The threat of the global economic crisis Essay Example for Free

The threat of the global economic crisis Essay The economic crisis of United States of America has made its way to the economies of the Central Asian nations. The global economic crisis is showing its impact upon the economy of Tajikistan. This global crisis is threatening not only the economy of the country; but also its internal stability. This current downturn seems to have crippled the entire country. The history of Tajikistan does not boast of internal stability, as it has plunged into civil war that had destroyed the very economy of the state. Through this paper, the threat of the global economic crisis on remittances and towards the economy would be studied. In addition, the impact of this crisis over the internal stability of Tajikistan would also be analyzed. At the crucial point of economic destabilization, the country faces an uphill task of lifting itself from falling into the deep trenches of this global economic crisis. The country has various challenges to overcome, in order to successfully combat the current crisis. The various challenges to the economy of Tajikistan include weak infrastructure, inadequate, insufficient and ailing health and education systems and failing institutions like the financial system and the civil service. These challenges are not the only cause of concern for the country; its geography and demography along with political turmoil, make the matter worse for it. The country already had host of problems and this economic crisis has just added to its misery. Tajikistan has to address a number of challenges and needs but it does not have adequate resources to combat them. The state of current condition of the country can be judged from the fact that the proposed plan of Government has various modest goals set in their planning. Due to the various resource and capacity constraints, the Government does not have enough on its platter to help the failing economy. The global catastrophe seems to have come at a very critical point for this nation. Various problems have only aggravated the situation of this country. The country still has not been able to lift itself from the energy crisis, which originated in late 2008 and early 2009. Its worsening relations with Russia have just added to the woes, as this has raised the graph of social and economic problems, which the country had been facing since its fall out from the former Soviet Union. All these factors have resulted in creating a deep impact on the nation’s internal political matters. These problems are now threatening the political stability of the country. According to various Analysts, these prevailing conditions would ultimately result in total failure of the state. The rising monetary problems and the continued failure of the Government in combating them would bring the whole country to a standstill. The country at this point would be unsuccessful to perform its basic functions. This situation would result in threatening the steadiness of the nation’s neighbouring countries and the whole region could plunge into a series of hostilities against each other. The resulting crisis may be so severe that it could impact negatively on the stabilization operation of NATO (North Atlantic Treaty Organization) in Afghanistan. Some Analysts point out that in coming months, this situation might result in eruption of warfare due to increasing dissatisfaction among the local populace. The ensuing dissatisfaction may lead to the possible overthrow of the current regime. Such action could draw the country into chaos and internal conflict. The country might have detached from Soviet Union, but its economy is still deeply affected by the developments in Russia. Therefore, the developments in the neighbouring Russian Federation and Central Asia Region directly affect developments in Tajikistan. Background Tajikistan is considered to have the worst economy out of the various nations that were carved out of the former USSR. The country’s GDP in 2007 accounted for US$3. 2 billion, while the per capita income was estimated to be US$578. The inflation rate has shown a continuous increase in recent years with the inflation rate in 2008 recorded at 19. 8%. The balance of trade in 2008 recorded a negative turnover, reflecting imbalances in the exports and imports. In 2008, the average salary, for people in Tajikistan, was estimated to be US$68. It would be unfair to compare the flagging condition of the nation’s economy with other break away states of the former Soviet Union. The current state of the Tajik economy is far more comparable with poor nations of Africa or Asia. The development of Tajikistan has faced several hurdles in the past. These hurdles are of diverse nature as they include various geographic and historical factors, as well as, economic and political factors. The economic factors include the poor development of the industry, weak infrastructure, lack of communication networks and lack of foreign investments. There were various political factors that negatively affected the economy of Tajikistan. These political factors came into picture right after its break up with the USSR. The 1992 1997 civil wars, in particular, had a major role to play in disturbing the economy of Tajikistan. Although the civil war ended with a firm settlement, it failed to bring any benefit to the country. After the civil war ended, Emomali Rahmon occupied the position of President of Tajikistan in 1994. Emomali could not gain any benefit from the settlements reached after the civil war or from the West, due to Afghanistan’s related war on Terror. He does not appear to have made much effort to change the conditions of the country since his inauguration as President. The present political system of the country suffers from many major problems such as corruption, clan system, biasness and bureaucracy. It is also alleged that certain elements of the Government and state apparatus is engaged in smuggling of drugs in the region. In order to understand this crisis, the background of country’s political and economical state is essential. 