Hot on the heels of a corruption scandal in Uzbekistan’s financial sector comes news that a commercial bank that has foreign shareholders has been barred from conducting hard currency operations.
The development is the latest sign of troubles hitting Uzbekistan’s banking industry, as Central Asia reels from an economic crisis that is slowing growth and pressuring currencies across the region.
Uzbekistan’s central bank has imposed a six-month ban on Hamkorbank conducting foreign currency operations with businesses on the grounds that it has been breaking currency laws, the Anhor.uz news website reports.
No further specifics were offered for the ban, which is unusual and will present a significant barrier to a bank with foreign capital conducting commercial operations.
The International Finance Corporation (a financing arm of the World Bank) and the Netherlands Development Finance Company (a development bank controlled by the Dutch government) between them own 30 percent of shares in Hamkorbank, according to documents filed with Uzbekistan’s stock exchange.
A top banker has been arrested in Uzbekistan on suspicion of making a fortune out of Uzbekistan’s black currency market and laundering the proceeds.
The arrest comes as the rate of the currency, the sum, soars against the dollar on the black market, creating even larger than usual profit margins for those in control of the illegal trade.
Asaka Bank chairman Kahramon Oripov is in detention on suspicion of “currency crimes and legalization of criminal revenues,” an unnamed spokesperson for the General Prosecutor’s Office told Russia’s RIA Novosti news agency on February 12.
The confirmation of Oripov’s arrest, which had been rumored, came days after he was dismissed by the government as chairman of the state-owned Asaka Bank, which handles payments for the automobile industry in Uzbekistan.
Oripov is suspected of exploiting the bank’s position as the financial institution responsible for taking payments for car purchases to carry out his scheme, the Tashkent-based Uzmetronom.com website reported earlier this month.
This was allegedly made possible by the unorthodox system through which payments are made to purchase cars in Uzbekistan, whereby only dollars, rather than sum, are accepted to buy some models of vehicles assembled in-country by the GM Uzbekistan, a US-Uzbekistani joint venture which accounts for the bulk of the country’s car sales.
The money to buy a car must be deposited in dollars at an account in Asaka Bank, which is supposed to transfer it in hard currency to Uzavtosanoat, the state company that holds Tashkent’s share in GM Uzbekistan.
Kazakhstan’s President Nursultan Nazarbayev has dismissed the head of the central bank as the national currency continues to lose value against the dollar.
Nazarbayev dismissed Kayrat Kelimbetov, who has presided over two major currency devaluations during his two years as chairman of the National Bank, on November 2 and replaced him with Daniyar Akishev, a presidential adviser and a former deputy chairman of the central bank.
“Confidence in the [central] bank and in the national currency, the tenge, has been reduced, and this cannot be permitted,” Nazarbayev told parliament in remarks quoted by his office. “A shortage of tenge liquidity is being felt in the country, and the volume of credit to the economy has been reduced.”
The move did not appear to do anything to restore the confidence of the market in the tenge, however. The currency fell below 280 to the dollar in trading on the Kazakhstan Stock Exchange on November 2 for the first time since mid-September, to close at 281.13.
The tenge has lost around 50 percent of its value since the National Bank abandoned its policy of maintaining the tenge in a managed corridor — a strategy Kelimbetov inherited from his predecessor, Georgiy Marchenko.
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.
Reports that Russia is uncomfortable with the Shanghai Cooperation Organization (SCO) stepping into banking are nothing new. In particular, Moscow’s quiet efforts to block the creation of an SCO development bank that would funnel largely Chinese credit into Russia’s backyard have featured at the organization’s meetings in recent years.
But a thought-provoking analysis by Alexander Gabuev of the Carnegie Moscow Center, published last week by Russia in Global Affairs, suggests the Kremlin is mistaken, placing fears about appearing to be a junior partner over a sound geopolitical strategy that could give it a measure of control over China’s Central Asia policy.
The SCO – which groups China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan – has tried hard to convince the world it is more than just a club for dictators. China’s push to include economic initiatives on the SCO agenda was a part of this process, Gabuev notes, and a development bank has been on the table at SCO powwows since 2009.
In the corner of a small pizzeria in central Bishkek, an experiment is unfolding. Central Asia’s first and only bitcoin ATM converts dollars into the world’s most popular cryptocurrency. The machine – which looks like one of the city’s ubiquitous electronic pay terminals – offers a way to convert hard currency into a digital medium that is increasingly used in online transactions.
That could impact how Kyrgyzstan’s estimated one million migrant workers transfer their earnings home, says the machine’s owner, Emanuele Costa, an Italian financial analyst. The World Bank estimates that last year migrant remittances totaled the equivalent of 31 percent of Kyrgyzstan’s GDP. Most of that money, several billion dollars, was transferred through expensive, fee-based services like Western Union and Zolotaya Korona. Costa, a former analyst with Goldman Sachs, sees bitcoin as a low-cost, secure and confidential alternative.
Bitcoin, invented by a group of anonymous Internet users in 2009, is the first and most prominent digital cryptocurrency to gain wide circulation. Not controlled by national governments or banks, bitcoin offers a peer-to-peer encrypted payment system that can be readily converted into cash or, increasingly, used in exchange for products or services. Fees, when they exist, are agreed upon by users and are usually nominal. Bitcoin’s value fluctuates based on supply and demand; one bitcoin is currently worth about $642.
