EurasiaNet Business & Economics - Kazakhstan: Astana Acts Aggressively to Contain Financial Crisis

BUSINESS & ECONOMICS

KAZAKHSTAN: ASTANA ACTS AGGRESSIVELY TO CONTAIN FINANCIAL CRISIS
Joanna Lillis 10/21/08

Kazakhstan is making a massive cash injection into its economy in an effort to soften the impact of the global credit crunch.

The government will pump $15 billion into the economy by the end of the year, Prime Minister Karim Masimov announced during an October 20 cabinet session. The cash injection includes $5 billion directly from the National Fund, $5 billion from a holding company that manages state assets, and $5 billion to support banking liquidity. "These are huge funds that will allow us to make a huge breakthrough at this stage and level out the consequences of the crisis from the foreign market," Masimov said during the session.

The National Fund figures prominently in the government’s economic stabilization plan. Established in 2000, and capitalized with proceeds from the sale of oil and gas, the fund now has assets totaling almost $27.6 billion. In effect, the government will be using $10 billion of the fund’s reserves, as it had previously been announced that $5 billion would be transferred from the fund to a new body created through the merger of two separate entities, the Samruk holding company and Kazyna fund. Samruk-Kazyna, which has an initial capitalization of $40 billion, is now the holding company that manages the state’s assets, including those produced by the state oil-and-gas company, KazMunayGaz, the state nuclear agency, Kazatomprom, and the telecoms company, Kazakhtelekom.

Kayrat Kelimbetov, a former minister of the economy, was moved from his position as head of the presidential administration to run the newly-merged structure, chiefly because of his prior experience managing the Kazyna fund. Nazarbayev’s son-in-law, Timur Kulibayev, became one of the fund’s deputy chairmen, marking his return to a high-profile position just over a year after he was removed from the post of deputy head of Samruk. [For background see the Eurasia Insight archive].

Masimov’s announcement about the cash injection came just four days after Nazarbayev gave an hour-long TV interview aimed at allaying public concern about the effects of the financial crisis, which has hit Kazakhstan hard because of its reliance on foreign borrowing. In the interview, broadcast on all major television channels October 16, Nazarbayev dwelled at length on explanations for the causes of the global financial crisis. He also attempted to assure citizens that Kazakhstan would weather it. "Despite the crisis that has taken place and which has affected our country, the economy continues to work in a normal mode," he said, adding that Kazakhstan’s gold and currency reserves and National Fund stand at a combined total of over $51 billion.

He went on to outline some of the measures being taken to combat the credit crunch. Some $4.5 billion was allocated in 2007 and 2008 to assist the ailing construction sector. Problems in the sector have resulted in thousands of people being left without homes for which they had already paid. A total of 8,000 people will receive their apartments this year and the remainder will get theirs by the end of 2009, Nazarbayev pledged. "People should understand that this is huge assistance and support from the government," Nazarbayev added, pointing out that the government would also guarantee bank deposits of up to 5 million tenge (approximately $40,000).

Nazarbayev additionally reiterated promises to increase pensions and public-sector salaries by 25 percent in 2009, and by a further 25 percent in 2010. He also said the state would build more schools and hospitals. "There are still enough problems, but look at the rate at which the state is dealing with these issues," he said.

Given the state’s abundant energy resources, many people in Kazakhstan had become accustomed to double-digit economic growth. Now, they will have to adjust expectations. Nazarbayev’s interview came amid rising concern among ordinary Kazakhstanis as the financial crisis continues to bite. Growth slowed last year to 8.5 percent, down from 10.7 percent in 2006.

On October 21 the government lowered its forecast for GDP growth this year by 0.3 percent to 5 percent, a figure some analysts suggest may be extremely optimistic. Inflation officially ran at 18.8 percent in 2007, and many analysts doubt that the government will manage to meet its target of keeping it below 10 percent this year. The latest official forecast on October 21 puts annual inflation within the range of 7.9-9.9 percent.

The government’s aggressive action is designed to keep Kazakhstan on target to achieve Nazarbayev’s cherished goal of joining the ranks of the world’s 50 most competitive countries. But some experts wonder whether the moves will be enough to maintain Kazakhstan’s present ranking. The World Economic Forum’s Global Competitiveness Report 2008-2009 saw Kazakhstan drop five places on the previous year to rank 66th.

The Asian Development Bank singled out both inflation and the banking sector as areas of concern in its Fact Sheet on Kazakhstan for 2008: "Strong prices for oil, gas, and minerals; the rapid growth of domestic consumption; and a rebound in investment continued to propel Kazakhstan’s economy in 2007. However, these strengths also bring challenges, including the immediate need to control rising inflation and to improve the performance of the country’s banks in a challenging environment."

Public protest is rare in Kazakhstan, but there have been small, sporadic demonstrations in Almaty and Astana over living standards, the construction-sector crisis and home repossessions. In a sign that he is aware of the potentially destabilizing nature of the economic climate, Nazarbayev had some tough words for the government in mid October. "Everyone who wants to use the current situation for their narrow and also political aims, spreading various provocative rumors, should expect a harsh punishment," he told the cabinet on October 13. "Let them not say later that I did not warn them."

While he seeks to bolster public confidence, Nazarbayev has made it clear that it will be the responsibility of Masimov’s cabinet to develop policies that allow Kazakhstan to navigate the crisis. "It is time you banged your fist on the table and started working normally," he told Masimov at the October 13 cabinet session, adding that the government has "carte blanche to carry out a program to stabilize the economy and financial system, and wide powers to make non-standard decisions."

Editor's Note: Joanna Lillis is a freelance writer who specializes in Central Asia.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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