Therefore, a number of apprehensions can be pointed out in relation to the expansion of Kazakh capital into Kyrgyzstan, the inhibition of Kyrgyz trade and economic interests, and the gradual “financial colonization” of Kyrgyzstan’s weak economy.

In the first six months of 2005, Kazakh financiers invested 14,1 million dollars in Kyrgyzstan, which constitutes 71% of all direct foreign investment in that period.[6]

Kazakh business figures prominently in banking (Kazkommertsbank, Khalykbank, ATF-Bank), telecommunications (Alians Kapital), industry (Kadamjai antimony combine, Kant slate and cement combine, and many industrial enterprises in the Chuy region), media business (NBT TV station) and tourism (mainly in Issykkul).

Expansion of Kazakh capital has been characterized by the entrance of strong financial-industrial groups (FIG) from Kazakhstan into the Kyrgyzstan market. Due to their financial power in Kazakhstan, these FIGs sometimes have a stronger influence on certain political processes than the entire state apparatus of Kyrgyzstan.

According to the Eurasian Center for Political Research, one can find the visible and invisible presence of many influence groups and FIGs in Kyrgyzstan.[9]), the group of Nurzhan Subkhanberdin (Kazkommertsbank – working in Kyrgyzstan through its only daughter bank abroad – Kazkommertsbank-Kyrgyzstan). In addition, Alexander Mashkevich of the Eurasian Industrial Association, originally from Bishkek, is a very influential figure not only in Kazakhstan, but also in Kyrgyzstan, even though he does not have any declared assets in Kyrgyzstan.

Aggressive infiltration of FIGs into the Kyrgyzstan economy, followed by the takeover of key, strategically important spheres of industry, makes Kyrgyzstan vulnerable to and dependent upon economic leverages. For instance, investment into the Kyrgyz part of the Naryn-Syrdaria cascade of hydroelectric stations would secure shareholder control over the water resources and energy systems, not only in Kyrgyzstan, but also in some of the major areas in Central Asia. Kazakh investors have shown serious interest in the possibility of investing in reconstruction of the Kambarata hydroelectric stations.

In addition, there are fears that Kyrgyzstan may become a “laboratory” for economic tests by Kazakh businesses, tests which may not necessarily be successful. Expansion of Kazakh capital in Kyrgyzstan also entails the supplanting and exodus of significant (for Kyrgyzstan) amounts of Kyrgyz capital to Kazakhstan (mainly to Almaty).    

Pressure on Kyrgyz trade and economic interests produces worries in several directions – raising tariffs on transit of goods through Kazakhstan, which renders Kyrgyz production and export to other countries (Russia above all) unprofitable; setting quotas on Kyrgyz goods in Kazakh markets, for instance cement; and discriminatory policies against labor migrants from Kyrgyzstan, amplified by political apprehension on the part of Kazakh authorities.  

A telling example of Kyrgyzstan’s fears was the refusal of the Kyrgyz parliament to ratify in December 2004 the Kyrgyz-Kazakh agreement on allied relations, which many deputies called “toothless” in terms of defending Kyrgyz interests. In the debates on ratification of this agreement, parliamentarians wanted to include in it the mechanisms for solving the issues of labor migration and trade and economic cooperation, while the administration stressed the agreement’s provisions relating to political and military-technical cooperation, deliminatation of state borders, and improvement of legislative cooperation.[10]  

Mutual perspectives: Kyrgyzstanin the eyes of Kazakhstan

A survey of the main points of political and economic interaction between the two countries would be incomplete without looking at how the image of Kyrgyzstan is projected in Kazakhstan.

In the eyes of Kazakh society, Kyrgyzstan is a generally friendly country, where systemic economic crisis resulted in a political crisis, culminating in a forced change of regime.

It should be noted outright that Kyrgyzstan is of interest to Kazakhstan in the economic sphere as a country where more or less similar economic reforms have been conducted, and the level of compatibility between the two economies is high. This is the reason why some of the emerging Kazakh capitalists use Kyrgyzstan as a starting point for refining their foreign experience, buying up shares of promising Kyrgyz companies and investing in restoration of profitable enterprises.

In Kazakhstan, a worrisome fact is that the high profits of the oil and gas sector have a tendency to “heat up” the economy, leading to the “Dutch disease." This is why the economy and infrastructure of northern Kyrgyzstan, most similar to that of Kazakhstan, has recently been attracting more and more capital from Kazakhstan.

There is a growing understanding in Kazakhstan that in the long run, in the epoch of globalization, no single country can develop successfully in isolation, and poor neighbors will always affect the situation inside Kazakhstan. Considering the fact that the economies of Uzbekistan and Turkmenistan have not adapted well for open market relations, Kyrgyzstan is becoming the most convenient economic partner for Kazakhstan in Central Asia.

