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National Bank of the Kyrgyz Republics Zina Asankojoeva  

Zina Asankojoeva is the first female governor of the National Bank of the Kyrgyz Republic. She speaks with Daniel Hinge.  

Author: Daniel Hinge  

Source: Central Banking Journal | 28 Feb 2013  

 

Zina Asankojoeva is the first female governor of the National Bank of the Kyrgyz Republic. A graduate of the Kyrgyz State University with a degree in accounting and business analysis, she spent her early career working at the State Bank of the USSR in Bishkek, rising first to the rank of deputy chief accountant and, later, chief accountant. 

She joined the Kyrgyz government after the country gained independence from the Soviet Union, running a number of finance units before rising to overall head of the finance department. She re-joined what is now the National Bank of the Kyrgyz Republic as a deputy governor in January 2011, before being named governor in June 2011. 

What are the main problems facing the Kyrgyz economy?  

There are, unfortunately, multi-layered problems affecting the Kyrgyz economy. Often the effort is aimed at solving issues that lie on the surface but fails to deal with the underlying causes. I am convinced the task of the main economic departments  given our limited resources is to solve the most fundamental problems, neutralise their impact and increase the effectiveness of governmental spending. 

One of the main problems is the delay in conducting structural reforms. This has become a limiting factor in achieving stability and sustainability of economic growth in the country, and has had the negative effect of poor development of the industrial and agricultural sectors of the Kyrgyz economy. The second is the low level of productivity and savings in the country, with the low domestic savings rate one of the critical limiting factors for economic growth. A widening gap between the growth rate of income and productivity ultimately leads to the accumulation of inflationary pressures. 

Another important aspect is the high cost and limited access people have to finance. The majority of issued loans are short-term credits, which are unsuitable for financing investment projects with long payback periods. Spreads are also high. 

These are the challenges that must be solved, otherwise they will cause problems in many other segments of the economy. But I like the expression The road will be handled by the walker [a Kyrgyz national proverb]. We have a unique chance to lay the foundations for future stability of the economic system through a joint government and National Bank of the Kyrgyz Republic (NBKR) economic policy. 

Are you concerned about the latest International Monetary Fund (IMF) predictions of a further slowing of the global economy or is the Kyrgyz Republic sufficiently isolated?  

The IMF forecasts on the development of the world economy do bother us. After all, any individual developing economy directly depends on overall macroeconomic stability, both in the world and the region. In fact, the latest estimates by the IMF in terms of growth and production confirm the risk that in the short-term, significant recovery in the world economy is not expected. Therefore existing global problems will continue to put pressure on external demand. 

Kyrgyzstan is a small, open economy that is vulnerable to shocks in world markets, especially in the food and raw materials markets. However, as you noted, due to our relative isolation and weak integration in the world financial markets, crisis manifestations are reflected in our country indirectly and with a time lag. The main channels of influence come from our primary trading partners Russia, Kazakhstan and China. 

But in our time of economic agents, psychological factors can be just as important as fundamentals. This is why our communication policy has a crucial role to play, so the NBKR gives a great deal of attention to this area of its work. 

How is the NBKR working to ensure price stability in the country? Does the central bank have sufficient tools and operational independence to ensure stability in prices? 

The NBKR, jointly with the government, takes charge of a range of activities, aimed at curbing the rate of price growth to maintain the stability of the prices in the country. The inflation rate in the country depends on a variety of factors. The central bank, in the framework of its powers, can influence only those factors that have a monetary nature and can regulate the quantity of money in the economy through conventional tools of monetary policy. 

This includes foreign exchange operations, operations with securities including NBKR notes and swaps, deposit operations, refinancing operations and regulation of the reserve requirements. To use them, the cental bank has a sufficient level of independence, enshrined in law. Our primary tasks are the formation of adequate inflation expectations, and recovery and maintenance of confidence in the banking system. 

What are the particular challenges, from your perspective, in regulating the financial sector? 

The financial sector in our country is represented by banks, micro-finance and credit institutions, insurance companies, investment funds and other non-bank financial institutions (NBFIs). The central bank is not a mega-regulator for all financial markets. Its functions include the supervision and regulation of banks and micro-credit organisations. 

In the banking sector, there are positive dynamics in the increase in active loan portfolios, deposits and net income. However, indicators of financial intermediation in the economy remain at a low level. There is a high concentration of the loan portfolio in trade (40%) and a high spread of interest rates on loans and deposits. There is also a high level of short-term liquidity risk. So, by the results of the first half of 2012, short-term loans covered only 18.8% of short-term deposits, thus forming a gap of 81.2%. 

The microfinance sector is in the process of shifting from quantity to quality, based on the institutional development of non-bank financial credit organisations, the increase of their services, improvements in risk management and so on. One of the problems that has a potential risk for the microfinance market is the focus of most of the credit portfolio of NBFIs, which includes credit unions, in regions where the overall welfare level of the population is much lower than in the capital Bishkek, and where the dependence on money transfers is much higher. Interest rates on loans for NBFIs are still among the highest in the domestic capital market. Also, there is a concentration of credit portfolios on NBFIs in the agricultural and trade sectors. There is also an institutional concentration of the credit portfolio of six large microfinance institutions. 

