As an air of economic despondency descends over Central Asia, Turkmenistan and Uzbekistan have decided to eat their way out crisis.
A government meeting in Turkmenistan on August 28 examined areas in which the country might be able to pursue an import substitution policy, which would mean banning imported goods in favor of locally produced equivalents.
Deputy prime minister Palvan Taganov said the bulk of imported goods was accounted for by technical industrial goods, but the state news agency report on the Cabinet discussion gave no details about what those mostly comprise.
Instead, more talk was seemingly devoted to the purportedly more promising area of food imports.
Import substitution was initially touted as Turkmenistan’s ticket out of economic doldrums in a government meeting in April, when President Gurbanguly Berdymukhamedov instructed officials to develop a program on the policy. He also used that meeting to complain of excess spending and the bloated state of the government.
But figures produced by Taganov indicate that if the import substitution agenda is to be applied mainly to food, its benefit will be virtually negligible, if not detrimental in the long term. The policy favors local producers in the immediate term, but typically ends up yielding poor returns to the consumer.
As Taganov explained in his presentation, food accounts for 6.1 percent of imports. The state news agency cited state on four goods and the proportion that the consumption of locally produced goods takes up in the domestic market: fruit juices - 96.9 percent; non-alcoholic drinks - 91.8 percent; tinned foods goods - 87.2 percent; and sausage goods - 61.8 percent.
Nerves in Kazakhstan over the state of the national currency turned first to alarm, and now to pretty much outright panic.
Yielding to the inevitable, Prime Minister Karim Masimov announced on August in a special video message that the government would switch to a free-float currency exchange. The value of the tenge duly plummeted 26 percent against the dollar and was trading at 255 by the end of the day.
“On July 15 this year, the National Bank took a decision to widen the currency corridor in order to enable a more flexible and floating exchange rate for the tenge,” said Masimov. “But the situation on the global economy continues to worsen. The prices for the main export goods of our country — oil and metals — have continued to fall, which has had a negative effect on the economic growth.”
Masimov said a priority would be placed on shoring up social welfare, but such remarks will do little to stave off immediate reactions to the collapse of the currency.
TengriNews posted pictures online showing closed currency exchange points in Almaty, where traders are understandably concerned at making large losses in such uncertain times. Vedomosti newspaper reported that some are so desperate that they are offloading their tenge to buy Russian rubles, which is itself experiencing major tribulations, although in a more gradual manner than the tenge.
Alarm is spreading as well deepening as Kyrgyzstan’s som felt the shockwaves from its northern neighbor.
Unlike Russia’s ruble, Kazakhstan’s national currency has for several months managed to hold ground against the dollar, only for it to now slump dramatically and spread alarm of more retreats.
Several commercial banks on August 19 began around mid-morning to offer exchange rates as high as 198 tenge to the dollar, against the 188.5 tenge listed on the National Bank website.
The domestic KASE stock exchange was at same time running trades of 195 tenge to the dollar.
Stubbornly low oil prices appear to have combined with the battering of the Chinese yuan to finally force Kazakhstan’s hand. The apparent decision to allow the tenge to float will gravely dent the credibility of National Bank chairman Kayrat Kelimbetov, who promised as recently as July 15 that the currency would not slip below 190 in the coming quarter. And not speak of President Nursultan Nazarbayev, who promised after being re-elected in April that there would be no more sharp devaluations.
Economist Olzhas Hudaybergenov, who heads the Macroeconomic Research Center, wrote on his Facebook page that hopes the currency would resist lay in the hopes that oil prices would stick at around $55-60 mark. The global Brent benchmark slid below $50 last week and shows no immediate signs of rebounding.
“This means the need of a certain section of the business world for a sharp devaluation — it is not important whether it would happen suddenly or over a few days — will be met. I think the next few days will bring us some clarity on this,” he wrote.
Hudaybergenov said that he agreed with supporters of a correction to the tenge, who argue the move will boost competitiveness, save jobs and increase productivity.
For all the ceremony that marked Kyrgyzstan’s entry into the Eurasian Economic Union, not much appears to have changed on the border with the only neighboring fellow member, Kazakhstan.
