Download I will focus on Kazakhstan and Uzbekistan because both countries

The Tale of Two Twins: Kazakhstan and Uzbekistan
By Julio ESPINOZA
INTRODUCTION: LANDLOCKED AND STUCKED COUNTRIES
The reader must excuse me if I do not know much about the post soviet space. I really
thought that most of the world was struggling to make progress, but living in the post soviet
space makes me feel that there are countries that are stuck in the past or even regressing. I
just discovered some countries that I thought had died of self shame when the USSR passed
away. I am talking about Rentseekinstan, Kronyismstan, Korruptistan, Sultanistan, and
Absurdistan, countries that are not only landlocked in Central Asia but also in history. They
are even more newly independent than some African countries but have inherited all the best
practices of weak post colonial countries run by predatory elites that not only deny freedom
and welfare to the people but also reach deals with foreign powers to make the most of the
natural resources of the nation.
Many countries under socialism chose authoritarianism and state run economies in
order to achieve development and modernization, but they failed. Now that the USSR is over
and socialism is dead, some of the former socialist countries are transiting to the opposite:
democracy and free market, but others are still stuck in a mixture of authoritarianism and
state run economies Many countries in transition have overcome the underreform and
underdevelopment traps to achieve higher living standards than when part of the socialist
block but others are still under the traps.
Kazakhstan (KZ) and Uzbekistan (UZ) are two countries that, having inherited all the
non liberal practices and the competitive disadvantages of the Soviet Union, found
themselves in a world that was mostly liberal, interdependent and extremely competitive. KZ
and UZ are like the playground of any tyrant for their vast natural resources, lack of social
capital, centralized and oligarchic economies and oppressed and impoverish populations.
Both countries are ruled by god-kings that rely on blood, economic and political loyalties to
govern. Both countries are ruled by predatory practices that distribute the lion share among
the powerful financial-industrial groups and exclude the poor. Both countries are made of
rural populations that are busy trying to survive. The middle class is limited and very
oppressed.
KZ and UZ are probably the most stable and advanced countries in Central Asia
therefore it is important to understand why, even very blessed with resources, KZ and UZ
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peoples are living like slaves, slaves of authoritarianism and poverty. My background
assumption is that liberalism is the best option for the post soviet space countries to achieve
modernization. History and statistics demonstrate that there is no superior form of
organization for granting freedom and equality rather than liberalism. My research questions
are as follows: What is halting KZ and UZ from democracy and prosperity? Why did these
well endowed countries have not been able to insert themselves into the new world order?
My claim is that the economic-political elites, in order to remain in power, are preventing
their countries from improving living standards by liberal reforms and full participation in
Globalization. I will present and then contrast the political and economic profiles of the
countries.
POLITICAL PROFILE OF KZ
KZ political system is contradictory. KZ is pragmatic and open when it comes to its foreign
policy. One can even say that KZ is a friendly regime to the West, given the fact that KZ
holds the 2010 presidency of the Organization for Security and Cooperation in Europe
(OSCE) and its working with Westerner transnational companies. But in the domestic arena,
KZ is still authoritarian. There is not genuine political liberalization and conditions for
independent media and civil society. The country is still ruled by an old soviet guard
president who is getting older in power. President Nursultan Nazarbaev honors his first name
and has ruled the country like a sultan for twenty one years. The president rules the public
and private sectors and the three branches of government by means of a system of patronage
where loyalty to the almighty president is rewarded with especial favors.
KZ is not a free country. The presidential system relies on a single pro-government
party and power brokers. By the 1995 constitution, the first president of KZ has been
conferred unchecked powers for unlimited terms in office plus immunity from prosecution.
NurOtan is the only political party and has all seats in parliament. The electoral system works
for the government and requires a threshold that only the governing party or an authorized
opposition can reach. Civil society is faked and is run by NGOs supported by the government
in sectors like social work and infrastructure development, sectors that could be used for
money laundering and loyalty favors. By granting money to civil society projects the
government could be outsourcing tasks to power brokers and obliging people to remain loyal
if they want to receive more social benefits. Mass media companies are competitive among
them but remain under control of the power brokers and therefore the press keeps away from
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political debates that could hinder the interests of their masters. KZ also suffers of internet
censorship. The Judicial and the Legislative branches operate under presidential rule and
remain loyal to the regime protecting the interest of the powerful but not the interest of the
people. Corruption is a widespread practice, mostly between the ruling authorities and the
economic players when it comes to distribute resources. All allegations of corruption are
managed by a presidentially appointed prosecutor.
KZ is run by few families and power brokers that possess control over economic and
political interests. It is true that the clan of president Nazarbaev holds some turf but new
power brokers have emerged in the economic sector. Membership to the inner circle of the
president is not merely based on ethnic considerations. Financial-industrial groups and are
not loyal to blood considerations but to money making reasons. The president’s inner circle
encompasses the people who control the oil and gas sectors. The external tiers of the circle
are made of other barons who still amass a lot of money with the blessing of the president but
are not so wealthy and powerful as the kitchen cabinet. The president has been able to seduce
all the stakeholders by literally buying loyalties and distributing the pie. However, there is
