Some point to the memorandum of understanding (MOU) signed between the Kyrgyz Republic and the United States on February 15, 2002 (outlining commitments made by the Kyrgyz to open their economy and make progress toward democracy in return for international development aid) as proof that change is in the wind. The MOU should be seen as official cover for the U.S. military presence, however, because the international community, locked into its development model, really has no choice but to take Kyrgyz assurances at face value. Our experience has been that the Kyrgyz, not being irrational, have learned that they can tell the international community what it wants to hear and then use the money in the traditional way. They have not yet failed to get away with this approach. President Akaev, under domestic pressure because of growing impatience with development failures and growing repression, will most likely use his new breathing room to alleviate the symptoms a bit, while further padding the pockets of existing gatekeepers.
THREE GENERAL conclusions about assisted economic development can be drawn from the Kyrgyz experience. First, development assistance should not be burdened with equity and poverty reduction agendas. Such objectives tend to undermine the core development focus on basic institutions, defeating both goals in the end. Successful development will both reduce poverty of its own accord and provide revenues for the social safety net. We need to focus on the engine of growth, not its downstream effects.
Second, concessional lending in the absence of institutional reform leads to a trap, because the resulting infrastructure provides insufficient growth to pay its cost. The benefits of better infrastructure can only be realized if the economic activity it supports can provide a positive legal return to entrepreneurs. Otherwise, the governments of developing states will be smothered by rising debts that will, in turn, discourage both domestic and foreign, investment.
Finally, and most important, governmental institutions must be designed to reduce, not increase, the costs of doing business. Regulation must provide transparency, not enable official rent-seeking. Contracts must be enforceable and taxes must be predictable and consistently applied. If these conditions can be met, many other problems will be easy to solve. If they are not met, no amount of inputs and no number of development entrepreneurs will make much of a difference.
Richard Slaughter is an international consulting political scientist and economist based in Boise, Idaho.Essay Types: Essay