Post-Pandemic Central Asia: Moving Beyond ‘Helicopter Money’

IMF Managing Director Kristalina Georgieva described the scope and scale of the COVID-19 pandemic challenge bluntly: “COVID-19 has disrupted our social and economic order at lightning speed and on a scale that we have not seen in living memory.” The recent announcement by the IMF that it would provide $375 million in emergency assistance to Uzbekistan demonstrates the commitment of international financial institutions to address the economic upheaval created by the pandemic in the Central Asian region.  

Virtually all major financial institutions long associated with the “West,” such as the World Bank and the Asian Development Bank, have announced major financial assistance programs that apply to Central Asia. The newer international financial institutions associated with the “East,” such as the Eurasian Development Bank and the Asian Infrastructure Investment Bank, have also stepped forward offering emergency assistance.  

These actions echo emergency measures under way in the economically advantaged countries of Europe and North America. European Commission President Ursula von der Leyen told European parliamentarians, “We need a Marshall Plan for Europe’s recovery and it needs to be put in place immediately.” European Central Bank (ECB) President Christine Lagarde put it succinctly, stating the “Pandemic Emergency Purchase Program” (PEPP) is prepared to provide an economic stimulus “by as much as necessary and for as long as needed.”   

The challenge of the COVID-19 pandemic is global in scope but the specific, local problems in some respects are very different. COVID-19 makes its own rules. It knows no nationality and no borders. The infection spreads without discrimination based on form of government, religion, or ethnicity. COVID-19 challenges all countries in common ways and the response, for all countries, is comprised of three stages: first, the immediate public health emergency; second, the mid-term economic and social requirements of containing the spread of the virus and mitigating the effects; and third, the long-term effects of recovery and restoration of normal economic and social relationships.

The Central Asian countries face the same challenges as countries around the world, but they also face some unique problems that are a product of their particular circumstances of geography, economy, and even culture. The governments of Central Asia are responding to the situation and international financial institutions are taking steps to help. The Central Asian countries have not, in comparative respects, done badly in mobilizing for the first emergency stage of this crisis. As we move toward the longer-term questions of sustainability, there are very real questions about whether regional finances will be sufficient to meet the challenge.  

Until very recently in economically developed countries, discussion of so-called “helicopter money” was a subject for philosophically-inclined economists. COVID-19 changed that. Today discussion of “bail-out money” fills the talk of even budget managers and parliamentarians in the United States and the European Union. If “manna from heaven” works for highly developed countries, can similar mechanisms be used to address the challenges Central Asian countries face? Foreign assistance is often motivated by altruism but often comes with conditions.

Nothing is free, especially money.

Just as in all countries around the world, the SARS-CoV-2 virus and the disease it causes, COVID-19, came as a surprise to Central Asia. In the Central Asian countries, as in other countries around the world, the first response steps were emergency measures. Political authorities called on medical personnel and law enforcement to respond quickly and effectively. After the first cases of COVID-19 were identified in March 2020 in Kazakhstan, Kyrgyzstan, and Uzbekistan, counter-infection measures were taken quickly. Tajikistan took some measures but sought to downplay the spread of the virus, perhaps out of misplaced bravado or out of concern about panic. The neighboring Turkmen leader generally avoided the virus issue but did respond to requests from neighboring leaders to participate in joint action in a video conference on April 9, 2020.

All Central Asian countries shared the same wrenching adaptation to the pandemic and its economic consequences as scores of other countries around the world. Air, rail, and road traffic connections were severed. Supply chains linking many of the most important sectors of the economy to world suppliers and world markets were suddenly broken. Markets, shops, factories, schools, public institutions, and places of worship were put into lockdown. An unprecedented collapse of commodities prices threatened exporters. The evaporation of routine earnings and livelihoods threatened millions of households. 

Unlike some other regions of the world, the Central Asian countries have developed in such a way as to become highly dependent upon neighbors for trade and employment. To a very high degree, the Central Asian countries are reliant on export earnings, particularly for fuel and mineral exports. Also, the Central Asian countries, particularly Kyrgyzstan and Tajikistan, have developed extraordinarily large, foreign-employed migrant workforces. 

At the end of 2019 there were about 3.8 million Central Asians officially at work in the Russian Federation. Estimates vary, but some demographers say that undocumented workers from Central Asian states during this period may have been as high as an additional 3 million people. The earnings of these Central Asian workers not only lined their own pockets; they sustained their families at home. The number of foreign laborers from Central Asian countries appears to have diminished somewhat in the past few years, but the labor contribution to the overall economic standing of the countries continued to be significant, particularly in Kyrgyzstan and Tajikistan. As much as 50 percent of the national GDP of Kyrgyzstan was estimated by a UNDP study to be derived from Kyrgyz remittances.  

Foreign labor practiced at this level is an economic issue; but the disruption of the personal and individual relationships in the space of just a few weeks is also an issue of human suffering on a massive scale. As Catherine Putz pointed out, this crisis will mean “not just less money flowing back into countries in South and Central Asia, but millions of unemployed individuals across the broader region.” Azamat Temirkulov in Kyrgyzstan posed a further question: What happens when they come back? “Because of the crisis, enterprises will solve their difficulties through job cuts, some will close due to lack of profit, others will completely go bankrupt. Our migrant workers will begin to return home, joining the ranks of the army of unemployed Kyrgyzstan.” 

As Central Asian planners look toward the future, they pay attention to what other countries are doing. How are the economically advantaged countries dealing with this global crisis?  

