The breakdown of established trading relationships following the dissolution of the USSR severely depressed the economy of Kyrgyzstan. Markets for the country’s highly specialized industries disappeared and the high cost of fuel imports—subsidized during the Soviet era—drained the country’s money reserves. By 1995 the gross domestic product (GDP), which measures the total value of goods and services, had fallen to 54 percent of its level in 1990. Beginning in the mid-1990s, however, the economy began to reverse its decline, led by increased agricultural output and a growing private sector. In 2000 the GDP was an estimated $1.30 billion.
Kyrgyzstan is widely seen as one of the leaders among the former Soviet republics in economic reform. In 1992 the government initiated the first in a series of privatization programs to bring about the transition from the centrally-planned economy of the Soviet era to a free-market system. The initial step was to transfer the ownership of most housing to its occupants. Industrial privatization followed in 1994, with citizens receiving coupons that they could redeem at auctions for shares in established enterprises. Agricultural reform sought to break apart state farms and collectives established during the Soviet era. The transition to private farming has been hampered, however, by the resistance of some conservative local elites, by the absence of credit and distribution sources for farmers, and by property laws that do not yet make it possible for citizens to freely buy and sell land. Under current legislation, farmers may lease land from the government but may not own it outright.
Agriculture, which in 2000 accounted for 39 percent of GDP, is Kyrgyzstan’s healthiest economic sector. The raising of sheep and cattle remains the dominant agricultural occupation, particularly in the central and eastern mountains. Soviet central planners demanded high meat production from Kyrgyzstan, which forced farm managers to increase herd sizes, resulting in extensive overgrazing. Since independence, the size of herds has been reduced. Vegetables, particularly potatoes and tomatoes, and fruits are grown in the irrigated and intensely cultivated Fergana Valley. Other crops include cotton, tobacco, and sugar beets. Much of Kyrgyzstan’s grain farming takes place in the foothills of the northern mountains.
Once based almost exclusively on agriculture, the Kyrgyz economy underwent extensive industrialization during the Soviet period. Raw materials were imported from other parts of the USSR for processing; the resulting products were then exported to other parts of the USSR. In the economic turmoil associated with the breakup of the USSR, industrial production was cut nearly in half as material costs increased and markets for finished goods disappeared. By 2000 industry contributed only 26 percent of GDP. The processing of agricultural goods such as wool, meat, and leather accounts for much of the country’s manufacturing; other manufactured products include textiles, clothing, and shoes. Kyrgyzstan also makes agricultural machinery and refines metal. Most manufacturing plants are concentrated in Bishkek and its environs.
Kyrgyzstan has vast mineral resources, including extensive deposits of gold, antimony, and mercury. The country has entered into agreements with foreign companies to assist in developing its gold reserves, estimated to be among the richest in the world. Antimony and mercury refineries are the largest among the former Soviet republics. Coal mining is significant, although production is falling because of aging equipment and increased extraction costs. Unlike neighboring countries, Kyrgyzstan has limited oil and natural gas reserves, although deposits have been found in the Fergana Valley.
The Naryn and Chu rivers are used for hydroelectric power, although considerable hydroelectric potential remains undeveloped. Some 93.33 percent of the country’s electricity is generated in hydroelectric facilities. The remaining 6.67 percent comes from thermal plants burning coal. Sales to China, Kazakhstan, and Uzbekistan make electricity Kyrgyzstan’s principal export.
Russia, Kazakhstan, Uzbekistan, China, and the United Kingdom are Kyrgyzstan’s chief purchasers of exports. Leading sources for imports are Russia, Kazakhstan, Uzbekistan, Turkey, and Cuba. In addition to electricity, leading export items are food products, refined metals, and machinery. Kyrgyzstan, Russia, Belarus, and Kazakhstan agreed in 1996 to form a customs union to simplify trade by reducing restrictions on cross-border shipments. The stated goal is the eventual elimination of all tariffs and inspections of goods exchanged between the members.
In 1993 Kyrgyzstan became the first former Soviet republic in Central Asia to introduce its own currency, the som (47.70 som equal U.S.$1, 2000 average). In 1994 Kyrgyzstan joined a common economic zone established by Kazakhstan and Uzbekistan for the purpose of deepening regional integration. In response to the initiation of market reforms and government efforts to keep inflation low, Kyrgyzstan has received financial assistance from the International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF). In 1998 Kyrgyzstan joined the World Trade Organization (WTO), an international body that promotes and enforces trade laws and regulations.