Speaking at a press conference on August 13, Damira Dootoalieva, chairman of the central committee of the Kyrgyzstan Traders Union, said a visit to the border had revealed that Kazakh officials are still not letting goods pass through unhindered.
“You can take across two or three bags, but large-scale cargo still cannot be transported into Kazakhstan. A lot of obstacles are being put in the way by the Kazakhs, including by their traffic police,” Dootoalieva said.
Dootoalieva said that a Porter Nissan van carrying goods from Kyrgyzstan was seized on the Kazakhstan side of the border of August 12, only hours after an inaugural ceremony attended by Kyrgyz President Almazbek Atambayev and his Kazakh counterpart, Nursultan Nazarbayev.
“For about three hours, we tried to get it released. As to how we did that, you understand how these things are done,” Dootoalieva said, adding that money exchanged hands.
When the Kazakh customs officials were asked on what grounds the van had been stopped, they responded only that they would be remaining in place for another 100 days, Dootoalieva said.
At the same press conference, Sergei Ponomaryov, president of the Association of Markets, Trade Enterprises and Service Industries of Kyrgyzstan, said teething problems appeared to be down to poor preparation.
When it comes to human rights and Uzbekistan, the news is usually bad.
The U.S. State Department’s 2015 Trafficking in Persons Report, published on July 27, does not buck that trend, but it is notable in recognizing what it says are efforts by Tashkent to reduce forced child labor.
That has prompted the American government to promote Uzbekistan from Tier 3 to Tier 2 on its watch list — a move that has stunned the Cotton Campaign advocacy group.
Cotton Campaign, which has as it aim the end of forced child and adult labor in Uzbekistan’s cotton industry, says the upgrade lets Tashkent off the hook.
“The Uzbek government continues to operate one of the largest state-orchestrated systems of forced labor in the world,” the group said in a statement.
Nadejda Ataeva, president at the Association for Human Rights in Central Asia, said in comments carried on the Cotton Campaign statement, that the United States “has effectively sent a message to Uzbek authorities that forced labor of millions of its citizens is cost-free.”
The U.S. State Department paints a grim picture, but offers some ostensibly consolatory remarks in passing:
“Government-compelled forced labor of adults remains endemic during the annual cotton harvest. In 2014, despite a central government-decree banning all participation of those under age 18 in the cotton harvest, local officials mobilized children in some districts. In addition, across much of the country, third-year college and lyceum students continued to be mobilized, an unknown number of whom were not yet 18 years old.”
The World Trade Organization has approved terms for Kazakhstan to join, paving the way for Central Asia’s leading economy to become a full member toward the end of the year after nearly two decades of “challenging” talks.
Speaking in Geneva after signing the accession protocol with WTO Director-General Roberto Azevedo on July 27, President Nursultan Nazarbayev hailed the imminent accession as a sign that Kazakhstan’s economy is opening up to the world.
“In improving the investment climate, we are giving priority to the diversification of our economy,” he said in remarks quoted by state news agency Kazinform.
Astana sees accession as crucial to its bid to wean Kazakhstan’s economy off its dependence on oil and gas. To that end, Nazarbayev reminded investors that Kazakhstan has devised perks for those putting money into the non-extractive sectors.
The government has indicated that it aims to complete the ratification process by October 31 and hopes Kazakhstan will be a full member once the next WTO ministerial conference comes around in mid-December.
Kazakhstan’s accession negotiations have lasted 19 years and been among the most “challenging” the global body has faced with any country, the WTO said in a statement issued when talks were finally completed last month.
It made it clear that the process had been substantially set back by Kazakhstan joining the Russia-led Customs Union (a regional free trade zone) in 2010, which evolved into the Eurasian Economic Union (EEU) this year.
Kazakhstan’s accession process slowed after Russia first said the Customs Union members would negotiate as a bloc to join, before proceeding to join alone in 2012.
After months of pressure on Kazakhstan’s currency, the central bank has moved to allow the tenge to slide – but avoided the large snap devaluation that doomsayers have long been predicting.
On July 15, the National Bank eased the corridor within which the tenge trades to allow it to drop by 5%, to 198 to the U.S. dollar.
Chief central banker Kayrat Kelimbetov explained, in remarks quoted by Tengri News, that the measure was adopted as the tenge was pushing the upper margin of the corridor of 170-188 tenge to the dollar that the bank had previously committed to enforcing.
