The Economist 07Dec2019

56 Asia The EconomistDecember 7th 2019

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are afraid of criticising the government

openly. (A day after making his complaints,

Vodafone’s Mr Read felt the need to apolo-

gise.) But for several months now, the eco-

nomic debris has been too conspicuous to

ignore. The government has responded,

haphazardly at first, but with increasing

force. It has slashed corporate taxes from

30% to 22% for existing firms (and to 15%

for manufacturing startups), quickened

the recapitalisation of government-owned

banks, reversed an unpopular tax increase

for foreign investors and offered some re-

lief to telecoms firms, among other things.

The government has also broached a

judicious reform of labour laws. Last

month it introduced a bill that would con-

solidate three existing laws, making it easi-

er for firms to hire workers on fixed-term

contracts (rather than employing them on

open-ended contracts that can be almost

impossible to terminate). The new bill

would still require firms with more than

100 employees to obtain government per-

mission before laying anyone off. But it

would give the government discretion to

raise that threshold in future without fur-

ther legislation.

Combined with five interest-rate cuts

from the Reserve Bank of India, the central

bank, these efforts should help stabilise

the economy. Consumption is already

growing faster than it was earlier in the

year. Although it will take years to unclog

the financial system properly, some of the

panic over India’s new breed of lenders has

also dissipated. Financial institutions with

good credit ratings can now borrow almost

as cheaply as they did in early 2018 before

the default of il&fs.

One side-effect, however, is that the

government’s own borrowing is raising

eyebrows. Last month Moody’s said the

outlook for India’s credit rating was “nega-

tive” (although a downgrade would merely

move Moody’s assessment of India into

line with rival rating agencies). The gov-

ernment is almost certain to miss its deficit

target of 3.3% of gdpfor this fiscal year,

which ends on March 31st. And if the states

and government-owned enterprises are in-

cluded in the total, the combined fiscal def-

icit could reach 8.2% of gdp, according to

Goldman Sachs.

The government’s reputation for eco-

nomic management is also now in deep

deficit. In response to the latest growth fig-

ures, one member of parliament for the

ruling party said it was wrong to treat gdp

as the truth like the “Bible, Ramayana or

Mahabharat”. Unfortunately, many econo-

mists now agree with him—doubt in the

veracity of the official figure has grown

since a new methodology was introduced

in 2015. Arvind Subramanian, who previ-

ously served as the government’s chief eco-

nomic adviser, has argued that India’s

growth may have been overstated by 2.5

percentage points a year over the five-year

period from 2011-12 to 2016-17. If any conso-

lation can be drawn from the latest miser-

able gdpnumber, it is only that the official

data are not so flawed that they cannot reg-

ister the bad news.

India’s space agency was slow to ac-

knowledge that its lander had been de-

stroyed (insisting at first that it was still

trying to communicate with it). After nasa

confirmed Mr Subramanian’s discovery of

the crash site, the Indian agency said that it

had found it weeks ago. But for some rea-

son it neglected to reveal the location to the

outside world. India’s dogged and passion-

ate professionals are one reason global in-

vestors fell in love with the country’s

growth story. Its unhelpful government in-

stitutions are one reason their ardour has

since dimmed. 7

T

he victimwas a Chinese citizen. He

was shot in a gangland-style killing in

Istanbul, the biggest city in Turkey. But the

smuggling racket on which he had just

blown the whistle was centred on Kyrgyz-

stan, a poor Central Asian country of 6m

which has been a transit point between

China and Europe for centuries.

Aierken Saimaiti said his part in the

racket had been to launder the proceeds,

overseeing the removal from Kyrgyzstan of

at least $700m in dirty money between 2011

and 2016. Kyrgyz officials have since admit-

ted that Saimaiti and his associates fun-

nelled nearly $1bn to banks in a dozen

countries. (Kyrgyzstan’s gdplast year was

$8bn.) Before his assassination last month

he told journalists from Kloop, a Kyrgyz

website, Radio Free Europe, an American-

funded news outlet, and the Organised

Crime and Corruption Reporting Project, a

charity, that he had done so with the con-

nivance of Kyrgyz officials. Ordinary Kyr-

gyz are asking how such a huge scam could

have occurred under two presidents who

styled themselves as corruption-busters.

The money Saimaiti laundered seems

to have been made by dodging import ta-

riffs. The gang either failed to declare

goods brought to Kyrgyzstan from China or

disguised them as items of little value,

while bribing customs officials to look the

other way. Some of the smuggled merchan-

dise was sold in Kyrgyzstan. Much of the

rest was sent on to Russia or to other coun-

tries inside the customs union of which

Kyrgyzstan is a member, labelled as goods

on which duty had been paid and which

were therefore entitled to enter duty-free.

The revelations have caused a furore in

Kyrgyzstan. Police have belatedly begun an

investigation, questioning (as a witness,

rather than a suspect) Raimbek Matraimov,

a former deputy head of the customs ser-

vice whom Saimaiti had accused of playing

a part in the scheme. He denies any wrong-

doing, as does his brother, the governor of a

district bordering Uzbekistan where much

of the smuggling is alleged to have oc-

curred. The customs service, meanwhile,

has denied that Kyrgyz taxpayers have lost

any money at all as a result of any laxity or

A vast smuggling ring is exposed, to popular outrage

Corruption in Kyrgyzstan

The bilk road