Most of the people in Kyrgyzstan make large purchases in dollars, not in soms. The foreign currency is also used to pay for rented housing. When som will become the single legal payment mean in the country?
Oh, "the American"
In the last two years, dollar situation in Kyrgyzstan can not be characterized as stable. If a year and a half ago the currency cost an average of 50 som, now the exchange rate of 70 soms is considered to be quite good. The problem is not that dollar becomes more expensive, but it is the pace at which its' cost is rising.
In 2015 "the American" grew in price by 30.6 percent. By late November, its' rate reached nearly 80 soms. It took the National Bank two months of almost daily interventions to keep the exchange rate at around 76 soms.
The situation reversed in 2016. For a couple of months, the dollar fell by almost six soms. The National Bank once again was forced to take actions this time buying dollars. Intervention volumes reached $ 62.3 million. Therewith, the regulator is surprisingly calm. The National Bank of the Kyrgyz Republic is sure that there is nothing tragic in the current events.
"Business needs som cash. People started exchanging their foreign currency deposits into soms. Many experts say that the National Bank should not buy dollars, but this is a common monetary transaction. We buy only the surplus. Let's say, you decide to exchange $ 100 into soms to pay for some work. But if no one buys dollars, how will you do it? In such a situation, the National Bank has to intervene and deliver soms to the market," the head of the National Bank of the Kyrgyz Republic Tolkunbek Abdygulov said.
Roughly in the same way the bank reacted to the events of November 2015, telling only that the population simply succumbed to speculative attack and began to panic. Now the situation, of course, has changed, but the people are left out in the cold again. If those, who bought dollars at high prices, suffered in November 2015, now it is time of Kyrgyzstanis, who kept savings in foreign currency to count the losses.
"I always say to our people that they should not succumb to momentary demand and speculation. There is no need to keep their savings in one currency. You can save your finances at least in three forms: soms, dollars, gold. If you receive a salary in KGS, so you should think in KGS. Such problems will not arise then," Tolkunbek Abdygulov concludes.
Now, the experts predict what to expect from "the American" in the near future. Some of them believe that this year will be marked by a triumph dollar fall. The reason is the rise in oil prices. "The fall of dollar exchange rate is likely to continue until the end of 2016. APEC countries realized that the decline in oil prices due to its increasing production will strongly hit the countries' budget. They said it openly. And they said that the oil prices will rise in the nearest future. This means that the dollar will fall in price around the world, including Kyrgyzstan," the Doctor of Economics Kubanychbek Idinov commented on the situation.
Other experts believe that the fall in the dollar exchange rate is a temporary phenomenon and it is quite understandable. There is a seasonal standstill in the economy, these are the consequences of the global crisis, business activity is almost equal to zero, and therefore there is no need in dollars. But it will not continue endlessly. The situation will change sooner or later, and the "American" will skyrocket.
"We mostly import but not produce the commodity nomenclature. This means that we need dollars for the purchase and delivery of goods. Another issue is that today the National Bank strictly regulates the foreign exchange market, i.e. it limits circulation of money in the country. Naturally, the people, entrepreneurs have very little money in KGS. We also have no activity because of this. It is clear that the National Bank holds the foreign exchange market especially to prevent dollar "jumps" and raising prices. The National Bank of the Kyrgyz Republic has to strictly regulate the circulation of money. On top of that, holding dollar fluctuations through interventions, we are eating away our gold reserves. But they could be used to finance promising start-ups. But this did not happen, unfortunately," an economist Tolonbek Abdyrov said.
Changing dollars to soms
The sharp appreciation in dollar exchange rate has almost caused a social unrest in the country. People, who took mortgage loans in US dollars once, turned out to be on the verge of bankruptcy. Mortgage borrowers regularly spoke of the problems, but the authorities did not pay attention. It is understandable, when a person takes a loan he has to calculate all the risks he may face. However, the level of financial literacy of the population is quite low in Kyrgyzstan, so the people turned out to be held hostage by the rampant dollar.
