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Abstract
Under the centralized planning system, the Central Asian states developed highly specialized and closely integrated economic relationships with the rest of the Soviet Union, notably characterized by a strong dependency on imports of energy, food, and consumer goods. During 1987–89, the region incurred trade deficits with the rest of the Soviet Union, averaging about 12 percent of GDP annually. The region’s production structure was heavily oriented toward agriculture and mineral extraction, which left little room for growth of import-substituting industries. The export bases of the Central Asian states, therefore, lacked diversification, and import dependency was high, making these countries particularly vulnerable to adverse trade shocks. During the Soviet era, prices for energy and raw materials were far below world prices, so that the net importer countries in the region benefited from sizable trade subsidies. Turkmenistan—the only net exporter, whose primary export is natural gas—was an exception. Following independence, the Central Asian states (with the exception of Turkmenistan until 1997) continued to incur sizable and persistent external current account deficits (Table 6.1). Three main factors accounted for this. First, the agricultural, industrial, and household sectors inherited from the Soviet era were highly energy intensive. Second, the demand for investment goods to replace obsolete capital was high. Third, after years of repressed consumption, import demand for western consumer goods surged. Hence, imports from non-traditional markets grew rapidly, despite strenuous attempts (notably by Turkmenistan and Uzbekistan) to restrain imports, mostly through foreign exchange restrictions.
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