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№6 (239) 25 March - 7 April 2009

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Hot issue:     Struggle for the place under the sun?
The question bothering all market players now and prompting feverish talk- is what shall happen to loan payers who defaulted ? Should the state bail out all of them?

Sultan Akimbekov

The state does its best to bail out ailing businesses and individuals who got into trouble. Meanwhile the government should be aware about its limits. The state should manage the resources in a due way to sustain economic development ensure microeconomic stability and help those group of people, which are the most exposed to the crisis. It has to curb inflation that might begin to rise at any moment in the coming months due to devaluation of tenge and constant injections into economy made by the government. In the current trend continues, if the state becomes a helping hand for all businesses, even potentially unsuccessful ones, aftermath for the domestic economy might be disastrous.

Ahmetzhan Esimov, the akim(mayor) of Almaty delivered a speech on March 16 at the akimat session chaired by Karimov Masimov, the PM. Some people are unable to meet their financial commitment regarding mortgage loans raised to buy an apartment the square of which exceeds 120 m2 in order to launch their own business. There own flats serve as a collateral for the banks. The problems of these сategory of businessmen haven't been solved yet' said the akim of Almaty.

Esimov is interested in reviving commercial activity in the city, he has to govern. Almaty businesses have amassed big arrears. In the years of economic growth local businessmen took millions in the banks, using their real property as collateral to back the loans they raised . That is why local businessmen use foul and good means to lobby their interests. Dystopian prognoses emphasis made on the importance of this or that business for the economy in whole have come in fashion. The businesses appeal to the government on the hope to get soft loans. All other market players haven't' hesitated to follow the lead of businessmen. Frenzy and SOS signals are again in vogue.

Esimov's statement about the governmental responsibility and moral obligation to bail out businessmen who own 120m2 flats in business centers raised many eyebrows. It is too much even for the generous state. Businessmen are aware that they assume risks; raising loans in the banks. The government is not responsible for their actions. The government is not legally obliged to stave off the default of the reckless entrepreneurs. Bankruptcy of the unsuccessful businesses is one of the instruments of market regulation and market cleansing. Bankruptcy of weakest companies produces the effect of cold shower on the economy. In addition banks often allotted generous credits to businessmen, who just bought and resold flats, thus contributing to housing bubble. This problem is not so serious. Tough times lie ahead. The threats facing the banks are far graver. The idea of credits and collateral turned to be an illusion. Businessmen have borrowed hefty sums, and now they are reluctant to return anything or just want the state to settle their debt. The state has to recapitalize banks and allocate money to secure debts of some vulnerable social groups and entrepreneurs that will be able to retain their positions on the market. The state shouldn't't save all businesses for sure. Such policies may beget parasitism among companies and individuals that will grow dependent on the state.

It is interesting to note that the real estate against which most loans are secured often resemble m luxurious Penthouses of 120 m2 at least. Most of apartments built in Almaty fall into the category of elite or business ones. In elite houses flats often cover the square of 120 m2. Many construction companies just didn't spend too much time on careful marketing analysis. They have just decided that Almaty residents were all rich people who could afford to buy dwellings of elite category. At the same time in Astana more buildings comprised of economy class flats have been erected. Then the state declared that it would help the owners of the flats to meet their financial obligations and a set a limit of 120 m2. So the majority of people who purchased home in Almaty don't qualify for any benefits. The akim(mayor) had to bring this issue to the agenda of the session, because he is to defend interests of its people.

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