When "the American" leaped up to nearly 80 soms, it became clear that the country needs urgent measures to support the population. The government went in for extra costs, having decided to transform mortgage loans from dollars into soms. Officials have discussed how to do it correctly and who would bear the costs for a long time. The result was a special program. At least 69 percent of mortgages in the country have fallen under the program. The dollar mortgage loans (up to $ 40,000) are converted into national currency at the rate of 62.14 soms. The difference of 574 million soms is compensated to the banking institutions by the state. But the program covers only those who took loans until July 1, 2015. As of today, loans of 2,900 citizens of the Kyrgyz Republic to the amount of 2.1 billion soms have already been converted from dollars into soms.
"Decision on the transformation of credits from dollars into soms is wrong from the business perspective. Because investments in the mortgage market fall under the blow in this case. And from now one the banks themselves will issue loans for purchase of housing with a careful eye to it. On the other hand, the population will benefit from the program and now will be able to pay the loans in KGS, without worrying about the dollar price," Kubanychbek Idinov noted.
While the government was engaged in social support of the population, the National Bank decided to dramatically resolve the issue. On February 28 commercial banks were banned to issue mortgage and consumer loans in dollars.
"The government has made concessions to the people. It has decided to support them in the difficult economic situation. Therefore, loans have been transformed. But it is wrong to do it constantly. I've heard rumors that one should not forcibly restrict citizens' right to choose the currency for a loan. But it is necessary today. People have to learn how to calculate their income and expenses, to think in national currency. It's a psychological moment. We just want to help people to become more responsible. In the future, when our citizens will become more financially literate and responsible, we will remove the restriction," Chairman of the National Bank of the Kyrgyz Republic Tolkunbek Abdygulov stated to 24.kg news agency.
Problem is in the minds
Law on the National Bank states that the only mean of payment in the Kyrgyz Republic is the national currency - som. But in fact, we prefer dollar. Neighbors in the Eurasian Economic Union, to put it mildly, do not understand us. This, of course, does not mean that the economies of Russia and Kazakhstan do not depend on dollar. They are dependent as well! But this dependence is different, and it concerns mainly the large players. The population does not really worry about dollar daily fluctuations. People got used to counting in rubles or tenge.
We have the opposite situation. One of the most important news in the morning is the exchange rate. And the state, until recently, was turning a blind eye on it, but now it continuously insists on de-dollarization of the economy.
"The question is crucial especially for most of the population. Why do you need dollars? You do not trust the national currency. But in the end you lose as you have kept all the savings in dollars. Look at the recent developments. In a panic, people bought dollars for 76 soms, and now they can not sell it for 70 soms in urgent need of soms. The government's program on de-dollarization is aimed at protecting the population. People have to think in the currency in which they are paid. And what we have? Even bankers, when seeing a price of, for example, housing in KGS, are immediately trying to calculate how much it is in dollars. What for? I always advise to calculate how much wages you need to buy the house," the Chairman of the National Bank of the Kyrgyz Republic says.
In December 2015 few believed that the idea is realizable. This has proved the contrary. Kyrgyzstanis has not completely switched to soms, of course. But there is progress. More often the prices for apartments, houses, cars in advertisements are written in the national currency. The cost of the real estate and the premium class cars in the national currency, to be honest, looks scary. One thing is when you see $ 30,000-50,000, and quite another - 2.5-4 million soms. It does not look so affordable.
"The de-dollarization idea is good. If we live in the Kyrgyz Republic, so we should use its national currency. But the problem is that today we produce almost nothing, and mainly import the goods. Keep in mind that before joining EEU we have been long engaged in re-exports. Then som was out of question, everything was counted only in dollars. I think that the current rigid approach to this issue is correct. Exactly som must "circulate" on the territory of the country. How to remove the dependence of the economy on the dollar? We have a good partner - Russia. We have serious trade relations with it. We have to switch to ruble-som payments with Russia. The same applies to China. If this happens, there will be no such a demand for dollars. Certainly, it will remove only a small part of dependency, but all the same. The government should work in this direction," Tolonbek Abdyrov said.
De-dollarization is a complex and ambiguous process. It will not be able to remove the country's dependence on the influence of "the American". Kyrgyzstan is dependent on imports, and the situation is unlikely to change in the short term. And we pay for imports in dollars. On the other hand, accession to EEU gives an opportunity to switch to mutual payments with neighbors in their currencies that would be a good tool for reducing the impact of the dollar on the economy. It is more psychological moment for the population. We just have to accustom ourselves to thinking and acting without looking back to a foreign currency.