Afghanistan in October 2001 following the Taliban regime’s refusal to hand over Osama bin Laden and his accomplices that were suspected of having masterminded the 9/11 terrorist attacks.   What began as a massive air campaign was soon transformed into a series of long-drawn [24] tactical land battles on both sides of the Durand line [25].  The decade-old question of relevance of US deployment in Western Europe was revisited; US boots on Western European soil were substantially reduced while those in the Af-Pak region swelled to nearly a third of pre-1991 Western European deployment levels.  Pakistan’ support was enlisted and a logistic line from the seaport of Karachi through more than 1,000km of Pakistani territory, a line that is ideal for moving heavy equipment, fuel supplies and stocking up inventories, was established.  However this line was inadequate, inefficient and risky.  Multipliers were needed.

US Moves into Central Asia  Pakistan’s ideological and institutional association with the Taliban movement provided the US a perfect foil for moving into Russia’s underbelly in Central Asia.  Three other logistic lines were established in support of the Afghan war, two from Uzbekistan and one from Kyrgyzstan.  These lines are much shorter, cheaper to operate and originate in countries where the Taliban enjoys little popular support.  Besides, US’ presence was favored by the particular combination of geopolitical and economic realities in the region - leasing airbases would earn the two countries valuable foreign exchange and the US presence would provide a counterweight to the Russian and Chinese dominance of their political and trade relations, respectively.  US’ presence was also welcomed by Russia as it addressed Russia’s problems arising out of the export of destabilizing influences [26] emanating out of Afghanistan and relieved pressure on it in the Caucasus.

Despite its military presence, US’ actions in the region remain mainly transactional and its interest in Kyrgyzstan’s airbase relates mainly to US’ war in Afghanistan [27].  On the other hand though, it will continue to develop institutional assets in Kyrgyzstan that can be brought to bear additional pressure on Russia or China, particularly in situations that force them to choose between making further, difficult commitments in support of Kyrgyz elites or risk tarnishing their reputation [28].

INDIA

India’s Historic Connections with Central Asia  India lies on the ancient Silk Route [29], the route through which both trade and invasions flowed.  Babur, the founder of the mighty Mughal Empire in India in the early sixteenth century, was born in Andijan, a city in present day Uzbekistan.  For several centuries until about the mid-1900s Persian served as the lingua franca for trade, military and political exchanges between the peoples of the two regions.

Map 3: The historic Silk Route

India Loses its Connections  Around the mid-1900s, the Russian Empire conquered Central Asia and the British Empire conquered the Indian subcontinent.  The two regions were thus drawn into separate spheres, the centers of which maintained a cold peace only where the two did not collide.  The Persian language fell into disuse as the language of the elites and was replaced by Russian in Central Asia and English in India.  Furthermore, due to fear that Russia’s search for warm water ports would lead it to invade the subcontinent; the British established a buffer zone in what lies in the present day Afghanistan.  Thus direct contacts between the two regions were lost.

India’s Interests in Modern Times  India’s foreign policy goals in Central Asia are two - reestablish trade with the region [30] and safeguard against threats from its northwestern frontiers [31].  India’s trade presence in the region however remains insignificant in comparison with that of other powers in the region.  This is mainly because land-based trade must pass through Pakistan; a difficult proposition given the relations between the two.  And while Iran and Russia remain enthusiastic supporters of India’s seaborne trade, which must pass through Iran, India has so far been diffident in pursuing this option in deference to the US.  Nevertheless the region remains a growth market for India, particularly in the pharmaceutical, textiles and information technology sectors and the Central Asian countries seek to benefit from low cost technologies, help in diversifying the industrial base and access to the Indian market, including the export of education services [32].

Towards the security end, India has purportedly established its first overseas air force base in Ayni, Tajikistan [33].  In India’s view, the emergence of economically growing, pluralistic democracies in the region would have the most benign influence on its own security.

---

[1] Germany - a country with which Russia has a budding, special relationship - is an exception.

