Money, Money, Money

The second most popular topic among Kyrgyz people (family and marriage are first) is how expensive everything is. Almost every conversation I have with people centers on the cost of things. If I ever get to the point in a conversation where I really don’t know what to talk about, I just mention how expensive bread (or gas or carrots or apartments in Bishkek) and people instantly become excited to talk with me about it. Making fun of the Chinese is about the only other solid conversation topic.
For the most part, I believe this is just a cultural thing, partially an economic thing.
From an observational perspective, it is somewhat noticeable that prices are going up. A taxi ride to Bishkek used to cost 200 som and sometimes even 180 was possible if you know how to negotiate. Now it is at least 250 and sometimes worse. Other items have gone up as well. Bread was 4 som for a small loaf, now it is 9. The other obvious measure is the exchange rate. The dollar has actually gained value against the som since I entered the country (from 34 som/dollar in July 2007 to 36.5/dollar currently). The fall of the dollar in the last year is well documented and the fact that the som is losing value against currency that is in such a freefall surely shows that something is amiss.
I have a few theories as to why this is the fact. The first is simple supply side economics. Worldwide, commodities have been tremendously expensive due to a combination of shortages (wheat) and increased demand (oil, corn). These commodities, while affecting the lives of people in wealthier nations, have a tremendous impact on the purchasing power of people in Kyrgyzstan. A vast majority of a Kyrgyz family’s budget centers on food. With all the food prices going up due to external factors (not to mention that most food is imported, adding transport costs), Kyrgyz families simply have to spend more to get the same thing they used to buy.
Second, I believe there has been plenty of economic mismanagement to help foster this inflation. First, the country is crippled with a massive foreign debt, not to mention a current account balance (basically the difference in exports and imports) that is incredibly negative. Though small in absolute terms, as a percentage the balance is far more negative than the US’s (though legitimate numbers are difficult to come by). These two acting in unison can easily bring a currency to its knees (see Dollar, US, 2008), making imports (i.e. almost everything consumed here) more expensive. Most economies have the ability to adapt to such a circumstance. The United States will shift production to more consumer goods in the medium term. The Kyrgyz Republic does not have this ability.
My last belief is one of conjecture solely, since data is not available, though anecdotal evidence is common. The money supply in the country is expanding. Any person, let alone any economist, who has ever heard of Milton Friedman can tell you that an increase in the money supply, while good for the economy in the short run can increase inflationary pressures. Though not as easy to track here as in the US (Federal interest rates pretty much explain the US’s), it is something to note that the availability of crisp, new 1000 som bills is quite prevalent, while at the same time small bills (ones, fives, tens, twenties) are becoming worn and difficult to obtain in any case. A country with a huge foreign debt would do well to “service” the debt through inflation (i.e. borrow 10 som when it buys two loaves of bread and pay it back when it only buys one). Though this has almost never worked for the country that attempts to do it, it is tried often by countries that need to pay off debt.
In the end, don’t worry about Jonathan. I am being taken care of by the Peace Corps, though my “salary” doesn’t buy what it used to. I have to start living a little more like a Spartan and a little less like an American. Maybe that isn’t bad advice in any situation, my fellow Americans.

On an unrelated note, I would like to thank Kairatbek, a devoted reader, for pointing out that the former President of Kyrgyzstan is Akayev, not Arkiev as published. It is nice to know that I have people keeping me in line.