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Decentralization Reforms in Kazakhstan and Kyrgyzstan: Slowly and Unsteadily

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by Marianna Gurtovnik
Published on July 24th, 2006
PAPERS & STUDIES

Following the collapse of the Soviet Union, the presidents of independent Kazakhstan and Kyrgyzstan have publicly recognized devolution of authority to locally elected officials as an important step toward more responsive and transparent governments. However, both leaders have failed to match their words with action. The then Kyrgyz President, Askar Akayev, has made an impressive start in the early 1990s, only to retract many important governance initiatives in the years to follow. In Kazakhstan, President Nursultan Nazarbayev has been slow to draw a national strategy on decentralization, or to sound out a coherent vision of how the reform should unfold. High-level state commissions established by the two presidents in 2001-2002 to delineate powers between the levels of government have not been very active. Both Nazarbayev and Akayev, at different times, have also questioned the citizens’ preparedness to embrace the concept of local self-governance and assume responsibilities associated with it.

Kazakhstan and Kyrgyzstan present an interesting case for comparison. The former is the largest Central Asian country, which boasts a booming oil and gas economy and is led by a heavy-handed ruler who maintains a veneer of democracy. The latter is less successful from the economic standpoint but has been widely acclaimed as the most democratically advanced nation in the region. Its reputation was re-confirmed in the spring of 2005 when revolutionary forces ousted the increasingly unpopular government of Askar Akayev.

Kyrgyzstan and Kazakhstan’s Constitutions of 1993 and 1995, respectively, define the governance regime in both countries as unitary presidential republic. While this form of governance vests substantial authority in the President as a head of the state and the government, it also implies independence of legislative and judicial branches from the executive branch. In reality, however, Akayev and Nazarbayev have acted more as autocrats with their powers virtually unchecked by neither legislators nor the judiciary. Tellingly, most of the laws on local governance in both countries have been generated not by national legislatures but by presidential decrees. Kyrgyzstan’s new Constitutional Council, formed in the aftermath of the March 2005 revolution, currently looks into ways to curb presidential omnipotence.[1]

Kazakhstan’s public administration system is commonly described as the "executive vertical" with a rigid top-to-bottom subordination. The president appoints regional governors (akims in Kazakh) who, in turn, appoint district-level heads of executive power. The latter nominate akims of villages. In an environment so heavily controlled by political appointees, local legislative councils, maslikhats, serve as the only outlet for civic participation. But there is a twist to Kazakh public administration system: maslikhats, elected directly by the citizens to represent citizens’ interests in local affairs, are accountable to the appointed akims. Even though Kazakhstan’s Constitution grants people a right to impeach an akim through maslikhat, the procedure is rather complicated and instances of doing so are practically non-existent.[2]

Similarly, officials in Kyrgyzstan appoint chief executives at the lower administrative level. This system reduces the role of locally elected councils to mere appendages of sub-national governments and leaves ordinary citizens with little control over the decisions of local importance. In addition, weakness of political parties at the national and local level offers the rank-and-file in both nations no alternative agenda for local development.

BOTCHED ELECTIONS

Attempts to ameliorate the system lacked genuine political will and commitment on the part of the higher-ups. President Nazarbayev’s decree "On Elections of Akims of Aul (Rural) Districts" set the stage for pilot elections of akims for Kazakhstan’s 28 rural districts in October 2001. In retrospect, the pilot vote did not do much to boost rural akims’ credibility among their constituents. Rural akims still report to district akimsand have no independent budget to deliver on their campaign promises. This has deprived as much as 44% of Kazakhstan’s population residing in rural areas of a say in local affairs.[[3] The term of elected akims ended in 2003, yet there was no official evaluation of the experiment, nor was there a follow-on election conducted.