[2] Given US’ principal goal (see the next footnote) and facts relating to Kyrgyzstan’s topography, inaccessibility from the sea, small population base, unstable internal politics and lack of fossil fuel deposits, US’ interest in Kyrgyzstan is mainly transactional and will continue to remain in the foreseeable future.

[3] Liberal democracies in Central Asia undermine Russia’s influence in the region.  Weaning the republics away from the Soviet sphere of influence is US’ principal goal.

[4] The two countries already share a 3,488km long land border.  However that is dominated by the inhospitable Himalayan Range.  Therefore the two have traditionally belonged to regions that abut, but are yet separate.

[5] Kazakhstan’s GDP is 26.5 times the GDP of Kyrgyzstan while Uzbekistan is 5.5 times as populous.

[6] For those who need a reminder - understanding Russia’s choices with respect to recent events in Kyrgyzstan is the central theme of this paper.

[7] and from all other former Soviet states

[8] The emergence of the new states was not a result of freedom struggle or struggle for assertion of cultural, ethnic, linguistic or religious rights.  The Soviet breakup surprised the local elites themselves and an ideological vacuum replaced communism.

[9] after the Meiji Restoration in Japan in 1868

[10] For its deleterious impact on demographics, the problem of Vodka-sipping has also gained strategic dimensions.  However a solution to the problem of excessive drinking has to emerge internally.

[11] Financial repression in China is visible most in its policy of fixing a minimum positive spread between the minimum lending rate and maximum deposit rate and the rather restricted access of consumers to credit.

[12] The macro-level inflexibility of China's urban labor results from the view of the political elites that an increasingly expanding base of employed citizens is necessary for maintaining societal stability.

[13] such as, those that have rare earth metals or oil & gas

[14] Over the past two decades, China had increasingly contributed to keeping global consumer prices low.  I think that stage is now past and the world will see China exporting inflation in the coming decade.

[15] Financial Times, Isabel Gorst, Apr 17, 2009

[16] Sébastien Peyrouse, “The economic aspects of the Chinese-Central Asia rapprochement,” Silk Road Studies, Jul 9, 2007.

[17] Stephen Blank, “China’s recent Central Asian energy moves,” CACI Analyst, May 20, 2009.

[18]  This view extends beyond Kyrgyzstan; the elite consensus in the region is that an increase in stakeholdership of foreign powers in their economic and security matters and a rise in the number of such powers best serves their long-term interests.

[19]  Erica Marat, “Shrinking remittances increase labor migration from Central Asia,” CACI Analyst, Nov 2, 2009.

[20] Source: personal analysis, FACTS Global Energy

[21] passing through Pakistan, the Pakistan-administered and the China-administered portions of the state of Jammu & Kashmir into Tibet or Xinjiang.

[22] the Strait of Hormuz, Hambantota on the southern tip of Sri Lanka and the Malacca Strait

[23] The separatists in the China’s XUAR belong to the same religious and Turkic ethno-linguistic group as do a majority of people in Central Asia states.

[24] Multiple arguments support the a priori expectation of a long-drawn invasion.  For example, past invasions of Afghanistan have been long drawn.  Alternatively, one could base that expectation on the observation that since WWII, a US invasion has had two constants - the US has never invaded a country larger than the state of Texas and that once the US invades, it digs in for an extended period of military presence.

[25] The Durand Line refers to the poorly marked border between Afghanistan and Pakistan.

[26] terror, Islamist ideologies and contraband drug trade

[27] In fact, should the US be preparing to wind down its commitment in Afghanistan, one could see it far more amenable to pressures for giving up the Manas airbase in Kyrgyzstan.

[28] We saw this happen in the June 2010 crisis in Kyrgyzstan - while the Western institutions repeatedly highlighted Russia’s inaction; the Kyrgyz people questioned the utility of Russia’s military presence in their country and of their participation in the CSTO, the Russia-led regional security grouping.

[29] The term was coined by the German geographer Ferdinand von Richthofen in 1877.

[30] Such an event would lay to rest the congenital conflict between Pakistan and India.