2. Economy of the Country Tajikistan became one of the poorest nations in the Central Asia after coming out of the clutches of civil war in 1997. Its foreign exchange mainly comes from the cotton and aluminium exports. This has resulted in increased sensitivity of the state to external imbalances. The deteriorating health of the economy can be noticed from the fact that in the year 2000, Tajikistan’s rehabilitation program was entirely dependent upon the international aid. This rehabilitation program brought back the combatants of civil war into the mainstream, which assisted the country in making peace at both ends. International aid was required to assist the country in combating the food crisis that Tajikistan had encountered due to severe drought. After the civil war, there was some recovery in the economy, as it grew considerably after 2000. According to the data provided by World Bank, for period 2000-2004, the GDP of the country grew at a rate of 9. 6%. This growth in GDP led to improvement in country’s position among other Central Asian countries such as Turkmenistan and Uzbekistan. But since then the economy of the country has been continuously moving backwards. According to the figures available, nearly 57% of the population of this country lives below the poverty line. The country is stricken with widespread poverty. The dollar exchange rate is estimated to be 0. 82 Somoni. The wages in the country are low amounting to nearly $2-$3 per day for an average person in 2007. The civil war lasted for six years creating innumerable problems for the country including a strained relationship with Russia that resulted in loss of subsidies and more importantly the loss of its products market. The country has to look for assistance from Russia and Uzbekistan and other international humanitarian bodies to fulfil the country’s basic needs. In addition to this, the country faces the uphill task of bringing back the refugees and combatants of civil war in the country’s mainstream. The stability of the nation and pace of the peace process has an important part to play in attracting foreign investment, as well as determining the country’s future. In the 1990’s, the GDP per capita of the country fell by 67%. In the financial year 2000, the Government of Tajikistan went into reform mode and took steps towards promoting macroeconomic stabilization and certain institutional reforms even though it faced endless number of protests. The Government pursued privatization of small enterprises and increased privatization of medium and large state-owned enterprises. The Government’s budget for development of economy, during 2000, was in control until 2005. The growth rate of the financial system was in good shape with an annual growth rate above 6 percent. The main industries of the country consist of the following: †¢ Agriculture †¢ Forestry †¢ Fishing †¢ Mining and Minerals †¢ Industry and Manufacturing †¢ Energy †¢ Services The country’s economy is highly dependent on agriculture and livestock. The reason behind this dependence on agriculture is the economic downturn it faced with collapse of Soviet rule and the civil war that plagued the country. Nearly two thirds of the country is employed in subsistence agriculture. Nearly 900,000 of the total workforce of the country are employed in Russia or other countries. Government corruption is one the major challenges facing the country and contributing to the high levels of poverty in the country. The lowlands of the country specialize in the production of cotton, wheat, barley, fruit, vegetables and mulberry trees. A significant portion of the population of the nation is also engaged in livestock farming, such as sheep, dairy cattle, goats and yaks. The country also has deposits of silver, gold, uranium, tungsten, zinc, lead, coal, antimony, salt and mercury. But due to inadequate mining and raw-materials processing facilities, the country has not been able to benefit from its resources. The country’s hydro- electric resources are abundant, but the poor management of these resources has resulted in power shortages. Other industries which have suffered due to its separation from the Soviet Union include ginning cotton, spinning of silk, winemaking, carpet weaving, metals processing and textiles manufacturing. The major exports of the country include aluminium, electricity, cotton, fruits, vegetable oil and textiles. The major imports include petroleum products, electricity, aluminium oxide, machinery and equipment. The country trades primarily with Netherlands, Uzbekistan, Russia and Turkey. Inflation is the major crisis faced by the country and has been a major obstacle in Tajikistan’s economic growth. From 2001 to 2003, the inflation rate of the country decreased from 33 percent to16. 