The Organization for Security and Cooperation in Europe (OSCE) criticized Nazarbayev’s decree for violating universal suffrage rights, secret ballot casting, and limiting the participation of observers.[[4] Local opposition-minded experts chimed in, saying that the very fact that elected officials report to political appointees was at odds with democratic principles. One of the most prominent dissenters was Galymzhan Zhakiyanov, a former akim of Kazakhstan’s Pavlodar region, also known as a staunch supporter of decentralization and outspoken critic of fraudulent elections. In 2002, authorities sentenced Zhakiyanov to seven years in jail for allegedly abusing his powers while serving as akim in Pavlodar. He was conditionally released in January this year and continues to advocate for better governance practices in Kazakhstan.[5]

In Kyrgyzstan, relatively progressive electoral legislation has been attributed to the central government’s desire to limit the potency of regional governors. Kyrgyz electoral code was modified in 2001 to introduce popular elections for heads of rural municipalities and twelve larger cities, making them directly accountable to the public.[6] Elected officials at first combined the posts of local executive chiefs and chairs of local legislative councils. This defied the whole point of having the councils serve as a check on executive officials. These roles were subsequently split by a legislative amendment adopted in December 2005.

Both Kyrgyz and international observers criticized the December 2001 pilot municipal elections for imposing unfair limitations on contenders, such as the two-year government service

requirement. Akayev’s Administration responded by lifting this limitation, along with the residency requirement and a certain number of signatures candidates had to collect to prove support from their constituents. As a result, the previously restrictive legislation became way too liberal.

Further legislative changes in Kyrgyzstan brought about only nominal improvements. The 2004 Law on Elections proposed a number of innovations aimed to increase the transparency and competitiveness of elections. It introduced multi-member districts (with an average of four seats per district), transparent ballot boxes, and inking of voters’ fingertips to prevent multiple voting. It also made two thirds of seats on electoral commissions available to political party members and representatives of non-governmental organizations. Eight parties took advantage of the new rules by fielding their candidates and placing representatives in electoral commissions. At the same time, the law restricted the freedom of information by banning publication of opinion polls and other pre-election studies concerning registered contestants.[7]

Despite some of its progressive features, the 2004 law did not change the composition of Kyrgyz local councils much. Political pluralism suffered after two pro-presidential parties, Adilet and Alga Kyrgyzstan, had gained 88% of all seats in local councils in the October 2004 race. Multi-member districts encouraged participation of traditionally under-represented ethnic minorities. Yet, the Kyrgyz, constituting 70% of the country’s population, captured 85% of seats in the councils. That left the Uzbeks (15% of population) with 6.2% of the seats, while the Russians (12% of population) won 4.3% of the seats.[8] Better integration of Uzbek community, concentrated in the south of Kyrgyzstan, into Kyrgyz political institutions could help to alleviate tension between the two countries. Domestically, it could also mitigate a long-time economic and political rivalry between Kyrgyzstan’s north and south.

PROPERTY OWNED BUT NOT CONTROLLED?

A major accomplishment of Kyrgyzstan’s decentralization program has been a smooth transfer of state-owned assets to rural municipalities in the late 1990s. Municipalities have inherited a substantial amount of "surplus property" that is not utilized for core public services but can be turned into a source of local government’s income. Indicatively, the national Land Code defines the land that is in neither state nor private ownership as the property of village communities, ayil okmotus. This amounts to 25% of Kyrgyzstan’s agricultural land, which ayil okmotus lease to finance their operations. Their control over land transactions is dubious, however, with district authorities approving village land use plans[9], and the central government determining land tax rates.[10] Overall, rural municipalities’ gains from land transactions and other sources appear rather insignificant: in 2004, only 11% of ayil okmotus reported sufficient revenue to recoup their expenses.[11] Nor are land auctions widely publicized. International organizations have proposed that ayil okmotus prolong the terms of lease and step up the transparency of land transactions as a way to raise local revenue, gain public trust, and use proceeds to support disadvantaged villagers.

In Kazakhstan, sub-national governments own over 80% of all state enterprises including energy, gas, and heating facilities, as well as schools and kindergartens. However, ownership is not always clearly divided between different levels of government. In addition, the law limits local governments’ control over the rates for local taxes including tax on property and vehicles. The only exception is the land tax for which maslikhats may determine the rates within the range of 20%.[12]

