Interview given by Mr. Tapio Saavalainen, IMF MCD Mission Chief, to Ms. Larisa Lee, correspondent of MSN, on November 25, 2005
(I will come back to Kyrgyzstan, but as a tourist).

MSN, No. 136, November 25, 2005

The last November mission of the International Monetary Fund left for Washington last week. It was shorter than a regular working visit exactly by half. Eight days were given to a new mission chief from the Middle East and Central Asia Department, Paulo Neuhaus, who had replaced Tapio Saavalainen in this position to get acquainted with the authorities of Kyrgyzstan and to be fully apprised of the situation. Henceforth this person will be the main proposer of the international donor organization for our government and a coordinator of the PRGF-2. Routinely in the IMF the new the mission chief was introduced by his predecessor.

Tapio Saavalainen’s last visit in our country will remain in our memory, probably, by a kaleidoscope of meetings and receptions, both official, and informal. Whether it was from old habit to consult with him or because he was more our own one, but members of the government, deputies of parliament, heads of international organizations and business circles were seeking meetings with exactly the retired IMF mission chief. There were still more of those, who simply wanted to meet, talk, hear from him about an economic forecast for the near future and to tell him some warm words in farewell. For the first time, I was faced with a phenomenon, when a foreign citizen, though a top-class expert, could be so popular in our country.

The media, which came in flocks to IMF press conferences, was left in the basket of an information field this time. A traditional dialogue with journalists that accompanied any finale of each mission was this time cancelled. Professional curiosity and a dissatisfaction because of a shortage of news forced it to demand “satisfaction” from Tapio Saavalainen. However, he refused to give interviews to all of the media representatives, including us. Though later he altered his mind, for which fact we are very grateful to him, and made an exception, having agreed to answer questions of the MSN correspondent.

- The president, government and parliament assess the activity of the International Monetary Fund in Kyrgyzstan differently. Why?

- I will try to answer this question, quoting Speaker of Parliament Omurbek Tekebaev, who, in turn, quoted the president of Finland Mauno Koivisto. That guy sometime said that any economic policy is vicious. To what extent? It depends only on an angle of view. There are different views as to the work of the IMF in your country and it is clear. I will try to be objective. Any phenomena in any society are exposed to interpretation on the part of different people. However, on the other hand, both the president, and the government, and parliament consider an economic situation in Kyrgyzstan from one point of view. They could differ in opinions on specific policy measures, but no one would argue that well-being of the Kyrgyz people is a goal of all of three branches of authority.

- The IMF was frequently criticized that it had excessively “sponsored” the government, dictated it rules of the game, being unaware at the same time of all subtleties of local conditions. Do you agree, though partly, with the opponents?

- In connection with your question, I recollect a word of Mr. Fisher, former IMF Managing Director, Deputy, who said that “traveling through the most different countries of the world, he was shocked by the fact of how many countries consider that usual economic laws are not applicable to their own country, that it has its own specific features. I rather think that disputes on the economic policy in Kyrgyzstan are comparable to findings of my colleague Fisher.

183 countries are members of the IMF, therefore, our organization is well familiar with the most different economic experiments, including the experiments, similar to those that are suggested by Kyrgyzstan . If we are aware beforehand of what this or that policy direction has not been effective in other countries, what is the reason for applying it in your country? However, I agree that the IMF should show certain modesty and take into account specificity of the country.

Starting to work in your country, at the earliest opportunity I tried to learn it from within and with this end in view I have visited almost all regions of the republic, except for the Naryn oblast. I never applied ready models, though I actively applied that experience, which had been recognized as successful in other countries.

- After your last but one visit to our country an impression was created that the IMF had considerably softened its recommendations, especially regarding a fiscal reform. Does it mean that it is the new revolutionary government turned out to be so firm or the International Monetary Fund has adjusted its policy in connection with a change in the political mode?

- During our recent conversation with the President and the Prime Minister I recollected that my work here started with quite an unfortunate event. Then, five years ago, I was compelled to cancel a meeting of the IMF Executive Board of Directors, which was to approve the program. The reason? Because without any consultations with the IMF the government of Kyrgyzstan had lowered income and profit tax rates. It is symbolical that my activity in this position has ended by signing the recent agreement related to exactly a reduction of the income and profit taxes at the uniform rate.

