The recovery in output in the Kyrgyz Republic has exceeded expectations, with real GDP growth rising to 5.6 percent in 1996 from 1.3 percent in 1995, led by a sharp increase in agricultural output. On the other hand, there was no progress in reducing inflation, which increased to 35 percent in 1996 from 32 percent in 1995, despite a steep reduction in the budget deficit and its domestic borrowing requirements. In the area of structural reforms, the Kyrgyz Republic has carried out an ambitious program, which in 1996 included a comprehensive restructuring of the financial sector, further advances in privatization and enterprise restructuring, as well as a range of reforms in the legal system and the agricultural sector. The government's 1997 economic program, which is supported by the IMF under the third annual ESAF loan, builds on the Kyrgyz Republic's achievements in macroeconomic stabilization. To achieve these ends, the cash budget deficit is targeted to decline to 5.3 percent of GDP in 1997, from 6.4 percent of GDP in 1996.
Monetary policy aims at containing the growth in broad money.
The Kyrgyz Republic will maintain a floating exchange rate with intervention aimed at smoothing seasonal pressures on the som. The 1997 economic program contains a wide range of structural reforms covering privatization and demonopolization, enterprise restructuring and governance, and agriculture. The privatization program for 1997 envisages the completion of the coupon and cash auction under the mass privatization program by end-1997. To address the issue of corporate governance, the government has initiated a program to improve the management and accountability of public enterprises. The legalframework for private farms will be strengthened.