Analysts in the United States have watched legislation speed through the political process. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law on March 27, 2020. The over $2 trillion economic relief package included funding for individuals, workers, companies, and local governments. The goal of the legislation was to prevent the economy as a whole from grinding to a halt by making sure that individuals have support, companies can continue to operate, and governments continue to function.   

The CARES Act and other “stimulus” legislation provides for financial outlays far in advance of the U.S. government’s previous expenditures. This raises the question: If there was so much discussion of the U.S. federal budget deficit being excessive in the past, where does the new money come from to meet these bills? Is it borrowed or simply printed? Can other countries use similar methods to meet the commitments that the crisis entails? Can, for instance, Tajikistan simply legislate its exit from the financial crisis that is shadowing COVID-19?  

A proposal for accelerating the circulation of money, which was made partially in jest by economist Milton Friedman many years ago, described throwing money from a helicopter in order to get cash to people as quickly as possible. In the midst of the financial crisis in 2008, the U.S. Federal Reserve began using unconventional measures to encourage the circulation of money.

The COVID-19 crisis prompted many people to favor immediate measures such as “helicopter money.”  The U.S. Federal Reserve is now purchasing bonds and equities on the open market and at the same time offering these same assets for repurchase on the open market. This process has the effect of supporting asset prices and it makes credit available to banks at very low rates.  The European Central Bank is pursuing the same course. Should the Central Asian central banks simply follow these same lines of action? Here it is important to note there a few things that are specific to Central Asia.

The cycle of a downturn in an economy, whether initiated by poor governance or by some external force such as a foreign war, tends to limit opportunities for workers and producers alike.  As producers lay off workers, purchasing falls, thereby limiting producers further. These “pro-cyclic” effects snowball, driving the economy lower and lower. For centuries political leaders have seen a slowing economy limit their ability to gather revenue and meet obligations and have turned to the idea of simply printing more money to settle accounts. But it has long been apparent that if the supply of cash in circulation is increased, the exchange value of the currency will compensate by falling.

Central Asian states moved out of the “Ruble zone” in 1994 because they were caught in an inflationary spiral they could not control. Simply printing more money and distributing it to the public can meet some challenges on a temporary basis. One example is the decision of Kazakh officials in summer 2019 to clear books and start anew by simply forgiving debt it had previously extended to help households. Can the Central Asian banks simply pay all salaries and forgive all debts without fueling runaway inflation in Central Asia today?

Financial measures like the COVID-19 emergency response in the European Union and the United States are not available to the Central Asian states. The economic situation in Europe and in North America is significantly different for two reasons. First, the Western economies are highly diversified, while the Central Asian countries are narrowly dependent upon export revenues. The fall of key commodity prices, for instance oil, will have an enduring impact on Kazakhstan, for example, and it may be some time before energy markets fully recover. Second, the U.S. dollar and the European Union enjoy the feature of seigniorage, which the Central Asian currencies do not. This is not magic; it merely means that the currency is more widely tradable and therefore resilient.

The long-term economic effects for all the Central Asian nations given the collapse in commodity prices, the disruption of commercial supply chains, the sudden shift in migrant labor and remittances, the cessation of typical earnings and livelihoods, and a panoply of other collateral effects of the pandemic have created an unprecedented social and economic crisis in Central Asia. 

Social and economic upheaval at this level unavoidably entails political effects. The political and national security implications of the pandemic disruption call for contingency planning on a region-wide level. 

The international financial institutions offer critical bridge funds to help the Central Asian states in their post-pandemic courses. Some of this international assistance comes in the form of grants and some in the form of loans. In both cases, the assistance that is currently being proposed only represents a very small portion of what is needed to sustain the Central Asian states in a mid-term adjustment period that could be two years or more.

The kind of “helicopter money” being discussed in Central Asian capitals is not among the measures necessary to protect and sustain these societies into the future. The Uzbek government has passed a number of laws and enacted a series of administrative measures to stimulate the national economy, speed direct assistance to the most vulnerable sectors, and insulate markets from international financial turmoil. The global financial institutional framework is tilted toward self-protection of the major players. North American and European financial institutions have adopted programs to lend dollars to countries in need as part of their efforts to help combat the economic impact of the coronavirus pandemic, but many countries do not have adequate access to refinancing and currency swap mechanisms despite their heavy dollar-based financing needs to service current account deficits, repay external borrowing, and to provide foreign-based liquidity to their own banking systems.

The discussion of “helicopter funds” is necessary, but it must move to a more realistic level. If serious considerations are ignored or prolonged, the political implications of economic insolvency can be expected to emerge on the horizon. Kyrgyzstan and Tajikistan, in particular, face dire economic circumstances. 

The offers of foreign assistance in the post-pandemic “reconstruction” period may be associated with infrastructure projects. The former Soviet states, with the Russian Federation in the lead, have been insistent in offering a platform for northern-oriented relations in the form of the Eurasian Economic Union. Meanwhile the attraction from the east in the form of concessional terms for infrastructure development in Beijing’s Belt and Road Initiative (BRI) is apt to attract more attention. As Arne Elias Corneliussen observed, “COVID-19 does not change China’s underlying strategic rationale for the BRI.”

In other geographical circumstances, a long-term solution to many of the problems caused by the disruptions of COVID-19 might call for spatial reorganization. This might include a condominium or a consolidation of geographical territory into the territory of a neighbor. Geography is destiny. That is something even the pandemic cannot change.