Once well-known economist Keynes was asked why he had changed his position on one of the economic issues. He answered: when circumstances change, I change the opinion, and how do you act?

So, when the fiscal reform was discussed in 2001, the program of cooperation with the IMF was suspended for already more than a year and the budget was not in the best condition. When we summarized performance under the PRGF, it turned out that in the part of fiscal program implementation all of the criteria had been met.

The time came in 2005 for the reforms in the tax system. The tax accounting sphere is in such a condition that the country could allow itself to take a certain risk. We hope that the reform will bear fruit in the budget for 2006, because any tax is introduced as a tool deforming a market mechanism, the less taxes, the better.

- Nevertheless, despite such radical measures, many economists, let alone businessmen, consider them to be insufficient and suggest to lighten a tax burden even more.

- Today, the rates of taxes in Kyrgyzstan are already lower, than those of the neighbors. Well, it is not a secret for anyone that for businessmen and ordinary tax payers the best rate is the zero one. On the other hand, the country in fact cannot refuse social services, such as medicine, education, maintenance of security in the country and all of these services need to be financed.

- Won’t the fact that VAT in Kazakhstan is lower than in our country and Russia is going to set this tax at 13 percent, with us sticking to the former positions, have a fatal impact on trade?

- I want to emphasize: it is correct that the VAT is main budget forming tax, because, being an indirect tax, it has the less deforming impact than other types of taxes, and if corruption in customs and tax administrations is combated successfully in the country, under these circumstances there would not be any distortions in trade and the commodity turnover. The taxes in the Scandinavian countries are very high, but, when they are collected based on a country destination principle, any way it does not influence trade, for exporters are VAT exempt.

- What is your assessment of the current investment environment? What should be undertaken to attract foreign capital to the post-revolutionary country?

- Indeed, investment attractiveness for the recent year has a bit dropped down. I believe the government will manage to stop this process and to again involve investors in the process of achieving political stability, making anti-corruption steps more active and improving state administration. I believe in it.

- Due to March events, growth of economy of Kyrgyzstan appreciably slowed down, while the neighbors still develop dynamically. Is there no fear that in the long term if the country does not recover, we will turn into one of the provinces of Kazakhstan or China ? Such assumptions are made by some of the politicians and economists.

- We had the same feelings, when in 60-s and 70-s Sweden had been gradually turning into the model of economic development. Though today income of Finns is not lower, and it is, maybe, even higher than that of Swedes. The answer is simple: the small countries should be cleverer than the big countries. I do not want to tell anything bad about Kazakhstan and China , but I know that Kyrgyzstan has brilliant talents. It is one of your most valuable reserves.

- There are the economists that consider growth of GDP at three percent projected for this year is an artificially underestimated parameter. Their opinion is that the country can do nothing and reach such a rate of growth.

- The large share in GDP of Kyrgyzstan is that of extraction of gold and it is a very unstable branch. Energy is one more large resource in your country, but to successfully sell this electricity you need to closely cooperate with the neighboring countries. And you know yourselves what serious barriers there exist for the political reasons. I think, first you should settle controversial issues with the neighboring countries.

If to exclude gold mining and generation of electricity, the rates of growth in all of the other sectors have made 5 percent for the recent ten years. I am confident that the country has all of the opportunities to go beyond this level next year. But I should note that even such a parameter as five-percent growth of GDP is quite good and provided all factors, such as anti-corruption measures, improvement of governance in state bodies, adoption of required statutory acts, faster growth would be also possible.

- The government intends to use part of the money from sale of Centerra shares for construction under mortgage lending. Would it not be more expedient to use this money instead of establishment of fuel reserves, taking into account the fact that world prices for oil are growing, and our republic imports mineral oil by 90 percent from outside?

- The situation with Centerra is very simple. The country has the reserve - an asset as stocks of gold. It has exchanged it for the shares, which are quoted at the international stock exchange in Toronto . I should note that it is the same asset, as any another and we could say that the general wealth of the republic has not changed after an exchange of gold for securities. The question now is how to use these shares. Though in any case they should not be eaten away, because they are national wealth and it is better to invest them into long-term projects and do it slowly enough not to screw up the budget.