Though Costa is a staunch believer in bitcoin’s potential, he admits that it faces some hurdles. Foremost is a lack of understanding.
Kazakhstan’s central bank is appealing for calm as rumors that some financial institutions are in trouble following last week’s currency devaluation have provoked a run on three banks.
On February 19 the National Bank sent text messages to the public urging people to disregard the “false information” and not succumb to panic.
“All Kazakhstani banks have sufficient funds in national and foreign currency,” the messages read; people should not submit to “provocations” and “keep calm.”
Large queues formed at some banks in the financial capital, Almaty, for a second day on February 19 as customers rush to withdraw funds, fearing a bank collapse.
A EurasiaNet.org correspondent witnessed a line spilling out onto the street at a downtown branch of Kaspi Bank, where around 30 people were waiting to enter and more were lining up inside – underlining that, as rumors circulate fast on social networks, they risk becoming self-fulfilling.
Kaspi Bank – which has offered a 100 million tenge ($540,000) reward for information on the origin of the rumors – issued a statement around lunchtime on February 19 saying that sums five times greater than usual had been withdrawn in cash on that day alone, but that the bank was meeting all its obligations.
Three women arrested for wearing panties on their heads were among nearly three dozen protesters hauled through the courts in Almaty this weekend, as last week’s devaluation of the tenge brought demonstrators out onto the streets of Kazakhstan’s commercial capital.
Zhanna Baytelova, Yevgeniya Plakhina, and Valeriya Ibrayeva were arrested at an anti-devaluation protest on February 16 after putting lace panties on their heads and trying to place them on a monument to Kazakhstan’s independence.
They were immediately tried on hooliganism charges and fined around $100 each. Their quirky protest was inspired by obscure regulations, due to come into force in July, that will govern the level of moisture absorption in underwear sold in Customs Union member states Kazakhstan, Russia and Belarus.
The action, Plakhina told EurasiaNet.org “is a symbol of the absurdity which is taking place in our country, including the recent tenge devaluation.”
“In Russian we have a saying, ‘giving one’s last underpants,’ which literally means becoming poor,” she explained. “This was a symbolic action.”
The three women were among five people arrested at the small anti-devaluation rally that drew around 30 people on Republic Square. That followed a larger rally the previous day, which riot police broke up after some 200 protesters marched to Republic Square.
Up to several dozen protesters demonstrating against Kazakhstan’s recent devaluation of the national currency were arrested on February 15 in the commercial capital, Almaty.
Riot police swooped down on as many as 200 protesters as they marched to city hall from their original venue nearby, where they had held a small unsanctioned rally against this week’s 19-percent devaluation of the tenge. Demonstrators urged government action over mounting socioeconomic problems and inflation.
Kanagat Takeyeva, who was designated spokeswoman among protesters who besieged the National Bank headquarters on February 12, was among the detained. “They’re taking me away,” she shouted into her telephone, as riot police grabbed her arms and marched her to a police truck amid what appeared to be targeted arrests of specific protesters.
It was not immediately clear how many arrests were made; EurasiaNet.org witnessed six, but witnesses spoke of up to 30. Three trucks containing detainees drove off.
The security forces moved in as the protesters attempted to reach Republic Square in front of Almaty’s city hall. Police formed a cordon to enclose protesters and chased down some who had escaped.
A prosecutor speaking through a megaphone warned the demonstrators to disperse and cautioned them that they were breaking Kazakhstan’s strict law on public assembly, which requires protesters to obtain official permission 10 days before a rally. Demonstrators breaching that law face fines or up to 15 days in jail.
Protesters in Kazakhstan’s commercial capital, Almaty, forced their way into the National Bank on February 12 to confront the country’s top financial officials over the sudden devaluation of the tenge, which wiped a fifth off the value of the currency in one fell swoop the previous day.
A group of around 50 people – including low-paid workers, worried mortgage holders, and pensioners – gathered outside the bank in freezing temperatures, demanding a meeting with National Bank chief Kayrat Kelimbetov to address concerns about spiraling inflation that analysts say is certain to result from the devaluation.
“What are the people to do? How should they act in this situation? What is the way out? We want to know this!” Zhasaral Kuanyshalin, a prominent activist who was taking part in the protest, told EurasiaNet.org.
Police stood by as irate protesters barged into the National Bank’s lobby. Riot police reinforcements were summoned, but management moved to deflate tension by inviting the demonstrators inside.
At a turbulent meeting with National Bank Deputy Chairman Kuat Kozhakmetov, Kanagat Takeyeva, a designated spokeswoman for the protesters, put forward demands ranging from a meeting with Kelimbetov (who is in Astana, the capital) to jobs and tackling the rising cost of housing and mortgages.
Kozhakmetov’s explanations that the government had pledged to rein in inflation (which is inevitable as the price of hard currency-denominated imports rockets in the wake of the devaluation) were met with cries of “Lies, lies!” “Why do you deceive us?” and “Kelimbetov, resign!” The meeting broke up inconclusively, with Kozhakmetov promising to consider the demands.