Government efforts in the immediate term will focus on restoring stability and enabling the economy to continue to function. The new government will also be concerned to ensure that budget revenue continues to meet targets, following setbacks in April-July 2010 and a large increase in spending, owing to the costs of unrest. As coalition governments will probably be fractious, there are likely to be protracted debates on the direction of policy. However, general policy trends in 2011-12 will be predominantly based on mitigating the impact of external economic shocks, cutting inflation, reducing poverty and restoring the economy to faster growth.

The Kyrgyz Republic has developed a policy programme with the IMF. It agreed a US$100m, 18-month arrangement under the Fund's exogenous shocks facility (ESF) in December 2008. In April 2010 the Fund reached preliminary agreement on further support, equivalent to around US$108m, under its rapid credit facility (RCF). A final decision on the RCF is expected in June 2011. The goal of meeting the IMF's criteria will have to be balanced against preventing further social instability. This will be made harder by the uncertain security situation, widespread poverty and the reliance of many households on family members working abroad for remittances, which will be lower than in previous years, despite recovering from their low point in 2009. An international donor conference in July 2010 agreed to provide the authorities with US$1.1bn in 2010-12. Much of this will go towards essential public services, social welfare support and reconstruction efforts, following the violence in April-June 2010.

A combination of political divisions, social concerns and vested interests is likely to continue to impede progress on implementing the structural reform agenda. The previous government pledged to make foreign direct investment (FDI) a priority-a pledge that the new administration has repeated. However, FDI inflows are likely to remain low in 2011-12. Doubts remain about the government's ability to implement FDI-friendly policies, as domestic opposition to the sale of state assets is strong, and foreign investors will remain wary because of fears of instability, the poor business environment and high levels of corruption. A more difficult international economic environment compared with 2007-08 will also limit the flow of fresh FDI into the Kyrgyz Republic. These factors mean that, for the most part, only foreign investors familiar with the business environment in Central Asia (essentially Russian and Kazakh companies) will seek opportunities in the Kyrgyz Republic. The sale of assets to such firms is unlikely to attract controversy, owing to the long-standing historical links with these two countries.