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№3 (236) 11 - 24 February 2009

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Hot issue:     Sudden shift
Two weeks ago it was suggested that nomination of Grigoriy Marchenko to the post of the head of the National Bank previously occupied by Anvar Saidenov wasn't a sheer coincidence. Resignation of Abnvar Saidenov marked a shift in monetary policies. These surmises crystallized into reality, when on February 4, 2009 tenge lost 20% of its value against dollar

Sultan Akimbekov

Marchenko deserves a bow for the consistent monetary policies. He managed to prepare everything for such a complicated procedure like devaluation of tenge. He took over finances right after Saidenov, who was an advocate of the idea of the strong and stable tenge. Marchenko said that $600 million dollar inflow was made to satisfy the growing demand. There was no any information leakage, except for the banking sphere channels that allowed for wider interpretation of facts. If it were not so, why on the day prior to the tenge decline, the number of green American banknotes sold on the free market grew dramatically?

The government eased monetary control and let tenge decline against dollar on February 2th, 2009. This very day the news about reshuffling inside of BTA(Bank Turan Alem) management was announced. It appears that all problems that surfaced within banking industry were solved at a time. Marchenko was resolved to tidy things up as soon as possible.

Devaluation of tenge caused panic among population. Flexible monetary policy should hardly be called into question. Radical decision to let tenge slide against dollar was justified. Since declaration of independence the government was bold in its anti-crisis measures. In the early 90s the state implemented market reforms that contributed to economic growth. Pension reform also speeded up progress. There are many examples of sound policies. In 1999 Kazakhstan also let tenge to go down against dollar, following devaluation and default on the territory of RF. When ruble had depreciated nearly threefold, Kazakhstan also engineered controlled devaluation to stay on a par with its main economic partner.

Decline in tenge value that has happened this winter is an echo in the forced devaluation of 1999. For three or four months Russian ruble has been gradually falling against dollar. Finally Russian currency eased practically 50%. Kazakhstan had to let tenge go down as well. Russia still remains influential trade partner of our republic. Kazakh and Russian goods and materials cross the borders, stretching 7 thousand kilometers, on the regular basis. Tenge was pegged to dollar and could have remained strong if it hadn't been for close neighborhood with Russia.

Firm tenge increased imports pressure on Kazakhstan. Cheap Russian goods flooded local markets, especially those of provinces that border on Russia. Exporters of raw materials have always pronounced themselves for weaker national currency. For the last three months heads of frontier provinces also joined the camp of the opponents of firm tenge. Russia forecast about future devaluation of tenge came to its fulfillment. On the one hand stable tenge is good for Russian producers as they can easily win Kazakh markets. On the other hand strong tenge will allow Russians to compare two models of economic developments of two countries and reveal all deficiencies of the Russian one. After rapid tumbling of ruble the deference between Kazakh salaries and pensions in dollar terms became tremendous. To staunch the crisis Russia needs relatively loyal partner. From the point of view of ideology as crisis has exacerbated it is not so comfortable to border on the more successful partner that stick to the opposite course in monetary regulation.

All the aforementioned factors led to the decision of local authorities to let tenge go down. It was a radical devaluation that wasn't phased out but happened at a time. It means that Marchenko modeled its monetary policies on those of the Kazakh government in the late 90s. Such a devaluation has its advantages as it means just a slight correction in exchange rates. First the government manages to stem panic and prevent run on the national currency and dollarization of the domestic economy. In Russia devaluation of the national currency hit the economy. The system of payment established by the banks is not working properly anymore. Households and companies are getting rid of dollars. It is really hard to recover from long lasting depreciation of the national currency.

Kazakh population forgot about shocks and panic is inevitable from now on. Let's hope that it will be short-lived. Adjustment to harsh economic environment will be painful but local economy hasn't been afflicted at all if compared to crisis that hit it 1999. Kazakhstan will manage to stand the recession and decline. There are many preconditions for optimism. Kazakhstan has increased output of crude oil nearly three fold and exports 15 times more fossils than ten years ago. Our country holds vast reserves of uranium. This year we are going to produce 11 tons of this precious material. In addition government gets revenues from the transit of Turkmen and Uzbekistan gas. Last year our country became the leading supplier of wheat. Our country may boast liberal system of taxation. External debt of Kazakhstan is not so huge as in Russia.

We could have followed the lead of Arab democracies of Persian Gulf and pegged tenge to dollar instead of letting it float free. Firm currency is indisputable competitive advantage measured at public welfare and prosperity of population. Our people could have earned highest salaries and pensions on the CIS space. Sometimes we are unable to control everything. To avoid grave circumstances arising from the difference in exchange rate, we have to bring home monetary policies in line with Russian ones.

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