However, dissonance of political priorities is preventing full realization of the potential for economic cooperation. In the opinion of Nurbolat Masanov, president of the Kazakhstan association of political sciences, “for Kazaks, Kyrgyzstan is a fraternal country, events in which are taken to heart by Kazakh society, but the events in Kyrgyzstan are interpreted differently by different political forces in Kazakhstan.”[11]

Before the March events in Kyrgyzstan, discussion of potential threats for Kazakhstan that emanate from Kyrgyzstan focused more on trans-border, geopolitical threats – radical Islamic groups (after the Batken events in 1999-2000), international terrorism (especially after the explosions in Osh and Bishkek), organized crime, drug trafficking, and biological threats (strains of dangerous infectious diseases like SARS). Military maneuvers on the southern edges of Kazakhstan were conducted to calculate the possible consequences of invasion by large insurgent groups through the Kazakh-Kyrgyz border and mass exodus of the population from Kyrgyzstan. 

After the March events, the attention of the Kazakh authorities and society shifted to the risks and dangers conditioned by the internal political situation in Kyrgyzstan.

Events in neighboring Kyrgyzstan, with which Kazakhstan shares many similarities (mentality, language and political culture), except for the level of economic development, have had a double effect. First, the Kazakh political opposition was extremely interested in the example of a more or less non-violent regime change. Right after the March events, Kyrgyzstan was visited by prominent representatives of the Kazakh opposition, who wanted to study on site the successful experience of the “Tulip Revolution.”

Second, precisely because of this interest, it proved very rewarding for the Kazakh ruling elite to professionally confront the Kyrgyz case to frighten their electorate. Throughout the summer and fall of 2005, Kazakh authorities disseminated propaganda for stability, decrying the “Kyrgyz coup” as a clear illustration of a negative outcome. In the eyes of an average citizen, Kyrgyzstan is now strongly associated with post-revolutionary looting, political contract killings, and economic decline resulting from endless demonstrations. As Kazakh observer Sergey Duvanov said, “common people have an impression that there is no order in Kyrgyzstan, and that things went so badly that people are fleeing from the country.”[12]

In the opinion of Masanov, in political dimensions, Kyrgyzstan is a “competitive” country for Kazakhstan, which in addition to economic leadership has serious claims to leadership in the sphere of democratic reforms. Such was true for both the Kazakh authorities and the opposition. In March 2005, the most fearful thing was that after turning into a radically democratic republic, “Kyrgyzstan would become some type of a mirror, in which Kazakhstan would see all its negative characteristics, which would be visible to the international community as well.”

However, the ensuing developments in Kyrgyzstan have strongly decreased apprehension by the Kazakh political elite that Kazakhstan will have a competitor in the struggle for the image of the most democratic state in Central Asia. Nevertheless, in Freedom House’s 2005 ranking of the degree of political rights and civil liberties available in countries of the world, Kyrgyzstan is ahead of Kazakhstan, among the “partially free,” while Kazakhstan remains an “unfree country.”[13] 

Problem areas in bilateral relations

Dissonance of priorities  

In Kyrgyzstan, the process of property and business redistribution that followed the March events demonstrated clearly that the priorities which prevail are often dictated by political objectives. Struggle for political power slowly turned into struggle for control of economic assets. In general, Kyrgyzstan has entered a period in which political reforms have priority over economic reforms, which, as admitted by representatives of the new authorities, were radical enough already under the previous regime. 

With the victory of the incumbent president in the last elections, the process of political modernization and democratic reform is only starting in Kazakhstan, while economic reforms have already resulted in tangible results. Prevalence of politics over economics in Kyrgyzstan and economic pragmatism over politics in Kazakhstan will inevitably lead to different understanding of bilateral issues and posit hard questions.

In Berlin in spring 2005, the opposition forces of the Central Asian countries held a founding conference of the Central Asian Democratic Congress. In summer, the second meeting of the region’s opposition activists was held in Warsaw. After that, rumors were circulating that Bishkek would become the base for revolutions and preparations for regime changes in the neighboring countries.

On November 15^th, youth activists of the movement “For a Just Kazakhstan” announced the creation of a so-called Kyrgyz Bureau of Kazakh Opposition, based in Bishkek. Right after the presidential elections in early December, those activists were detained by Kyrgyz police and, by some unofficial accounts, with the participation of representatives from the Kazakh security service. Representatives of the opposition-minded part of Kazakh society appealed to president Bakiev, asking him to personally interfere in the situation. Nevertheless, Kyrgyz law enforcers extradited one of the activists to Kazakhstan.

After the Andijan events in Uzbekistan in May 2005, mass exodus of refugees into Kyrgyzstan resulted in the deterioration of relations with the Uzbek authorities. Even though the bulk of the refugees were transferred to third-party countries, Kyrgyzstan was forced to extradite several political refugees to Uzbekistan. Unofficially though, Bishkek and Osh became sanctuaries for many opponents of the Uzbek authorities.