[31] This goal is the same as that the British Empire adopted vis-à-vis Central Asia.  However, the geopolitical context has changed - it is not Russia’s gaining warm water ports that concerns India but the contraband trade in weapons and narcotics emanating from the region and its impact on India’s internal security.

[32] Several hundred Indian students study in medical schools in Kyrgyzstan and Kazakhstan.  India plans to facilitate growth in outbound students to the region in the field of petroleum engineering and geophysics.

[33] Osh, the city Kyrgyzstan that experienced widespread ethnic riots, is about 400km from Ayni.

Kyrgyzstan: The Cameras of June (2010) - Part I

PART I - KYRGYZSTAN: KEY CHARACTERISTICS & THEIR IMPLICATIONS

We are back to Kyrgyzstan - the land of forty tribes.  I hope you enjoyed the preface that I posted a few days back.

Gaspar Noé did a brilliant job with reverse chronology in Irréversible. Perhaps that works only with films though.  Or I am not just good at it.  Thus, if you have not already read my previous post on Kyrgyzstan then I would encourage you to stop right here and read that first.

This part describes the key national characteristics of Kyrgyzstan.  I think it is absolutely essential to understand these.  Even if you disagree, I promise, it will be a fun read.

In the second part, which should be out some time next week, we will discuss the key strategic interests of Russia, China, USA and India -the 4 main foreign players in Kyrgyzstan.  These parts should set stage for explaining how the Cameras of June framed Russia's choice of further actions.

Yours, too sleepy to type more analyst,

AA

KEY CHARACTERISTIC: LOCATION & POLITY

Kyrgyzstan has an area of 200,000 sq. km. It is doubly land-locked and borders with Kazakhstan to its north, China to its east, Tajikistan to its south and Uzbekistan to its south west. Its capital is Bishkek, a city with a million people.

Kyrgyzstan and its neighbors

Kyrgyzstan emerged in 1991 as a sovereign state following the dissolution of the USSR. Newly formed sovereigns tend to adopt political structures of their former masters even when other forms of polities would be more suitable. Kyrgyzstan was no different; it cast itself as a presidential republic even though given its topography, weak center and ethnic fault lines, a governance system based on parliamentary democracy would have been more appropriate. A presidential form of governance in such a state accentuates existing fault lines and raises people’s expectations beyond what the state has the capacity to deliver.

Incidentally, in a constitutional reform referendum on Jun 27, 2010, Kyrgyzstan voted for a move to a system based on parliamentary democracy. We however have serious reservations if the referendum vote will be durable or even, will bring the stability that we just theorized that parliamentary democracy should in Kyrgyzstan! The reason we have our reservations is because the referendum asked two questions (see David Trilling's article) - whether the leader of the provisional government should be confirmed as the president for the next 18 months, while an important question, this has no long term significance; and whether the country should move to a system of governance based on parliamentary democracy, a question with profound structural implications. However the voters were given only a single binary choice - if a voter were to indicate a ‘yes’ then that would be assumed to mean a yes to both questions and similarly, a ‘no’ would be taken to mean a no to both questions!

Clearly, the voters would have a tendency to answer the first question in the affirmative since the leader and several others in her provisional government rode to power just a few months back on the back of popular discontent that overthrew the previous government. Thus the question of parliamentary democracy appears to have gotten a free ride. As a parting remark on this matter, we wonder why a referendum on a matter of such profound importance was conducted at a time when the nation was on a boil. Even if a vote for parliamentary democracy would usher in a utopia, the near-term direct benefits of such a vote would still have been zilch.

KEY CHARACTERISTIC: TOPOGRAPHY

Kyrgyzstan is dominated by the Tien Shan mountain ranges that run in the east-west direction. Forty percent of its territory lies at an elevation of more than 3km. The country is very rich in water resources - it has several thousand glaciers that give rise to numerous rivulets and endows it with well-fed perennial rivers. The rivers are however not navigable as the water flow is rather rapid. Kyrgyzstan therefore lacks natural features needed for intra-country connectivity. 

