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Political Stability

When an investor ponders whether it is worth to do business in a particular country, the first issue in evaluation is how politically stable is the State. Nobody wants coups, revolutions and a redistribution of property.

Political stability may rest either on the strong authoritarian grip on power by the country’s leader (for as long as the leader remains in power) or may equally be based on the absense of authoritarianism as a possible power model altogether. Kyrgyzstan is exactly the second scenario.

Nomads in the past, the Kyrgyz defy the concept of being subject to an authoritarian rule in principle. The Kyrgyz never knew slavery or any form of personal ‘attachment’ (as in the Russian Empire) throughout all their history as a people. Strong tribal traditions of the Kyrgyz dictate the necessity to take decisions by a wide consensus, and do not accept usurpers.

When the initially very mild and enlightened rule of the first President of the Kyrgyz Republic Mr. Askar Akaev in his second decade of presidency started sliding towards authoritarianism and usurpation, a popular dissent quickly sparked. In 2005 the country-wide revolt deposed Akaev and brought Mr. Kurmanbek Bakiev into power. His rule very quickly provoked similar dissent among the people and the business circles: the main accusation against him was his attempt to usurp power and seize property for the benefit of his family. Bakiev was ousted by a coup in 2010 which was widely supported across the country.

In 2010-2011 the new government of Kyrgyzstan faced a difficult task — to establish such a governance system where usurpation would not only fail to occur for a long time, but would be impossible by definition. This task was successfully tackled by Mr. Almazbek Atambaev who served as the country’s President from late 2011 till November 2017. The new Constitution of the Kyrgyz Republic adopted at his initiative now evenly distributes the power across State institutions, not availing any power figure the chance to monopolize it.

In the new Constitution the powers of the President have been drastically cut; the Government and the Prime Minister have very wide powers but are nevertheless reporting to the Parliament. At the same time, the Parliament can not «micro-manage» the country and thus substitute the executive branch. Even the control over law enforcement bodies (which are very much involved in the economic matters in all the ex-USSR countries) is evenly distributed between the Parliament, the President and the head of the Government.

The 15th October 2017 presidential elections were a contest between 13 candidates, and the result was impossible to predict till the official count was completed. Sooronbay Jeenbekov, representing the Social Democrats, won the race. Voting in Kyrgyzstan is done on the basis of biometric identification and the potential of all electoral machinations is thus reduced to single digit per cent of votes.

The map of the Kyrgyz political elites for many years is such that no single polilical or business figure may absolutely dominate the country’s political life.

The President has less powers than under the previous versions of the Constitution. He has to agree the main political decisions with the Parliament and may not substitute the executive branch.

The Parliament, in its turn, is a multi-party forum where currently six parties are present and neither dominates through voting majority. Party groups are very mobile, MPs may leave their fractions and otherwise vote at their own will, disregarding the party line.

All of that means that the management of the Kyrgyz State may only be based upon a consensus of regional and business elites, power groups and clans. To a certain extent this slows down reforms and the legislative process, but this drawback is over-compensated by the lack of the authoritarian rule.

For those investors who prefer to personally agree their business with a dictator, allocate him a share and thus share his political risks, Kyrgyzstan is not the optimal country. It does not have and is not likely in the forseeable future to have, a dictator. No single political figure may now give the investor all-encompassing personal guarantees.

On the other side, partnering with a dictator has a huge downside: the safety of all your investments depends on that person, and should he change his mind on helping you or be dethroned, your investment may turn to ash.

We think that in Kyrgyzstan the seemingly anarchic tendencies and a multi-vectoral political process safeguard the most important factor for investors — stability. No-one may deprive the investor of assets by a personal decision. Any improper actions of one clan can be very quickly countered by a different power element, be it within the law enforcement, the courts or the executive power.

Neither the special power agencies, nor the courts are free from corruption and influence peddling. However, neither element of the law enforcement holds the entirety of control over personal or economic punishment and property decisions. If you do not break the law, it is always possible to ensure the safety of your investments with the right manoevering.

It should be taken for granted that in Kyrgyzstan you should not expect the same investor protection standards as in the most developed economies. However, the defects in those standards in Kyrgyzstan (as in any dynamically developing economy) are well compensated by the higher profit potential, which is why investors normally are prepared to accept certain risks in the background.

It is worth noting that besides political stability, Kyrgyzstan offers a unique level of legislative protection to foreign investment.

First of all, the Kyrgyz Republic is a member of the WTO and thus accords to investors all the guarantees built into the treaties making up the WTO system.

Many years ago Kyrgyzstan ratified the Energy Charter: thus any investment in its energy sector falls under the protections provided by this instrument. A precedent exists of one investor successfully claiming compensation from Kyrgyzstan under the Enegy Charter: the country complied with the award and paid out the damages.

The national law on protection of the forein investment affords a unique privilege to any aggrieved investor to pick a suitable international arbitration body and forum at its own discretion and pursue the claim there. The law was adopted in the years when US consultants dominated the legislative process and was evidently aimed at curbing the country’s sovereignity for the benefit of transnational corporations; however any investor is now free to use this law. Again, precedents exist of investors successfully litigating for damages against Kyrgyzstan in foreign forums, and receiving the awarded amounts.

Summing up the above. Kyrgyzstan is a developing country not devoid of political risks. However, compared to other countries of the region it stands out as the most politically stable in the long term: the peace and quiet of the business here does not depend on the will of any one person, but rather is supported by a unique, consensus-based shape of its political scheme of things. We do not expect any principal changes to that in the near future.

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