Kyrgyz Republic

Kyrgyz Republic experienced similar disruptions to other FSU countries from the dissolution of the USSR, but introduced its own currency earlier and moved more quickly towards market mechanisms in the financial area. Its exchange rate was relatively flexible throughout, and by the end of the period it was using mainly indirect monetary instruments to pursue price stability, but in a context of weak monetary transmission mechanisms.

Years Targets and attainment Classification
1992-93 independence (out of USSR) late 1991, some early moves to market economy with prices mostly liberalised by end-1992, but macro policies expansionary in context of ruble area developments; May 1993 introduction of national currency, with its exchange rate determined via weekly auctions, enables some stabilisation in spite of continued disruption to trade and payments from dissolution of USSR, but derailed by high directed credits to SOEs mid-1993, then stabilisation gradually resumed from late 1993; local banks formed from branches of USSR central and specialised banks, plus some small new commercial banks unstructured discretion UD
1994-2017 central bank relied in 1993 mainly on directed credits and refinancing but from 1994 made more use of indirect instruments: credit auctions from February 1993, treasury bill auctions from May 1993, Lombard facility started August 1993 but redesigned mid-1994, and emergency facility late 1994; 1994 bank lending to SOEs in financial difficulties banned; many banks turn out to be financially unsound in spite of attempts to improve supervision and official support; financial market volumes remain low; more use of reserve requirements from 1996; securitisation of outstanding central bank lending to government enables reverse repos in treasury bills from mid-1997; increase in interbank money market activity and secondary treasury bill trading; revival of banking system 1996-7 but financial intermediation remains low; 1997 start of gold production raises growth; new law prohibits central bank lending to government; mid-1998 forex auctions ended, interbank forex market consolidated with new electronic trading system; severe GDP, exchange rate and financial effects from 1998 Russian financial crisis; fall in money demand and rising dollarisation; major banking crisis late 1998 to 1999, restructuring 1999 and especially 2000; central bank issues own bills from mid-2000; exchange rate managed, with view to reserve accumulation and smoothing (only); shallowness of securities markets hinders liquidity control and monetary policy; high level of external debt, arising from long-running problems of fiscal control; from 2001 remonetisation; Tulip Revolution 2005 leads to change of president; major financial sector reforms from 2006; GFC shock 2008 sharply affects prices and economic activity in what is now very open economy, leads to demonetisation and dollarisation; dollarisation and importance of emigrant workers’ remittances complicate monetary policy; 2010 political protests and ethnic violence lead to new interim president, new (parliamentary democracy) constitution and new elected president 2011; largest bank shown mid-2010 insolvent, messy resolution process, problems in other banks, weaknesses in legal arrangements; as of 2013 monetary policy aims mainly at price stability, pursued via effects on reserve money of OMOs, forex operations, reserve requirements and other instruments, but credit and other channels of monetary transmission are weak, fiscal control is variable, and attainment of targets for inflation, reserve money and broad money is often poor; de facto independence of central bank is well below de jure; 2013-15 external (regional) shocks, depreciation vs USD; 2014 shift from monetary base to policy rate as key instrument, with standing facilities to provide corridor, plus focus on price stability, in context of substantial exchange rate flexibility; dollarisation varies but overall remains high; membership of Eurasian Economic Union 2015; interbank market activity falls 2016 despite shift in monetary operations, interbank rate close to floor of corridor loosely structured discretion LSD

Selected IMF references: RED 1993 pp1-3, 20-5, 31, 61-5; RED 1995 pp1-2, 21-8, 34-5; RED 1996 pp11-14, 68-70; RED 1997 pp20-22, 24-7, 55-6; SR 1997 p14; RED 1999 pp28-32, 44-6, 56-7; SR 1999 pp5-16; SISA 2000 pp16, 64-78; SR 2000 pp18-20; SR 2001 p8; SR 2003 pp18, 20; SR 2004 p18; SR 2006 pp18, 20; SI 2011 pp3-8; SI 2013 pp18-29; SR 2015 pp16-17, 27-9, 40; 3rd Review under ECF 2016 pp14-15, 49-52; SR 2019 pp7-8, 10-11.

Other references: National Bank of Kyrgyz Republic (2014 p10, 2016 pp34-5).

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