3 percent. In 2004, there was a drastic cut in inflation rate, as it reached the 6. 8% mark; but increased again in 2006 to 710%. 3. Political Scenario of the Country The country has witnessed a series of ups and downs as far as the political scenario of the country is concerned. The country gained its independence after the fall out of Soviet Union in 1991. The Independence was short lived because the country soon fell into a civil war that continued for six years. This internal turmoil was a result of tensions between the ruling elites and disenfranchised regions, democratic and liberal reformists and Islamists, who were under United Tajik Opposition. There were also other combatants and armed bands, which were not a part of any party and neither showed any kind of inclination for them. The civil war reached peak during 1992 to 1993. In 1997, there was a settlement reached between the United Tajik Opposition and the ruling Kulyabi-led Tajik Government. This peace accord was implemented in 2000. After the peace accord, the Government gradually started nation building. There is still a presence of Russian military in the country to secure the Tajikistan border with Afghanistan. The Russian 201st Motorized Rifle Division mostly consists of local Tajik officers and soldiers who never left the country and continued to live in Russia. The credentials of Parliamentary and Presidential Elections held in years 1999-2000 were doubtful, as they were labelled unfair yet peaceful by many. The Government created a strong secular image by including Islamists in the administration. There were problems in the country due to insurgency in Afghanistan, prior to the overthrow of Taliban in 2001. These forces posed a major threat to the peace prevailing through the peace accord. In 2004, there were threats to the peace when the tensions between President Emomali Rakhmonov and former war lords increased, creating ripples in the political conditions of the state. Even though life in general has become peaceful in the country, there are still elements within the country that continues to fight the prevailing conditions. There is widespread poverty, with more than half the population dependent on the international assistance. The economy is still burdened with aftermath of the Soviet past. There is too much of intervention by the State Government, which does not reflect a healthy democracy. There is too much corruption, as the state structures are involved in promoting it. This has resulted in driving away the foreign investors from the country. The current situation and the global recession have just added to the country’s problems. There is tension everywhere, since the country is fighting against too many hostilities with inadequate resources. Chapter 2: Aims Objectives 1. Aims Objectives The aim of this research is to explore the impact of global economic crisis on the economy as well as the political scenario in Tajikistan. The paper would look at the impact of global phenomenon on the current state of Tajikistan, which was marred by civil war since its inception. The objective of the paper is to look at the devastating impact of the current recession on the economy of the country. The internal stability of Tajikistan has been on stake due to this current crisis. In this research different aspects of this crisis on the political scene in the country would also be studied. 2. Statement of Research The research statement for this particular report, which studies the impact of the global recession on economy and the internal stability of Tajikistan, is given below: â€Å"The current global economy crisis is a potential threat to the remittance for the economy and internal stability of the nation of Tajikistan. † Chapter 3: Literature Review 1. Literature Review Tajikistan is an underdeveloped country and its economy is very poor. Moreover, the economic slump all over the world has led its economy into a more miserable plight. The recession has not only affected its economy; but is also likely to affect its political stability. This section will be a review of the already available facts and figures related to the research question. It will help in arriving at some meaningful conclusion and in analyzing the research question. According to the information obtained from the US Department of State, Tajikistan faces great corruption in its political field and the economy is continuously falling down. It is analyzed from the information that power is concentrated with only few individuals. The country is also involved in the opium and heroin trafficking and this is a great threat to the political stability of Tajikistan. The crime rate in the country has been increasing continuously, mainly due to lack of resources available to the people and disease like HIV/AIDS that is also rising at a rapid rate. This clearly shows that there is lack of awareness among the people. The only source of foreign revenue for the country is the exports of cotton and aluminium. The information also states that the external happenings all over the world also affect the economy and stability of the country to a great extent. This signifies that the economic recession has greatly affected the financial system and political stability (Background Note: Tajikistan 2009). From the presentation on â€Å"ECA region and the global economic