There were no immediate signs of panic over the mini-devaluation in Kazakhstan, where the National Bank maintained its exchange rate at 186.8 tenge to the dollar and the currency closed at 187.05 on the Kazakhstan Stock Exchange on July 15. In exchange offices, the tenge was trading at around 187.5 to the dollar after the central bank’s announcement.
Financial analysts predict the slide will be gradual.
“The scenario of a sharp devaluation is not being considered, and in principle that’s correct,” economist Olzhas Khudaybergenov, a former adviser to Kelimbetov, wrote on his Facebook page.
Khudaybergenov predicted a slow depreciation of 0.5-1 tenge per month, with the currency reaching the upper limit of the new corridor (198 tenge) in about a year.
The calm with which the news was received contrasted with the last devaluation in 2014, when the tenge lost nearly 20% of its value in a single day, sparking public anger that escalated into small-scale unrest in Almaty.
Astana is slashing growth expectations and cutting its budget revenue forecasts as Kazakhstan eyes its gloomiest economic outlook for years, sources in parliament report.
The government intends to cut this year’s GDP growth forecast to 1.5 percent (against its previous forecast of 4.8 percent) and reduce budget spending by a whopping $7 billion, sources in the ruling Nur Otan party told Vlast.kz following a presentation to parliament by National Economy Minister Yerbolat Dosayev on January 16.
Such growth would represent a significant slowdown on last year’s 4.3 percent, and would be Kazakhstan’s lowest since 2009, the height of the global credit crunch.
As President Nursultan Nazarbayev acknowledged last week, Kazakhstan is facing a litany of economic problems, from low prices for oil and metallurgical output to the knock-on effect of Western sanctions against Russia and pressures on the tenge as a result of the ruble’s precipitous fall.
The government is cutting the oil price on which its budget is based from $80 to $50 in its revised budget (which will have to be approved by parliament), Dosayev confirmed, after global prices dipped below $50 this month.
Russia's ruble became worth less than a Kyrgyz som for the first time on December 12. (xe.com)
The Russian ruble crossed a psychological barrier in Kyrgyzstan on December 12, becoming worth less than the som for the first time. Across Central Asia, the ruble’s slide is pushing local currencies to new lows. But they can’t seem to fall fast enough to keep a competitive advantage.
Central Asian economies are deeply dependent on Russia as an export market. When the ruble is weak, Central Asia’s exports are relatively expensive for Russian consumers. So, weaker local currencies benefit the region’s producers. Of course falling currencies also mean inflation, as the price of imported goods from outside the region shoots up—as does the cost of servicing foreign debt. The World Bank projects inflation in Kyrgyzstan this year to top 10 percent. In Tajikistan, food prices rose 10.5 percent in November alone, according to a Deutsche Welle report.
In terms of statistics, unless they are the rosy government sort, Tajikistan often appears to be on the edge of an abyss. But somehow the poorest country to emerge from the Soviet Union chugs on.
So a grim World Bank report out this week probably does not indicate imminent collapse. But it is unnerving to see that almost every macroeconomic indicator suggests trouble ahead. And Tajikistan’s latest predicament coincides with a push from Moscow to join Russia’s new Eurasian Economic Union.
Tajikistan’s economic dependence on Russia is, as economists have long warned, a liability—and not only because it gives Moscow enormous influence. “The possible spillover effect from the Russian slowdown onto the Tajikistan economy is estimated to be one of the largest in the [Europe and Central Asia] region: a 1 percentage point reduction in the growth of Russia’s GDP would reduce growth in Tajikistan by the same amount,” says the October 27 report, “Tajikistan: Moderated Growth, Heightened Risk.”
For starters, over a million Tajiks, or about one-half of working-age Tajik men, labor in Russia, usually in menial jobs. Their transfers are worth about half of Tajikistan’s GNP, making it the most remittance-dependent country in the world.
But as the Kremlin sacrifices Russia’s economy for its Ukraine policy, which has caused a new low in relations with the West, the resulting downturn is hurting the ruble and Tajikistan’s economy at large. An ailing ruble buys fewer dollars to send home.