Fuel and energy sector

Mutually beneficial management of water and energy resources remains a traditional point of conflict between Kyrgyzstan and Kazakhstan. For Kazakhstan, the bulk of whose territory lies in an arid zone, water has great value. Southern Kazakhstan is dependent on the stable inflow of water from Kyrgyzstan in summer. In winter, Kazakhstan has a vital interest in ensuring that water accumulates in Kyrgyz reservoirs for later use in summer. For Kyrgyzstan, water has even greater value as a source of electricity, especially needed during wintertime, resulting in winter floods in Kazakhstan and scarcity of water in summer. The issues of mutual compensation and functional exchange schemes – water-electricity-oil – will remain key to the energy security of Kyrgyzstan. 

Also problematic in recent years has been the issue of the gas pipe running through Kyrgyzstan and of Kyrgyzstan taking gas intended for Kazakh consumers. According to gas company representatives, the amount of debt for this gas, reaching 18,5 million dollars, has already become a subject for intergovernmental negotiations between the two countries.[14]     

Population migration

With the growing prosperity of the neighboring republic, the tendency for Kyrgyz labor to migrate to Kazakhstan will only increase. Currently, there are up to 80 thousand legal and illegal migrants from Kyrgyzstan temporarily working in Kazakhstan (of which there are many more illegal than legal). In early December, forced deportation of Kyrgyz migrants on the eve of the presidential elections in Kazakhstan had a great resonance. Earlier, the exploitation of labor migrants in the tobacco plantations of southern Kazakhstan, accompanied by gross human rights violations, caused indignation within Kyrgyz society. 

Furthermore, the number of people with dual citizenship is expected to grow steadily, denoting ethnic Kazakhs who want to settle in Kazakhstan as official immigrants while remaining citizens of other countries, using Kyrgyzstan and Kazakhstan as transit points for entering Western countries. 

Economic and business disputes

The dynamics of economic growth in Kazakhstan testifies that once things become stable in Kyrgyzstan, Kazakh investors will only be more interested in investing in this country which presents familiar conditions. This indication raises key issues for protecting the rights of local investors from Kazakhstan, as well as the possible provision of preferential conditions. Serious fears among Kazakhstanies stem from the weak protection of their rights, extra bureaucratization in the sphere of state control over businesses, and the possibility of nationalizing foreign assets and reconsidering the property rights of foreign owners.

For instance, for the last several years Kazakhstan has insisted on the restoration of the rights of Kazakh owners in several resorts in Issykkul, last raising the issue December 15^th, 2005.

The last visit of Prime Minister Felix Kulov to Taraz resulted in preliminary confirmation of the rights of Kazakh owners in four resorts in Issykkul (Samal, Avtomobilist Kazakhstana, Universitet and Kazakhstan). The Kyrgyz side made the confirmation conditional on the observance of some of Kyrgyzstan’s interests, including recruitment of the workforce from among local inhabitants and a fixed amount of investment in these resorts. Nevertheless, the Kyrgyz parliament, which must approve the agreement that includes this issue, may again refuse to ratify such arrangements.

Kyrgyz businesses in Kazakhstan

In economic and trade relations with Kazakhstan, status as a WTO member gives Kyrgyzstan some advantages, but also creates known difficulties.

So far, demand in Kazakhstan includes a cheap and qualified workforce from Kyrgyzstan, electricity for growing industrial needs, water resources, tourism, gold and jewelry, clothing, and – more irritating for Kazakh producers – cheap re-export goods from WTO member-states.

Traditionally, Kyrgyzstan has provided tourism services, agricultural products, and construction materials for Kazakhstan’s market. A newer tendency is the outflow of emerging Kyrgyz capital to Kazakhstan, as seen by growing interest of Kyrgyzstanies in purchasing realestate in Almaty. Businessmen shift their enterprises to Kazakhstan and gradually leave Kyrgyzstan. From the late 90s, Kyrgyz businessmen have started seeking ways of expanding into Kazakhstan, and there have already been some examples of successful penetration of the Kazakh market.

Each year, with the start of the tourist season in Issykkul, publicity attacks against recreation in Kyrgyzstan are launched through Kazakh media outlets. The interested parties are providers of tourism services inside Kazakhstan, for whom Issykkul is a strong challenger. This competition will inevitably cause friction between the tourism companies of Kyrgyzstan and Kazakhstan.   

Conclusion

This review of problem areas in Kyrgyz-Kazakh relations is by no means exhaustive, but it demonstrates Kyrgyzstan’s need to order its priorities and shift to a more flexible and consistent policy in relations with Kazakhstan. In a commonly accepted format of public agreement, a clear and sensible policy of relations with Kazakhstan will assist Kyrgyzstan in reaching a better understanding of its interests, and in actively defending them.

It must be emphasized here that, by and large, the influence of Kazakhstan in Kyrgyzstan is positive, and that an understanding of this fact should lay the preamble of the new “Kazakhstan policy” of Kyrgyzstan.