FISCAL QUAGMIRE

Distribution of public expenditures and revenues among central, regional, and local governments is vague in both countries. Laws are open for subjective interpretation as they assign responsibility for the same public services to various levels of government simultaneously. Typical example is Kyrgyzstan’s Law on Local Self-Governance and Local State Administration, which holds both local and regional authorities accountable for maintaining proper standards in public education and healthcare.[13] Such ambiguity has led to the proliferation of "unfunded mandates"– functions that national ministries have delegated to lower-level governments without providing them with adequate funding. And sub-national governments’ authority to tax does not necessarily translate into real revenue, as certain taxes have no substantial income-generating potential. For instance, costs associated with the administration of taxes on dog owners and flower glowers in Kyrgyzstan are higher than the receipts these taxes bring in. The rates for such "nuisance" taxes are established nationally and are rather low.[14]

Regional governments in Kyrgyzstan have had little freedom in negotiating tax share rates with the central government; elected officials in cities and villages have had none. While sub-national governments’ revenues are often uncertain, many of their spending categories, including staffing structure and salaries, are prescribed in detail from above.

Prospects appear brighter for Kazakhstan’s regional leaders whom some analysts consider the real movers and shakers of the country’s decentralization reform. Admittedly, regional akims and their entourage have initiated decentralization in hopes to expand their powers and enrich their coffers. Some of them have succeeded at both, thanks to their control over crucial economic assets. Jones Luong’s study notes that Nazarbayev’s government has lately been flexible in negotiating revenue sharing rates with the head honchos of Kazakhstan’s oil-rich regions in exchange for their support of privatization.[15] But devolution of authority in Kazakhstan seems to have bottlenecked at the level of regional elites: they were understandably unwilling to share their hard-earned powers with the lower-level city and village governments.[16]

Lack of budgetary autonomy has undermined accountability and transparency of sub-national governments. Accountability suffered because officials lacked resources to respond to local needs. Transparency in revenue disclosure, as is discussed further, entailed punishment in the form of reduced financial support from the center. Poorly designed fiscal policies have compelled regional governments to create extra-budgetary funds, accumulated through various fees and fines, which they’ve used to finance locally popular infrastructure and capital improvement projects. A case in point: foreign businessmen in Kazakhstan complained that they had been "subject to the whim of local tax authorities" who had taken advantage of cumbersome auditing regulations to "penalize foreigners under their jurisdiction" for non-compliance.[17]

Interviews with regional leaders have also revealed the curious inter-governmental dynamics in Kazakhstan that have contributed to lopsided tax collection. While tax agencies in the regions officially report to national authorities, their overhead costs, such as office space, communications, and utilities, are paid from the regional budget.[18] Moreover, regional budgets cover tax agents’ housing subsidies and other fringe benefits that local employees are eligible for. Hence is the propensity of tax collectors to prioritize the regional akims’ directives over the instructions they receive from the central government. Anecdotal evidence confirms that revenue from local taxes in Kazakhstan grows at a higher rate than for taxes shared with the central government.[19]

Current fiscal policies make local governments’ budgets unpredictable and create disincentives for revenue mobilization. Kyrgyzstan and Kazakhstan have dragged their feet over ditching the so-called "equalization" transfers in favor of the "needs-based" ones that are more appropriate to the market economy. A hangover from the Soviet period, equalization transfers were in use in Kazakhstan in 1992-1999 and are still in the picture in Kyrgyzstan. Central governments have used them as subventions for poorer regions whose minimal expenditures exceeded the sum of local revenues and taxes shared with the center. A study of Kazakhstan’s decentralization policies emphasized the deleterious effect such transfers have had on the local government’s motivation to generate revenue: "The gap-filling nature of the transfers provided negative incentives for revenue mobilization and the efficient provision of public services as any increase in regional own revenues or budgetary savings in the provision of public services triggered reductions in the level of transfers."[20] In Kyrgyzstan, this scheme has prompted local self-governments to "seek to get revenues in-kind rather than in money."[21]

Recent legislation that grants local self-governments (LSGs) in Kyrgyzstan the right to retain 100% of the local tax receipts may help boost the revenue collection efforts. It means greater financial autonomy for municipalities, although tax base and rate for local taxes are still determined by the national government. Taxes are collected by the State Tax Inspectorate; however, it may now authorize LSGs to hire then own tax collectors.[22]

Legislative restrictions on borrowing have further stifled local governments’ ability to provide quality services. In Kyrgyzstan, reforms that would decrease bureaucratic red tape and revitalize revenue efforts at the local level have been put off till 2007. In Kazakhstan, borrowing from private and foreign sources had been off limits to local governments until 1999. Regional or national governments—the sole lenders accessible at the time—had a tendency to disburse loans without a careful assessment of local governments' past fiscal performance. As a result, lending governments oftentimes had to forgive loans or subtract them from transfers, perpetuating local governments’ budgetary uncertainty and managerial weaknesses. Legal and regulatory framework on sub-national borrowing in Kazakhstan needs to be strengthened now that regional governments are allowed to borrow directly from foreign sources, albeit on a limited basis.