competition among all the power brokers and between the inner and the external circles.
President Nursultan Narzabaev might not be so strong and autonomous as he seems to
be. He might owe some of his power and loyalty to the power brokers that have been able to
amass great fortunes under his administration. So far the president has been strong enough
and has played with the stakeholders in a way that he remains the sole arbiter of the country.
President Narzabaev will remain in power and KZ will remain authoritarian for a while. For
now as long as KZ’s economy grows and remains shared by the power brokers, there will be
more authoritarianism.
But chances are that whe Narzabaev passes away, probably in the next decade since
he is 70 now, there will be a fight over the economic and political turf and there is risk that
the transition will not be peaceful.
KZ faces too many challenges for growing democracy roots in its own soil. KZ is not
a democratic country because it lacks of basic political rights and civil liberties like
association and free speech, there is no valid opposition neither civil society, leave it alone a
fair electoral system with fair elections. The elites who run the country have no interest in
democratizing the political system because so far the system allows them to make the most of
the practice of rentseeking. Therefore there is no social capital and KZ is trap under the trap
of authoritarianism and there are no possibilities for liberalism to come soon.
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ECONOMIC PROFILE OF KZ
KZ, being the largest country and economy in Central Asia, has always been a mining
and agricultural economy, relaying on its natural resources. The country is a new Dorado,
with promising oil reserves that when they reach their full exploitation can be an alternative
source to the Middle East. KZ is famous for the different pipelines that cross the country
towards the Western and the Eastern markets. KZ possesses vast reserves of rare minerals,
being uranium outstanding. It is a large producer of grains and livestock. Therefore, the
industrial sector is at an early stage of development and is mostly focused on the extraction of
the natural resources. The main component of the economy has been construction and
services, even more important than extracting activities. The economic reforms plus the high
prices of commodities made KZ grow at double digits or at least eight percent over the last
decade and reduce the fiscal deficit and pay back all its sovereign debt. Therefore, even GDP
per capita has raised, inflation has been high over the last decade. The global financial crisis
of 2008, along with the decline in commodity prices, eroded economic growth in 2009.
The current nature of the economic system can be described as state capitalism. KZ
has pursued a series of free market economy reforms and is way beyond the other Central
Asian countries, but behind the Organization for Cooperation and Economic Development
countries.
The government still controls the economy and there is little business freedom. The
average tariff is low but KZ has made little progress towards full trade liberalization. The
economic elites of the country have especial interest in raising market and non market access
barriers and maintaining customs inefficiencies, opaque government procurement, and weak
enforcement of intellectual property rights. There is no competition in agriculture (land
ownership is restricted) and the state has tight control in monetary freedom. Foreign investors
might find uncertainty and be subjects to non transparent governmental practices that oblige
to pay back the favors. The banking system is still not cohesive and the global financial crisis
of 2008 revealed the weaknesses in regulation and capitalization. Banks were targeting the
construction sector of the economy, but for the same reason they were overexposed to the
property market instability. Corruption in doing business is as pervasive as in doing politics.
The status of KZ’s human development can be seen as bumpy road with a collapses
after the independence and recovers only after 2000. After the Central Asian republics got
their independence, poverty and unemployment increased and social expenditures decreased.
KZ has always been ranked on top in human development in comparison to other individual
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Central Asian countries, but KZ still lags behind the former soviet space as a whole. KZ
development strategy can be considered partially successful. It is true that poverty has been
alleviated and that inequality of income has fallen, but KZ is still one of the most unequal
countries of the world with disparities between the rural and the urban areas still prevailing.
Life expectancy has been reducing since the collapse of the USSR KZ is placed in the high
medium countries in terms of development mainly because of the recent improvements in
income and poverty reduction possible by means of the oil revenues.
POLITICAL PROFILE OF UZ
Democracy and nation building in UZ are contradicting interests. President Karimov, who
has been in power for 19 years and who is 71 year old, has built a fortress-country almost
immune to current trends of history and the positive impacts of Globalization. Karimov
consideres UZ a fortress surrounded by the threats of global economic crisis, civil wars,
foreign interventions, radicalism, terrorism and mostly democratic revolutions. As Karimov
seeks to legitimize his regime by means of highly centralization of both the economic and the
political systems in order to achieve a self sufficient state, democracy and free market are not
coming soon, al least until Karimov remains in power, the elites are making profits or natural
resources are enough to finance the oligarchs of the country.
Opposition remains outlaw and under the surveillance of security services mostly
because of islamist groups. Other collateral targets of the security services are journalists,
human right activist and the moderate opposition. Repression might be better exemplified by
the 2005 Andijan protests that were crashed down with a massacre of a thousand protesters.
Press is not independent. The government has purged UZ of the media that offers
points of view different to the official ones. There has been harassment to journalist. The
government has cleaned UZ from foreign press. Internet is filtered and censored. Elections
take place regularly only for renewing the parliament. There are four pro presidential political
parties. Individual or independent candidacies are forbidden. The Judicial and the Legislative
Branches are null and void and therefore there are no checks and balances. The Judicial