crisis† it can be analyzed that the GDP growth has been affected to a great extent in Russia and Tajikistan is one of them. The remittances to the country have also reduced and are affecting economy greatly. This directly creates a bad impact for the economy of Tajikistan and also the political stability of the country. The ECA region is heavily affected by the financial catastrophe. From the figure on growth of migrant remittances, it can be clearly seen that the global, as well as, ECA remittances have been continuously falling in 2008 and 2009 due to economic downturn. Unemployment has been rising along with rise in imports and a fall in exports. This has badly affected the economic condition of Tajikistan. The country should focus on attaining long term productivity and social stability (Rohland 2009). From the Country Programme Document for Tajikistan, it can be analyzed that the country faces a number of challenges relating to its economy, administration and resources. The country needs to work for the economic prosperity of its people and should put its efforts for reducing the poverty in the country. The remittances in the country comprise about 37 percent of the GDP. However, now there has been inflation in the country and the energy and food prices have risen to considerable levels. Due to the economic recession, the country is facing fiscal disaster, which has reduced the economic growth, the exports and remittances coming to the country. The foreign capital inflows have reduced and the condition of the nation is continuously deteriorating (Draft country programme document for Tajikistan: 2010 – 2015 2009). It can also be identified from the report that the Government is corrupt, resulting in mismanagement of public finances. Everything remains centralized and the implementation of reforms is also very slow. Although, the country has launched various programs for reducing poverty, creating effective decision making, overcoming disasters and controlling the spread of diseases, yet they have not been implemented in a proper manner. The programs have also achieved certain results, yet they are not so helpful in improving the conditions of the country. Moreover, the economic downturn has worsened the situation and has affected the country in a great way. It is increasing the instability in the country and making it economically dependent on other countries. The UNDP program needs to work in the right direction to achieve the predefined goals for the country. In the news article on Tajikistan, On the Road to Failure, the International Crisis Group has forecasted that Tajikistan is on the verge to decline. It has no efficient leadership and also lacks infrastructure. Most of the people have migrated to other lands and the money which these migrants end back home is the main economic lifeline for the country. But as a result of economic slowdown, these remittances have highly reduced and the country is in a bad state. The cities that were earlier prosperous are also declining now and poverty is incessantly increasing. From the news article, it can be clearly analyzed that the country needs to reform its system and if economic downturn in the world will continue, then, this will create political, as well as, economic instability in the country (Tajikistan On the Road to Failure, Think Tank Concludes 2009). As per the article on â€Å"Government under Pressure†, it has been explained that due to global depression, people are losing their jobs and there are huge price cuts. This crisis has created a social, as well as, a political impact. It has led to political instability in the developing, developed and underdeveloped countries. The social unrest due to unemployment and other factors is mainly responsible for political instability. The demand is reducing day by day and there are chances of financial crisis. The social unrest can take the form of violent acts and can adversely harm the administrative settings of the countries. The political stability index has been formulated, which is based on indicators of susceptibility and economic suffering. They help in finding out the level of political instability in a specific country. The strong and the weak, both types of democracies are likely to be threatened and face political insecurity. Tajikistan is also a country that is under serious threat of facing unsteadiness and collapse of the Government. The income of the country is greatly affected by the remittances that have reduced, as a result of great economic suffering in the world (Governments under pressure 2009). In the report by Joshua Kucera, it has been clearly elucidated that Tajikistan is dominated by weak politics, low economic development and lack of adequate resources. The fall in the oil prices has led to social unrest and the economic downfall in the countries like Russia and Kazakhstan, which has affected the flow of remittances in the country of Tajikistan. This has reduced the revenue sources of the country and led to rising pressure for its internal stability. The banking sector of Kazakhstan has weakened due to the economic break down. There is a need for reforming the democratic system of the countries, to bring an end to corruption. The economic issues need to be handled in an effective manner. There is great political pressure and economic down turn in the central Asian countries, which is a hazard to their internal stability. All