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Economic dimensions of security in Central Asia / Sergej Mahnovski, Kamil Akramov, Theodore Karasik. p. cm. “MG-417.” Includes bibliographical references. ISBN 0-8330-3866-4 (pbk. : alk. paper) 1. Asia, Central—Economic conditions—1991– 2. Asia, Central—Social conditions—1991– 3. Economic assistance, American—Asia, Central. I. Akramov, Kamil. II. Karasik, Theodore William. III. Title. HC420.3.M34 2006 330.958—dc22 2005030425 The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R® is a registered trademark. © Copyright 2006 RAND Corporation All rights reserved. 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The September 11, 2001, attacks on the United States led those in policymaking circles to realize that instability, failed and failing states, and economic and political underdevelop- ment present security concerns not just to the states that suffer di- rectly from these problems but to the global community as a whole. From this perspective, political, social, and economic trends in Cen- tral Asia merit attention. The report should be of interest to policymakers and analysts involved in international security and U.S. foreign policy. The analy- sis in this report is informed by a year-long research effort, which in- cluded travel to the region and extensive interviews with U.S., re- gional, and global specialists, government officials, and others. It involved a multidisciplinary team of researchers who sought to com- bine their understanding of politics, economics, and military strategic analysis to bring fresh perspectives to the questions at hand. The research reported here was sponsored by AF/A5X and con- ducted within the Strategy and Doctrine Program of RAND Project AIR FORCE. Comments are welcome and may be directed to the authors and to Andrew Hoehn, director of Project AIR FORCE’s Strategy and Doctrine Program. Until late 2003, Edward Harshberger, then–director of the Strategy and Doctrine Program, provided leadership and support. Until late 2004, acting director Alan Vick oversaw the completion of this effort. Research for this v vi Economic Dimensions of Security in Central Asia report, which was undertaken as part of a project entitled “The USAF in Central Asia: Issues and Prospects,” was largely completed in late 2003, although some updates were made as late as September 2005. RAND Project AIR FORCE RAND Project AIR FORCE (PAF), a division of the RAND Corpo- ration, is the U.S. Air Force’s federally funded research and develop- ment center for studies and analyses. PAF provides the Air Force with independent analyses of policy alternatives affecting the development, employment, combat readiness, and support of current and future aerospace forces. Research is conducted in four programs: Aerospace Force Development; Manpower, Personnel, and Training; Resource Management; and Strategy and Doctrine. Additional information about PAF is available on our Web site at http://www.rand.org/paf. Contents Preface ...................................................................... v Figures .................................................................... ix Tables ..................................................................... xi Summary ................................................................ xiii Acknowledgments........................................................ xxi Abbreviations ............................................................xxv CHAPTER ONE Introduction ............................................................... 1 CHAPTER TWO Economic Fault Lines ...................................................... 3 Economic Overview ........................................................ 4 Poverty ..................................................................... 9 The Shadow Economy .................................................... 14 Corruption ............................................................... 17 Foreign Debt ............................................................. 26 CHAPTER THREE Sectoral Trends and Implications....................................... 29 Agriculture ............................................................... 29 Energy .................................................................... 36 Banking .................................................................. 47 vii viii Economic Dimensions of Security in Central Asia CHAPTER FOUR Human Development and Social Trends ............................... 51 Health Care .............................................................. 51 Education................................................................. 54 Drug Trade and Human Trafficking..................................... 57 CHAPTER FIVE Conclusions and Implications for the United States ................... 63 Prospects for Development in the Region ................................ 63 Overview of Foreign Assistance in Central Asia.......................... 68 Implications for the U.S. Role in Central Asia ........................... 73 Appendix: U.S. and International Assistance to Central Asia Before and After 9/11 ....................................................... 77 Bibliography ............................................................. 83 Figures Central Asia ........................................... Frontispiece 2.1. Comparison of Economic Recoveries in Central Asian Republics Compared with the U.S. Depression .................. 4 3.1. Major Irrigation Regions in the Aral Sea Basin.................. 31 3.2. Water Flows and Withdrawals in Central Asian Republics ..... 32 5.1. Cumulative U.S. Government Assistance to Central Asian Repub- lics (FY 1992–FY 2002)........................................ 70 A.1. Development Assistance to Central Asian Republics (1992–2003) ................................................... 77 A.2. Distribution of Cumulative Development Assistance Among Cen- tral Asian