Branch is made to prosecute enemies of the status quo, which are as usually the wanna be
active members of the civil society. The system works to punish not to administer justice, so
everyone who is caught ends to be guilty.
Governance is based on power brokers and the officials are nominated by higher
officials on the ground of family considerations. Therefore there is little room for a
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democratic, transparent and egalitarian political system. UZ is very corrupted, one of the
most corrupted countries in the world, in the club of Chad, Irak, Sudan, Myanmar,
Afghanistan and Somalia. For example, the police is involved in drug trafficking. Cronyism
is also common. The president for example granted diplomatic status to his eldest daughter
and help her through while doing personal business in UZ. The eldest daughter of the
president is well known for amassing a great deal of economic power in the
telecommunications and energy sectors of UZ thanks to the intervention of the dad.
There is the risk of a bumpy transition, nonetheless. Even FDI and foreign currency
revenues has pumped up the economy and given the president and his entourage leverage to
run UZ as they need, the death of president Karimov is a threat to the cohesion of the political
system. His death might leave the door open for radicalism and disputes among the elites.
ECONOMIC PROFILE OF UZ
UZ was one of the poorest economies of the former Soviet Union and remains an
agricultural mining country. More than fifty percent of the population depends on agriculture
for making a living. UZ gets more than a half of its currency revenues thanks to its oil, gas
and cotton exports. UZ lacks a high degree of industrialization and depends on primary
activities, mostly on cotton production, in which UZ ranks as one of the major producers of
the world. After independence UZ came to an economic slowdown that hurt even harder the
lower ranks of the population, but recovered easier than other newly independent countries of
Central Asia by means of tight government controls.
The government maintains tight control of the economy in order to achieve self
sufficiency in food and energy and to separate the country from the fluctuations of the global
market. Government expenditure has been moderate over the last decade and the government
keeps tight fiscal and monetary policies that favor national enterprises. The banking sector is
dominated by state-owned banks and there is little competition and transparency.
.Since 2002, UZ’s terms of commerce have reported a surplus, but FDI is still low in
comparison to other Central Asian states like KZ because of the irregularities of the UZ
monetary and fiscal policies. The global financial crisis of 2008 and its collateral drop in
commodity prices did not hit UZ so badly as it hit KZ, mainly because the demand of UZ’s
economy is domestically driven, the fundamentals of the economy were able to reduce the
negative impacts of the crisis and the banking sector was well capitalized in order to foster
credit.
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The Karimov regime has pursued a moderate market oriented transition mostly
focusing on reducing inflation and budget deficits. UZ sovereign debt has been reduced over
the last decade, inflation has been reduced threefold over the same period, the currency has
been stable and public expenditure has been responsible. Over the last decade, the
capitalization of UZ’s banks has grown to comply with international standards and contrary
to other countries mortgage credits have been stable and mortgage debt has been under
control.
UZ is a relative closed corrupted economy that prefers to sells to the world rather than
to buy. UZ average tariff is high, 7.5 percent. It comes with other market access barriers like
discriminatory import taxes, non transparent standards, tricky governmental procurement,
export subsidies and weak enforcement of property rights.
The Karimov regime has been able to cope with poverty, especially with food security
but inequalities still exist between rural and urban areas. Life expectancy is still low in
comparison to Western standards and it has decreased since independence. GDP per capita is
the third only after KZ and Turkmenistan. In human development, UZ goes in pair with the
world but lags behind the most of the Central Asian countries. Since UZ is a rural country
inflation pressures and drops in commodity prices can always lead to a downturn in poverty
alleviation. The vulnerability of the country still exists, even the efforts to make it a fortress.
CONCLUSION: THE TALE OF TWO TWINS
This essay seems to be a tale of two twins. KZ and UZ come from the same origin
(USSR) and are alike in so many ways being the most outstanding that they are ruled by
reentseekers who make the most of authoritarianism and cronyism in order to deplete the
natural resources of the country. The economies of KZ and UZ are centralized and isolated
from the world for the same reason: the reentseekers do not want to share the pie with
anybody. KZ and UZ people are rural and poor and live oppressed by social injustice.
Both countries share the same transition problem, their presidents are getting older in
power and might die in the coming decade. What will be the fate of these countries one the
tyrants are gone? It seems that a transition to liberalism is not going to happen because the
elites will impose political leaders that respect the status quo and the people is unable to
organize a revolution.
The elites will install a friendly regime. The economic reforms in both countries did
not represented a transition from a state run economy into a free market economy, but
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marginal changes in favor of a more stable environment for local barons. The economies of
KZ and UZ have undergone free market reforms but the interests of the financial-industrial
elites have not been endangered. When those interest are threaten by any reform or change of
leadership, the elites might negotiate the successors of presidents Narzabaev and Karimov.
A popular revolution is not likely to take place. The Georgian Revolution of 2003, the
Ukrainian Revolution of 2004 and the Kyrgyz Revolution of 2005 were born of the
frustration coming from the low and middle classes. A revolution from the grassroots in KZ
and UZ seems to be impossible because the elites keep a tight grip on the scarce civil society
and prevent democratic waves from passing over KZ and UZ, like in Andijon in 2005, and
common people are so busy surviving.
Therefore, as if they were twins, KZ and UZ by the moment are isolated in Central
Asia from political and economic liberalism and also stuck in history.
LIST OF READINGS