Kyrgyzstan: Elevation Map

Kyrgyzstan’s topography has profoundly shaped its internal environment and external interests in the region. The ranges fragment the country into multitudes of small valleys that are interlinked only by rudimentary networks, many of which are unsuitable for year-round mechanized transport. The lack of geographic connectivity has fragmented domestic markets and political decision making, rendered nationwide programs ineffective and, helped barter trade flourish, as a result of which, its central bank policy actions are rather ineffective.

On the military front, Kyrgyzstan's mountains are young and therefore have steep rising slopes. This makes the terrain unsuitable for large scale infantry movement and makes the deployment of heavy artillery infeasible. Therefore Kyrgyzstan is not attractive for foreign powers seeking to establish bases to project raw power. Nevertheless, its western and northern borders look over historic routes that are being modernized by China, largely to support of its mercantile, over-the-land trade with Kazakhstan, Uzbekistan and Turkmenistan, and perhaps Iran in the future. Therefore Kyrgyzstan can offer listening sites to foreign powers, the attractiveness of which will grow as China makes further inroads into Central Asia. Kyrgyzstan however is unlikely to see commensurate benefits as it itself is not in a position to put these bases to effective commercial or military use.

KEY CHARACTERISTIC: DEMOGRAPHICS

Kyrgyzstan has 5.4 million people, 70% of which are ethnic Kyrgyz, 15%, ethnic Uzbeks, and 9%, ethnic Russians. The Uzbeks are concentrated in the west and the Russians in the north. Muslims are 80% of the population and those belonging to the Russian Orthodox Church, 15%.

Kyrgyzstan - population growth trend

Since independence, the ethnic composition of the country has changed significantly mainly because of emigration of non-Turkic people, particularly the ethnic Russians who now comprise 9% of the population, down from 20% 1991. Fertility rate differential has been the other main contributory factor for the share of ethnic Kyrgyz population rising from 54% in 1991 to 70% today. The demographic change has had a profound economic and social impact.

Impact of Demographic Changes on Agriculture During the Soviet era, collective agriculture was the norm. This allowed economies of scale which in turn permitted cost-effective deployment of the technical know-how. Traditional skills were however lost in the process and replaced by veterinarians, agriculture and logistics experts, civil engineers and traders, most of whom were ethnic Russians. Their emigration caused production and transportation systems built on the foundation of the ideology of collectivity to collapse. The domestic market was fragmented. Agriculture, once a commercial success, was reduced to a subsistence-level activity and has, despite two decades since independence, largely failed to recover.

Impact of Demographic Changes on Internal Stability The ethnic fault lines in Kyrgyzstan run deep and trace their origins to the Soviet policies of large scale population resettlement and redistribution of land between ethnic groups to achieve the twin goals of internal stability and economic progress. In Kyrgyzstan, fertile lands in the Fergana valley that were traditionally owned by the Kyrgyz were transferred to Uzbeks for agriculture. As a result, Kyrgyz discontent simmered during the Soviet era. When it surfaced, it was directed at the Uzbeks. Ethnic Russians were seldom targeted as they were seen as the local presence of the powerful Soviet state and because they were considered critical to the economy. Their presence also ensured stability between the Kyrgyz and the Uzbeks as they had the ability to incentivize deals between the two peoples whenever such a need arose. With its demographic transformation however, Kyrgyzstan has lost its traditional balancer. Therefore, relations between the Kyrgyz and Uzbek peoples of Kyrgyzstan come to a boil more often, and with greater intensity.

Regional Security Ramifications of Demographic Changes As the demographic transformation continues and its lagged effects begin to be felt, the Kyrgyz society could look far more polarized in the future than it is today. Such a polarization would have a security impact that would ring far beyond the borders of Kyrgyzstan itself. Let us see how.

