« back to menu

John Odling-Smee: our task is to help

Interview of John Odling-Smee published in Public Rating

Answers of Mr. John Odling-Smee, Director of European II Department of the International Monetary Fund, responsible for the work with the Baltic countries, Russia and other former USSR countries, to questions of a correspondent of a newspaper “Public Rating”.

When you say that the IMF is an unfair partner, I would not agree with an assumption that we someway dictate or impose conditions on the Kyrgyz Republic. IMF gives credits to countries-members, when they make a request to give them. We lend for programs that provide for positive economic growth and in a majority of cases the authorities would gladly implement conditions of a program, which is undertaken with the IMF. I believe that it is also absolutely true with respect to Kyrgyzstan. Otherwise, if partners dislike some of the things, they could always refuse to negotiate. It stands to reason that sometimes it is easy for governments to explain a need for taking some unpopular decisions by saying that it is the IMF or some other external force that makes them do it.

When someone says that the IMF policy is harmful, I would like to note that our task is to help. We believe that we are not unaware of the way any economy functions and on this basis we could give recommendations and advices that would help a country. We take it that there could be other views and we stand ready to discuss these issues. And it is not per accidens that most authors, who were concerned in recent years with issues of economic transition, suggest virtually the same measures as the IMF does. Both Russian and Polish economists discuss this issue. You could acquaint yourself with the World Bank documents, by and large they tend to speak well of those measures that are recommended by the IMF as well.

As to a combination of monetary control and banking supervision functions in one institution, we do not tend to favor either this or that option, for some of the countries-members of the IMF separate these functions, while others combine them.

As concerns the IMF requirements to a closure of specific banks set forth in the April Memorandum of the last year, unfortunately, I do not remember details of this issue and I will not labor the point. Though, as far as I remember, all of the concerned parties agreed that these banks could not function, therefore, the issue was raised to close them.

You think that the National Bank is too late in taking measures for closing these banks and if you ask my assessment of whether it was late or early I would agree that it was really rather late. I am unable to comment on the issue of the availability of any banking sector development strategy in the country, but I guess the National Bank has the banking development strategy. In any case high emphasis is currently placed on this issue and I believe that a set of measures aimed at implementing this strategy will be described in detail in the next Memorandum that would be signed with the IMF, including by the National Bank.

You say that the IMF goes for high taxes and a reduction of public investment. It isn't necessarily so. Our view is that a budget in Kyrgyzstan could afford to spend more money, but for this it should find sources of replenishing these funds. The question at issue is that the state is not in position to collect taxes in full yet. Therefore we had to continuously insist that the Government should strengthen and increase tax collection so that it would be able to finance so essential expenditures. If it were unable to fully collect taxes due, it would have two options: to either increase tax rates, or cut expenditures. Therefore, it really happened so that we recommended one of these options, but for all that we believed and believe these options to be best.

As for a development budget, I don't fully understand what is meant by this term, though if it comes to public investment in infrastructure development, I agree that a subject should be really started on this issue. Yet the whole problem again comes down to how to finance these expenditures. If the matter in hand is about foreign borrowing, as was the case in the previous periods, we consider that there is a particular limit as to what level the state could contract the resources from abroad, given the fact that its external debt is already high enough. If there is a chance to finance such a development budget from domestic sources, i.e., through state budget revenue — welcome, for God's sake! Though again we would then advert to the issue of sufficient tax collection.

As to your question on taxation of income on bank deposits, now I cannot recall who offered this idea — your government or we. Though, it seems to me, that the government advanced this idea. In many countries of the world there is taxation of interest on the bank deposits and it makes sense for Kyrgyzstan to make good use of this idea. In any case, whenever it is done, the people will complain. However, I do not think that if they complain already now, it testifies to inopportunity of introducing this tax.

The similar argument could be developed with respect to VAT on agricultural produce. If not to raise the level of tax collection in agriculture, in the medium- and long-term perspective Kyrgyzstan will face great difficulties. The share of agriculture is 40 percent in the national economy, with tax collection of only 5 percent. It means that the tax burden lies heavy on the remaining 60 percent of the national economy and has a negative impact on potential growth of the national economy. Therefore, I believe that everyone would agree that the question at issue is not so much whether agriculture should be taxed, as how to implement it and on what dates. Therefore we now suggest the government to think over this issue, to analyze it and to decide what steps and in what order should be taken. The first step may be taken already at the current stage, though it could be not of vital necessity.

Finally, as far as the IMF activity in Kyrgyzstan is concerned, I could assure you that we listen not only to the National Bank: during my visit to the country I met with representatives of banking circles, businessmen, with public organizations in Bishkek and Osh, and conversed with deputies of the Jogorku Kenesh. Though basically by the nature of my office I frequently communicate with the representatives of the Ministry of Finance and the National Bank, but we defer to judgment of other people as well. As to a dialogue with the press, I present my apologies, if we were not accessible to you, though the last 10 years we have been making considerable effort to become more open. All of this is implemented under our strategy for enhancing transparency in the IMF activity.

Newspaper “Public Rating”
No 45 (115) of November 7, 2002

« back to menu

print page

top