the economies are undergoing a critical stage and moreover, the financial system of Tajikistan is in a very bad state, and is about to collapse. The administrative settings should be improved and reformed in the country (Kucera, 2009). In the article by Falkowski, it has been identified that the economy of Tajikistan is dependent on Russia. The increasing energy crisis has led to tensions in relation to Russia. Tajikistan has now been considered as a failing state because its political and economic situation is continually worsening. The dissatisfaction among the people has been rising and it might result in conflicts within the nation. This might also create a menace for the neighbouring countries and worsen the situation of the country by each passing day (Falkowski 2009). The political system is collapsing and the economy is also on the verge of decline due to reduction in remittances and exports. This will definitely create internal volatility in Tajikistan. It can be identified that the nation is in a very miserable state and is very deeply affected by the economic depression. From the information obtained by International Labour Organization, it can be identified that the people working outside Tajikistan, are the significant source of revenue for the country. Workers going to other countries should be provided with economic, as well as, social security assistance. They face various difficulties working in foreign countries. The economic crisis will result in unemployment of migrant workers, adversely affecting remittances coming into the country. This in turn, will also negatively affect the national income and GDP of the country. The country is very much affected by the activities in the outside world. The ILO (International Labour Organization) has begun a program known as ‘Start and Improve Your Business’, which is aimed at helping the unemployed people as a result of world recession. It is also assisting people in Tajikistan by providing good employment opportunities to them (Migrants in times of economic crisis: ILO/UNDP joins forces to make Tajik migration safe 2009). In the report on â€Å"Migrant Worker Remittances Support Development in Tajikistan†, it has been identified that IOM (International Organization for Migrants) has been working effectively to provide help to the migrant workers from Tajikistan. It helps in generating employment for the people, who return back as a result of increasing economic slowdown. Remittances have a great impact on the development of the country. It is aimed at supporting migrants and analyzing the benefits that Tajikistan gains from the remittances earned through these migrants. Several programs and conferences have been organized for supporting migrant labourers and analyzing their conditions (Migrant Worker Remittances Support Development in Tajikistan, 2006). In the report on â€Å"Impact of Global Economic Crisis on Migrants and Migration†, it has been stated that the migrant workers form most of the major economic activities in a country and significantly contribute to the income of Tajikistan. If the immigrants are restricted to work in the foreign countries, this would worsen the situation of economic break down. Migrant workers are in one of the most vulnerable categories, arguably bearing the brunt of the economic downturn through loss meaningful employment abroad and loss of income. Efforts should be focused on identifying alternative employment opportunities within Tajikistan. Training should be provided to develop the required skills and enhancing their employment opportunities when they return. The report presented by IOM analyzes the effects of financial crises which have resulted in employment restrictions being imposed on migrant workers in the foreign countries (The Impact of the Global Economic Crisis on Migrants and Migration 2009). Working conditions and availability of meaningful employment has been affected by the growing unemployment rate. Central Bank of Russia statistics reflect that remittances improved in 2008, compared with 2007. The increasing remittances in 2008 had a buffering affect, effectively delaying the economic shock brought by the economic crisis first felt by the more developed economies. The slowdown in the Russian economy resulted in declining remittances to Tajikistan. Moreover, the migrants are also not able to send money, as the trust in the banking authorities have reduced because of the increasing economic downturn. The IOM aims at protecting the rights of migrants and helps in avoiding discrimination. If proper and timely assistance is not provided, this might result in increasing internal instability due to various social tensions in the countries, which are largely dependent on remittances. Thus, the policy of IOM aims at removing all these defects. In the report on â€Å"Central Asian countries†, it has been stated that the economy of Tajikistan remains much weaker in spite of increasing efforts of various authorities like IOM, UNDP, and ILO etc. The Corrupt Governmental setup has worsened the conditions in the country. The country requires various social reforms that can help in improving the conditions of the people. The European Commission has helped the nation in overcoming the problem of poverty and for managing public finance in an efficient manner. The EC aims at making developments in the field of energy, transport, education, border