Resolution of the identified problems, along with an increase in financial stability and investment attractiveness, will be directed at supporting financial stability and the development of the banking sector in the Kyrgyz Republic. 

We are seeing new rules for regulating the global banking system under Basel III and other initiatives under the G-20 process. How will this affect the Kyrgyz Republic? 

The NBKR continuously improves the legal framework for banking supervision to optimise the implementation and application of the Basel Committee on Banking Supervisions core principles for effective banking supervision. 

Currently, activity in the Kyrgyz Republics banking sector is based on the norms of Basel I and partially Basel II, so that the main elements of the components on capital are integrated. Preparatory work on adapting Basel III for the Kyrgyz banking sector is being conducted. The central bank will continue to make efforts to further harmonise banking supervision in accordance with the principles of the Basel Committee and international best practice. 

What is your current foreign exchange reserves policy? Has this changed in the past few years? 

In accordance with the law, the NBKR manages foreign exchange reserves according to the principles of maintaining liquidity and safety of reserve assets. Strategic decisions over the management of international reserves are approved by the board of the central bank, which annually reviews and approves the investment policy of the NBKR for the coming period. The investment committee considers issues of tactical reserve management and takes decisions in terms of acceptable limits and restrictions. These decisions are taken daily on the basis of analysis and monitoring of financial markets and evaluation of possible risks. 

The NBKR places the international reserves in highly reliable and liquid instruments: securities, time deposits and one-day repo-operations. Portfolio of securities includes government securities of Australia, France, Germany, Switzerland and the UK, as well as short- and mid-term investment instruments of international financial institutions. Time deposits are placed with international financial institutions, such as the Bank for International Settlements, major foreign central banks and highly rated international commercial banks. 

The challenging situation caused by the global financial crisis has had an impact on the investment policy and allocation of reserve assets of the NBKR in the past few years. The NBKR took measures to diversify its currency portfolio of international reserves, optimise the set of investment instruments and expand its list of counterparties. To diversify its reserve assets, the NBKR also began to purchase gold in the domestic market. In this regard, the NBKR continuously conducted activities to enhance the effectiveness of the management of international reserves in accordance with the existing conditions in the environment. 

Has the Kyrgyz Republic been affected significantly by spillover effects from the eurozone crisis? 

Experience shows that global crises have mostly had an indirect impact on the domestic markets of the Kyrgyz Republic through the regional economy. There are a number of reasons for this. First, the Kyrgyz banking system is not involved in the global financial markets (the proportion of non-resident investors represents little more than 5% of its deposit base). One of the causes of banking crises is panic among investors and depositors, who all withdrew their money at the same time. Secondly, the external public debt despite its large size is mainly multilateral and stands at about 47% of GDP. This means the donors are international financial institutions, and one of their main tasks is to promote the stability of the world economy. 

So the main influence on the economy of the Kyrgyz Republic is changes in the economies of Russia and Kazakhstan, our major trading partners. The biggest influencing factors are the prices for oil and foodstuffs, money transfers by individuals (98% of them come from Russia), and the exchange rate of US dollar to the rouble and the Kazakh tenge. 

What efforts are you making to promote financial inclusion in the country? What have been the greatest successes and failures to date? What future plans do you have in this area? 

There was a positive dynamic for financial intermediation indicator by the banking sector in the Kyrgyz Republic, which increased from 24.4% to 28.5% in 2012. Growth of total assets held by the banking sector since the beginning of the year was 29.9%, with the deposit base increasing by 32.2% over the same period. The size of the total credit portfolio of our banking system also increased by 28.4% in 2012. 

Compared with the indicators of the banking systems of developed countries, the absolute numbers may not seem very high. But the growth-rate data indicates a large potential for more intermediation. As of January 1, 2013, there were 23 commercial banks in the Kyrgyz Republic and 14 of these have shareholdings by foreign investors it is good experience to have a modern influence in banking technology developments as well as attracting foreign capital. 

Meanwhile, the microcredit sector is represented by the non-bank financial credit organisations. The credit portfolios of NBFIs have grown in recent years. The cumulative loan portfolio of NBFIs from the beginning of 2012 decreased by 324.9 million som ($6.8 million), or by 2.1%, and by the end of December 2012 was 15.4 billion som, with the number of borrowers standing at 434,000. This decrease is related to the transformation of microfinance company Bai-Tushum and Partners into a commercial bank. The financial penetration level was 5.1% and microcredit coverage of the population was 7.8%. 

What is the role of electronic payments  including mobile payments  in this process? 

In the Kyrgyz Republic, the role of electronic payments is significant as it contributes to the development of settlements and payments of economic players and reduces shadow cash circulation. 

