Kazakh-Kyrgyz Union as an initial step

During the international investment and business conference in Almaty June 14-16, 2005 organized jointly by Asia Society and the Government of Kazakhstan, the president of Kazakhstan Nursultan Nazarbaev repeated his previous initiative at the his union address in February 18, 2005 for the Creation of Central Asian Economic Union.

Despite Kazakhstan’s active integration efforts in the region, there is little progress made on the ground by the other four Central Asian states. Kazakhstan and Kyrgyzstan’s initial economic union could pave the way for a longer-term union in the Central Asian region at large.

In addition, Kazakhstan and Kyrgyzstan customs-free union could serve as a template for future integration in this volatile yet strategic region. Moreover, Kazakhstan and Kyrgyzstan’s economic union has a potential to urge other Central Asian states to implement economic reforms in order to join the union. Economic reforms and open markets are sina qua non for political reforms and liberalization.

As a result of Soviet Union breakup five Central Asian republics gained their independence in 1991. Almost fifteen years after their independence and transition from command economy to market economy results are mixed. On one hand, Kazakhstan and Kyrgyzstan introduced substantial reforms in their economies and Kazakhstan was recognized as a market economy both by the European Union and the United States.

Kyrgyzstan is the only Central Asian state in the World Trade Organisation (WTO). Both Kazakhstan and Kyrgyzstan are considered market economies in Central Asia. On the other hand, Uzbekistan and Turkmenistan did not implement full economic liberalization. Tajikistan was gripped by a civil war from 1992-97 is struggling to get on its feet and recovering.

The first Central Asian Economic Union was created in 1994 between Kazakhstan, Kyrgyzstan and Uzbekistan. Despite political rhetoric from the capitals of Central Asia, there was no substantial progress in reality except for official declarations and formal agreements.

Central Asian states had a unique window of opportunity in the early stages of their independence to establish a functioning union that could have benefited the peoples of this important region.

The common Soviet past as the basis of economic and social development, the Russian language as a common lingua franca, economic similarities, and similar historical experiences, related cultures could have served as the basis for the creation of economic union in Central Asia.

Today Kazakhstan and Kyrgyzstan have a basis for the creation of Kazakh-Kyrgyz Central Asian Economic Union. Most importantly, Kazakhstan and Kyrgyzstan have very good neighborly relations. Both countries have relatively liberal economies.

Kazakh investment is substantial in Kyrgyzstan including banking, telecommunications. Kyrgyz interim prime president Usenov invited Kazakhstani investors to Kyrgyzstan during the business and investment conference in Kazakhstan in mid June. In addition there was no major incident at the Kazakh-Kyrgyz border and relations are relatively positive in the light of the Central Asian context.

Undoubtedly, there were numerous attempts to create a Central Asian Economic Union after respective republics gained their independence. However, rivalry among and between Central Asian countries, namely Uzbekistan and Kazakhstan for regional dominance thwarted genuine cooperation. Border disputes further antagonized relations between and among countries in the region. Turkmenistan totally isolated itself the world let alone the region. Both Kyrgyzstan and Uzbekistan are gripped by political instability.

Currently, Kazakhstan is definitely a leader in terms of its economic growth and performance largely due to its energy sector boom. Kazakhstan’s GDP is larger than all other Central Asian countries combined due to its energy sector and successful macroeconomic reforms.

Kyrgyzstan after the uprising and political upheavals stopped its growth in the midst of turmoil. Uzbekistan and Turkmenistan are closed economies. The gap between Central Asian countries is widening further. Kazakhstan is getting richer while other Central Asian states are getting poorer.

Unless, Kazakhstan and Kyrgyzstan do not grasp this historic opportunity and establish Central Asian Union, the window of opportunity for future cooperation between and among states will be closed. Foreign Minister Tokaev stated that Kazakhstan cannot develop while its neighbors are lagging behind. Kazakh-Kyrgyz initial economic union could facilitate and encourage further cooperation between and among states of Central Asia. The proposed union could serve as a basis and model for future expansion of the union possibly including Afghanistan.

The president of Kazakhstan, Nursultan Nazarbaev, called twice this year for the creation of the Central Asian Economic Union. With the exception of Turkmenistan, all countries in the region welcomed Nazarbaev’s initiative.

In order for the economic union to emerge, Kazakhstan and Kyrgyzstan should first create two-country union, since both countries are relatively free economies vis-à-vis their other three neighbors. The economic union would entail no tariffs, no visa regime, and no customs.

As Astana points out the time is ripe for the creation of the Central Asian Economic Union which is functioning both in practice and theory. However, there is definitely a lack of political will in Turkmenistan and Uzbekistan, whereas both Kyrgyzstan and Tajikistan welcomed the initiative.

It is high time for Kazakhstan and Kyrgyzstan to create initial Central Asian union thereby extending membership to other Central Asian states contingent upon economic reforms and liberalization. Admission of Afghanistan should not be ruled out in the future to open trade corridor and revive Silk Road into the twenty first century as well.

By Nurzhan Zhambekov