CIA world factbook on Kazakhstan
https://www.cia.gov/library/publications/the-world-factbook/geos/kz.html

CIA world factbook on Uzbekistan
https://www.cia.gov/library/publications/the-world-factbook/geos/uz.html

UN Human Development Report on Kazakhstan
http://hdrstats.undp.org/en/countries/profiles/KAZ.html

UN Human Development Report on Uzbekistan
http://hdrstats.undp.org/en/countries/profiles/UZB.html

Freedom House Nations in Transit 2010 report on Kazakhstan
http://www.freedomhouse.org/images/File/nit/2010/NIT2010Kazakhstanfinalfinal.pdf

Freedom House Nations in Transit 2010 report on Uzbekistan
http://www.freedomhouse.org/images/File/nit/2010/NIT2010Uzbekistanfinal2.pdf
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
Heritage Foundation 2010 Index of Economic Freedom on Kazakhstan
http://www.heritage.org/Index/pdf/2010/countries/kazakhstan.pdf

Heritage Foundation 2010 Index of Economic Freedom on Uzbekistan
http://www.heritage.org/Index/pdf/2010/countries/uzbekistan.pdf

Junisbai, Barbara, 2010, A tale of Two Kazakhstans: Sources of Political Cleavage and
Conflict in the Post Soviet Period, Kennan Institute.

Jumaev, Nodir, Uzbekistan’s Economic Strategy in the World Crisis Conditions,
University of World Economy and Diplomacy
http://web.sfc.keio.ac.jp/~kgw/watergovernance/Jumaev.pdf

Aslund, Anders, 2006, How Capitalism was Built, Washington, Peterson Institute for
International Economics.

Kleveman, Lutz, 2003, The New Great Game. Blood and Oil in Central Asia. New York:
Grove Press.

Verme, Paolo, 2006, Macroeconomic Policies and Social Unrest in Uzbekistan, Post
Soviet Affairs
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