- In which exactly projects?

- In such long-term programs, which will not change total national wealth. And it is the best way to use money for investments. And your next question will be again: which investment exactly? My answer is: this issue should be carefully thought over, discussed with donors, who have wide experience in this area.

- Mister Saavalainen, you advise not to eat away a “grist”, meanwhile the social situation in the country is so difficult that it requires the government to spend money or, in other words, “guzzle away”.

- I will reiterate: the main treasure of Kyrgyzstan is its human capital and since it is the same asset, then I do not exclude at all an opportunity of using the money for development of human resources. For education, for example. But not for distribution of doles.

- Your mission to Kyrgyzstan has ended. Do you feel satisfaction from the work done? Any regret that you could have done more and in a better way?

- No one ever could be fully satisfied with the work. I believe those developments the country has achieved are also a result of cooperation between Kyrgyzstan and the IMF. I would like to point out that macroeconomic stability in the country is a merit of the Government, National Bank, and the Ministry of Finance. Of course, I would be much happier, if we had achieved better results in improvement of governance.

I remember in 2002 I sent an Aide Memoire to President Askar Akaev that was titled “Thirty Steps to Good Governance”. In this document I expressed concerns on the issue that a mercenary group was more and more actively taking full advantage of power structures - the government and parliament – and some measures on combating influential lobbyists were suggested there. I hope revolutionaries found that note on the seventh floor of the White House.

- Kyrgyzstan , acquaintance with its people is another page turned over in your biography or is it anything greater? What do you like here in Kyrgyzstan and in the Kyrgyz people and what didn’t you like here? In this very case I want to hear the view of not only the IMF official, but also of a common person.

- I am a staff of the international organization, that, you know, is an amusing animal, an amusing beast. According to the IMF definition, I should love all 183 countries, in which we implement the programs. But in your country I have spent five years instead of a usual term - three years. Therefore, I could frankly admit that, of course, a special feeling to Kyrgyzstan developed in my heart. Now I could speak about it bravely, because I am retiring. I adore your mountains, pure air, and a wonderful nature.

And what I do not like is that there is still no yacht-club on the Issyk-Kul lake. Hopefully, it will be opened, so that I could come to this country again. When I am back home, I will turn on my computer and start looking in the Internet for cheap tours to Kyrgyzstan . I promised my daughter to bring her here. I would like to draw your attention to the fact that there will be a sailing-match during the period of January 15 to 20 near the Kivas islands, not far from Florida . You could check up on a website. Now I could devote a lot of my time to sailing and to go in for sailing seriously.

- Haven’t you been offered an Advisor’s position by the government? The former president liked to surround himself with foreign advisers, but saying the truth, he did not use their advice and recommendations in practice, as it seems to me.

This question caused an inscrutable smile of Tapio Saavalainen. And, then, our unimpassioned conversation turned into a question-answer mode.

- Yes, I had some.

- And what have you decided?

- To retire.

- So early, you do not look like a pensioner at all.

- We have our own seniority scale and according to this scale I have deserved rest.

- President Bakiev awarded you with the Dank medal. Why were you over-modest and said that this award is granted to the IMF as a whole?

- IMF officials have no right to accept awards. It is uncustomary, but one should also not refuse such an honor.

- Does it mean that no one had ever hit upon this before we did it?

- In my life such an event happened for the first time. Therefore, you should certainly write that the IMF has deserved this medal.

- Probably, it is awfully pleasant, when the head of the foreign state puts on you an award band?

- Certainly, that’s why, maybe, taking into account the fact that I am almost a retiree, the IMF will not take away the medal, and will leave it as a keepsake? (Saavalainen smiles widely, not hiding that he is joking.)

- Do you know that in our country people, whose merits are marked by awards, certificates of honor, have the right to social privileges. For example, a supplement to a pension?

- Really? Then I would have to tell Olga Lavrova that she should not forget me when formulating the Social Fund budget.

- What farewell recommendation will there be for all of us from Tapio Saavalainen?

- Please, adhere to the memorandum. The memorandum and once again the memorandum.

- And everything be OK, won’t it?

- I believe the life in Kyrgyzstan will turn out well.

Larissa Lee

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