Marianna Gurtovnik works for an international development consulting firm focusing on the areas of goverance, public sector reform and civil society development. She is fluent in Russian and English, and holds a Master's Degree in Public Administration from The American University in Washington, DC.


[1] CIA: World Fact Book – Kyrgyzstan, Government Section (June 1, 2006)

[2] Meruert Makhmutova, Chapter "Local Government in Kazakhstan" in the book "Developing New Rules in the old Environment. Local Governments in Eastern Europe, in the Caucasus and Central Asia." Ed. by Igor Munteanu and Victor Popa, Volume 3. (Local Governance Initiative/Open Society Institute, Budapest, 2001), p. 415.

[3] Public Policy Research Center: Развитие местного самоуправления: Стратегические вопросы, ISSN 1812-3007 (July 2004), p. 11

[4] OSCE report points to an absence of "objective criterion to be applied in choosing what geographical collections of citizens will be granted the right to vote in Akim elections". It concludes that the Presidential Decree Number 633 creates a "possibility…for State authorities to grant the right to vote in Akim elections to "favored" geographic collections of voters, and to deny the right to vote in Akim elections to geographic collections of voters known to be associated with certain political parties, ethnic groups, or unpopular political opinions." See OSCE/Office for Democratic Institutions and Human Rights (ODIHR): "Republic of Kazakhstan: Review of Presidential Decree for Pilot Local Elections" (Warsaw, 15 September 2001), p. 2.

[5] Galymzhan Zhakiyanov, Decentralization of Authority and National Akims’ Elections – Demand of Time and Requirement for Democratization of Political System of Kazakhstan. Speech Delivered at the Convention of Democratic Forces in Kazakhstan on January 19, 2002.

[6] Freedom House: Nations in Transit – Kyrgyzstan (2005), p. 13.

[7] Ibid, p.6

[8] Ibid, p.13

[9] Email communications with Asyl Undeland, expert on rural development in Kyrgyzstan, April 21-24, 2006.

[10] Charles Undeland’s Recommendations for Action by the Government of the Kyrgyz Republic to Strengthen Decentralization Reforms state: "The government should identify the land tax as local tax as per the Law on LSGs and the amended Basic principles of Budgeting Law, though perhaps with rates set within bands by the parliament." (The Urban Institute/US Agency for International Development, Central Asian Republics Local Government Initiative Phase 2, 2005), p. 5.

[11] Askat Dukenbaev, Defining Decentralization. (American University of Central Asia, 2004), p. 4

[12] Makhmutova, Local Government in Kazakhstan, p. 439.

[13] Email communications with Asyl Undeland, April 21-24, 2006.

[14] Email communication with Charles Undeland, Director of Urban Institute’s Local Governance Program in Kyrgyzstan, April 28, 2006.

[15] Pauline Jones Luong, Economic Decentralization in Kazakhstan: Causes and Consequences. (Yale University, Department of Political Science, 2002), pp. 14-17.

[16] Rustem Kadyrzhanov, Decentralization and Local Self-Government in Kazakhstan: An Institutional Analysis (2005), pp. 4-5

[17] Jones Luong, Economic Decentralization in Kazakhstan: Causes and Consequences, pp. 10-12

[18] Ibid.

[19] Ibid, pp.12-14.

[20] Era Dabla-Norris, Jorge Martinez-Vasquez, and John Norregaard, Making Decentralization Work: The Case of Russia, Ukraine, and Kazakhstan. (International Monetary Fund, 2000), p. 9.

[21] Undeland, Recommendations for Action by the Government of the Kyrgyz Republic to Strengthen Decentralization Reforms, p. 2.

[22] Email communication with Charles Undeland, April 28, 2006.

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