management etc. This has helped Tajikistan in a great way in overcoming its miserable situation. But more efforts need to be taken to avoid internal instability in the country as a result of recession (Central Asia Indicative Programme: 2007 – 2010 2009). In the book, â€Å"Towards social stability and democratic governance in Central Eurasia: challenges to regional security†, the author has explained that the international capital inflows reduce as a result of the economic depressions. The economic and political environment of the developed countries influences the flow of money to the developing, as well as, underdeveloped countries. The weak global economic situation has affected the people working outside their original countries and this has finally resulted into slow economic growth all over the world. Tajikistan is also affected in this process as the remittances to the country have reduced as a result of the economic slowdown. Labour migration has become an important source of earning in this country, which has affected its social stability (Morozova 2005). The article from the economist intelligence unit about the country outlook provides a brief overview of Tajikistan. It also throws light on the prevailing situation in the country. According to this article, the state is on the verge of political instability. The forecast for various economic indicators points towards a declining economy. The growth of Real GDP is estimated to be just 2. 5% in 2009. Inflation rate is expected to be high, as well as, the prices of international commodity would further go down. The current account deficit is expected to grow further (Tajikistan 2008). The domestic political scenario is expected to grow even worse as the threat of instability looms over it. Although, the country has come a long way from the civil war, yet there is still rise in public dissatisfaction due to failure of the Government to provide solutions to various social and economic problems. The return of migrant people from various countries is expected to pull the nation in state of unrest. The Government would have to go in for crisis management to tackle various problems. The prices of the products exported are likely to come down. According to the World Bank report on remittances forecast for 2009-10, these remittances are expected to go down. Many developing countries like Tajikistan are heavily dependant on these remittances, as these constitutes the money which their workers sent to their home countries. According to this report, the migrant workers are facing a lot of problems like job losses, anti-migrant sentiment and in some cases; even instances of violence have been reported. These are the results of the financial crisis that is troubling the global financial system at this time. According to the World Bank reports, these remittances are expected to fall by $290 billion in 2009. The only positive thing that this report indicates is that these remittances would still outdo the private capital flows and official assistance given to these countries (World Bank Lowers Remittances Forecast for 2009 as Financial Crisis Deepens 2009). According to the report â€Å"Tajikistan: Dushanbe Braces for Shock, As Remittances Set to fall off Cliff by Konstantin Parshin, the downslide of the economy of Russia is having a significant impact on the country of Tajikistan. The Russian Government in order to pull their country from this crisis is hitting out at the migrants workers by reducing the number of workers working in these countries. These efforts by the Government in Russia are having a negative impact on the economy of Tajikistan. The country is highly dependant on the remittances it receives through the migrant work forces (Parshin 2008). According to the top officials in Russia, these crackdowns on migratory workers quotas are important to ameliorate the conditions of the economy. This news has come as a shock to the migratory population, as it is expected to cut the jobs by half. Nearly 1 million Tajik nationals work in Russia. If this number is reduced, then, it would have a devastating effect on Tajikistan’s economy, since these workers send 98% of their income home. In US congressional report â€Å"Annual Threat Assessment of the Intelligence Community for the Senate Select Committee on Intelligence†, the emerging challenges due to this global recession in Russia and Eurasia have been discussed. The five nations in this region, which includes Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan, would be severely hit by the global recession. This situation might result in political instability in this region. This region according to the report is not at all prepared for dealing with violent extremism, economic crisis and other problem linked with distribution of water, energy and food (Blair 2009). The worst affected country in this region would be Tajikistan, which has too much dependence on remittances by migrant workers. This economic loss would result in weakening of the political stability in this region. This threat to political stability in this region can disrupt US and NATO’s lines of communication. In a report by Johannes F. Linn, titled â€Å"Tajikistan: Progress and Problems at the Heart of Central Asia†, the overview of this nation, as well as, the importance of the country stability in promoting the peace in the Central Asia has been talked about. This report throws light on