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Abstract
Total external debt of the Central Asian states grew almost sevenfold during 1992–98, reaching $10.5 billion by end-1998 (Table 7.1 and Figure 7.1). The growth in debt started from a nonexistent base; all of the Central Asian states had effectively accepted the “zero option” following independence, under which Russia took over both the foreign assets and liabilities of the countries of the former Soviet Union (Box 7.1). The subsequent accumulation of external debt in the region occurred in two distinct phases. During 1992–94, the breakdown of the traditional trade and payments systems within the BRO countries, the collapse of the ruble zone, and large current account deficits financed by credits from Russia all led to the rapid accumulation of intra-BRO countries claims. From 1994 onward, the Central Asian states increasingly experienced more conventional forms of capital inflows. In order to promote economic growth—especially in export-oriented industries such as oil, natural gas, agriculture, and metal extraction—all five states resorted to foreign borrowing. Initially, most of the loans received were from official bilateral and multilateral sources. More recently, private sector flows—primarily in the form of FDI and commercial bank loans—have gained importance in a number of the Central Asian states (notably in Kazakhstan).
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