Kazakhstan expects to put the final touches on its fiscal stabilization plan by November 25. One of the government's top priorities is shoring up the country's wobbly banking sector.
"I think there should be significant movement in the next two weeks," Masimov told a cabinet meeting on November 10. The prime minister added that the first benefits of a $15 billion stimulus package, announced in October, should become evident within days. [For background see the Eurasia Insight archive].
Masimov revealed that the government had hired Credit Suisse and J.P. Morgan as consultants for its banking recapitalization program. Measures to improve banking liquidity include setting up a distressed asset fund with a capitalization of 52 billion tenge ($430 million) to purchase problem assets from banks, and spending up to $5 billion of government money to buy up to 25 percent in Kazakhstan's four largest banks: Kazkommertsbank, BTA Bank, Halyk Bank and Alliance Bank. Agreement was reached with the banks on November 10, Masimov said.
Under the terms of the deal, $300 million will be spent buying shares in Kazkommertsbank, $2.3 billion in BTA Bank, $500 million in Halyk Bank and $370 million in Alliance Bank, making the government's total outlay $3.47 billion. The size of the state's ultimate stake in each bank was not immediately clear. The money is coming from a sovereign wealth fund under government control.
Analysts said the cash injection into the banking sector was in line with the growing role played by the state in Kazakhstan's economy, and most agreed that improving the banks' fiscal health is vital. "The default of just one core bank would automatically lead to the default of the entire Kazakhstani economy," cautioned Dosym Satpayev, head of the Kazakhstan-based Risks Assessment Group. He also echoed widely voiced concerns that the government had closed its eyes for too long to the effects of the financial crisis.
Masimov's efforts to reinforce confidence in the Kazakhstani economy were undermined somewhat when the international credit risk evaluator, Fitch Ratings, on November 10 downgraded Kazakhstan's sovereign rating to BBB- from BBB. Also souring the mood in Kazakhstan was a November 4 announcement that BG-Group had postponed a planned investment in the giant Karachaganak oil and gas field in the expectation of a downturn in the cost of developing the field's third stage, which it put at $8 billion last year. The news of a delay in the third phase, which had been due to come on-stream in 2012, could threaten government plans to join the ranks of the world's top 10 energy producers by 2015.
Amid all the bleak economic news, the crisis offers opportunities as well as challenges, Satpayev said during a November 5 session of the Polyton political discussion club. "I personally think a very good moment has arisen for Central Asia -- [the crisis] could give a boost to regional cooperation," he said, adding that Central Asian states need to get to grips with their problems themselves and not rely on large neighbors such as Russia and China, or on regional cooperation groupings. There are plenty of incentives for states to interact, he added, not least that reducing trade barriers makes the region more attractive to investors. "The business community [can act] as an engine for the integration process," Satpayev said, calling for Central Asian leaders to set aside their distrust of each other and work together.
Some analysts doubt that full-scale cooperation is feasible. There are "too many contradictions," said Viktor Kovtunovskiy, head of the Civil Society fund. Apart from the poor personal relations among regional leaders, there are vast variations between the levels of development of the economies of these countries, he added.
Regardless of whether or not regional cooperation is feasible, concern is mounting in Kazakhstan that economic woes in neighboring countries will complicate Kazakhstan's recovery efforts. Kyrgyzstan and Tajikistan are perhaps Central Asia's weakest links, Satpayev suggested. [For background see the Eurasia Insight archive]. The heavy dependence of both countries on labor migrants' remittances makes them highly vulnerable, he added.
According to the World Bank Migration and Remittances Factbook 2008, Tajikistan received $1.25 billion in official remittances in 2007 and remittances made up 36 percent of GDP in 2006 (the last year for which a percentage was indicated in the report), while Kyrgyzstan received $739 million in remittances in 2007 and in 2006 remittances made up 27 percent of GDP. Remittance data was not available for Uzbekistan, but the US State Department estimates that up to 5 million of citizens of working age live outside the country. Given the revenue at stake, the enforced return of labor migrants due to unemployment could cause "serious political destabilization," Satpayev said.
Joanna Lillis is a freelance writer who specializes in Central Asia.