The electronic payment systems in the country have developed dynamically. The majority of the population now uses the payment systems for a wide range of services, including payroll services (receiving salaries through bank accounts and bank payment cards), regular payments through payment terminals, internet banking and direct debiting of bank accounts for utility payments. There is also active usage of money transfer systems by nationals that live outside the country. There has also been a rise in mobile banking, which became available from the second quarter of 2011. 

The NBKR conducts activities regularly to help expand the range of retail payment services provided by financial and credit institutions, including the development of the Bulk Clearing System, implementing maintenance of the national payment card system and prompting commercial banks to develop infrastructure for the acceptance and maintenance of retail payments including use of bank cards via the international payment system. In addition, the NBKR implements measures to increase the share of non-cash payments and the development of a modern national payment system in terms of an interagency commission for increasing the share of non-cash payments and settlements. 

You made changes to your banknotes and coins a few years ago. Do you have any new plans in this area?  

The denominational range of the national currency is fully updated and no changes are expected. According to the strategy of the development of national currency during 200810, the relevant coins and modified banknotes were put into circulation. 

Gold mining is an important sector of the economy have recent high gold prices benefited growth? What has been the impact of plans to part-nationalise the Kumtor gold mine? 

Despite the general tendency for the gold price to increase, it has also seen high volatility in recent years, especially due to uncertain conditions in the international financial and commodity markets. In this context, fluctuations in the price of gold always have a corresponding impact on gross international reserves of the NBKR, expressed in US dollars. 

As for the second part of your question, nationalisation of the Kumtor gold mine did not happen. The subject of nationalisation was raised by the deputies of the Kyrgyz Parliament in 2012. Currently, the commission is working under the leadership of the minister of economy, Temir Sariev. Work on the verification of Kumtor action is promised to be completed in the near future and then a report will be provided to the public. But I want to assure you that the NBKR, as a financial adviser, has always held the position of property rights protection. The prime minister, Zhantoro Satybaldiyev, has also expressed support to private investors. 

Is the central bank mandated to buy gold production in the Kyrgyz Republic? If so, would you please provide details about how this works and the impact it has on gold reserves? 

By law, the NBKR, along with the government of the Kyrgyz Republic, has the right of purchase for refined precious metals produced in our country. In an effort to fend off the effects of the global financial crisis and to increase the volume of international reserves, as well as on the basis of appropriate diversification of reserve assets, at the end of 2011 the NBKR started to conduct purchases of good delivery gold in the domestic market for national currency, which led to an increase of physical volume in the international reserves. 

Some commentators say the Kyrgyz Republic is being hampered by wide-spread corruption, low foreign investment and general regional instability. What is being done to tackle these issues/perceptions? And what is the central banks role in that process? 

The authorised state agency to solve these issues is the government. We have strategic programmes, the consistent implementation of which will help to strengthen the fight against corruption and improve the investment climate, which can positively influence the development of the economy. For example, the government plan to fight corruption for 201214 has been approved. This programme includes a series of short- and mid-term measures, which were developed with advice from international organisations. The NBKR, in its role as the governments financial adviser, consults it on matters related to the activities of the bank. 

What are your main aims for your time in charge? 

The main thing for me, as governor of the NBKR, is to fulfil the tasks set by law for the central bank: achieving and maintaining macroeconomic stability through appropriate monetary policy, and supervision of financial/credit organisations and payment systems to improve their reliability, level of financial intermediation and investment attractiveness. The ultimate aim is to promote economic development. In the conditions of continued high dependence on foreign commodity markets and imbalances in the state budget, all efforts will be directed to keep inflation in the medium term within single digits. 

Currently, it is important to continue working on strengthening public confidence in the banking system and increasing financial literacy of the population. In 2013  

we will celebrate the 20th anniversary of the day our national currency, the som, was introduced following the fall of the Soviet Union. This will represent an historic day for monetary policy in our country, showing proof of the success of the work of the NBKR of the Kyrgyz Republic. 

You are one of only very few female central bank governors in the world. Why do you think the Kyrgyz Republic is one of the first countries to appoint a female governor? What challenges does this present, if any? 

In fact, I am the first woman who became the head of the NBKR in its entire history. But this is not the only case of a woman heading an important strategic department in our country. Woman in the Kyrgyz Republic are in charge of the Prosecutors Office, the Supreme Court, the Ministry of Finance, the Ministry of Health and the Audit Chamber. A huge burden of responsibility lies on their shoulders; plenty of work; and their decisions are in the spotlight of authorities and population. Society expects the same standards of decision-making and results from women as from men. The roots of this lie in our history. Kyrgyz women were always free, studied, worked and achieved success in all areas on the same level as men. However, the eastern mentality obliges with all that to also carry womens responsibilities of keeping hearth and home, and raising children. This is probably the main difficulty to have sufficient time to be everywhere. 

Do you think others could learn from your example? 

Do not be afraid of responsibility, it is always necessary to act within the law and defend your position. It is difficult, but possible.