A country can tolerate only a limited amount of polarization amongst its principal groups without its institutions giving into the centrifugal forces such a polarization would generate. The center could however adapt to check the increasing competition amongst the polarized groups. How would the center adapt in the case of Kyrgyzstan? - While ethnic identities divide, Islam is the religion of over 80% of Kyrgyzstan's population; an overwhelming majority of both, ethnic Kyrgyz and ethnic Uzbeks, are Sunni Muslims. Islamism, the political philosophy based on the axioms that a shared Muslim identity transcends all other forms of societal divisions, that the problems in Muslim societies are caused by an incomplete adherence to Islamic tenets and that such problems can only be resolved through a vigorous projection of the religion of Islam into the political sphere, has provided an attractive rallying point in other countries with large Muslim populations where the social, political and economic mechanisms have failed to deliver societal equilibrium. Thus despite the current strong separation between the Mosque and the State in Kyrgyzstan, at some point in future, the center could fall back on Islamism to check the growing ethnic polarization and thereby, strengthen the hand of regional Islamists who seek to establish a Central Asian caliphate. Should that happen, the expansion of China into Turkmenistan and Uzbekistan and, to some extent into Kazakhstan, that is powered by its enormous dollar reserves and surplus productive capacity would unwind, Islamist movements in Uzbekistan will receive a morale boost, Russia’s ability to play as a balancer will be even reduced even further and US' cost for projecting power into Afghanistan and northwest Pakistan will rise.

ECONOMY


GDP Prior to 1991 nearly all of Kyrgyzstan’s output was consumed locally or in other Soviet states. The dissolution of the USSR disrupted traditional trade linkages, the emergence of new sovereign borders fragmented the markets, Soviet-instituted subsidy programs that formed the bedrock of agricultural activity disappeared and people with technical skills emigrated. Kyrgyzstan’s GDP sharply contracted for several years following independence. Today it remains a low-income country, ranked at 146 out of 180 countries in 2009 by the IMF based on nominal per capita GDP. The five pillars of its economy are subsistence-level agriculture, hydroelectric power generation, mineral exports, remittances and international aid.

Kyrgyzstan - real GDP growth rate

Agriculture Agricultural output contributes 35% of Kyrgyzstan’s GDP. Only 8% of Kyrgyzstan is arable but 45% can be used for rearing, thus making animal husbandry a major component of the output. Agricultural efficiency has fallen significantly since with the collapse of the USSR came the collapse of collective farming, disappearance of a guaranteed export market and a sharp fall in both state-subsidies and capital investments. As sovereign boundaries emerged, winter grazing grounds in Kazakhstan were cut off. As a result, transhumant grazing suffered leading to an unsustainable cull of large herds of sheep.

Energy Kyrgyzstan has almost no fossil fuel though is endowed with significant hydroelectric power potential. At present, only about 10% of this potential has been exploited. Despite that, it has surplus power which it swaps with Uzbekistan and Kazakhstan for fossil fuels. Energy prices however remain highly volatile (In the case of Kyrgyzstan, energy price volatility affects more than just the economic output - sharp rise in utility prices in 2009 caused popular discontent that lead to the overthrow of the Bakiyev government in April 2010.) due to four reasons: (i) oversupply of electricity, even at the current level of generation, (ii) electricity is not a fungible form of energy, (iii) the export market is limited and, (iv) the unstable nature of intra-state relations in Central Asia limits Kyrgyzstan to only short-term or small-scale swap agreements.

Contrary to the generally held view, it is not capital investments but the low fungibility of its electricity that limits the full realization of Kyrgyzstan’s hydroelectric potential (At full potential, Kyrgyzstan’s electricity exports could increase at least 10-folds to reach 20% of its 2009 GDP.).  Its electricity exports are priced at about US¢3.1/kW-hr which is less than one third the price of electricity generated by gas or oil fired plants in its export markets. Improving the fungibility of its electricity exports will lead to a significant rise in capital investments. Fungibility can be significantly enhanced through the construction of a regional power grid to supply electricity to large but deficient markets in Afghanistan, India, Iran and Pakistan. The plans for a regional power grid however remain infeasible due to the difficult security environment in the region and because the balance of geopolitical imperatives of the key regional and international players remain tilted against the enhancement of Central Asia’s economic linkages in the direction of warm water ports in the Indian Ocean.