On October 27 Kazakhstan officials announced plans to turn Almaty into an international financial center. The proclamation came as no surprise to anyone familiar with the decision-making process within the higher echelons of power in Kazakhstan. President Nursultan Nazarbayev himself had raised the plan during the government’s extended August session. More surprising, however, is how quickly ministerial officials, usually criticized for being passive, got on board with the presidential concept. “We must not dawdle away our time,” stressed Minister of Economy and Budget Planning Kairat Kelimbetov, pointing out that the financial center should be operating by the end of 2007 (Kazakhstanskaya pravda, October 27).
Apparently, the ministry spent the last two months working intensively on the financial center assignment. If the project does come to fruition, the former capital city will become a new world financial hub attracting financial institutions, auditing companies, and international banks to Central Asia. With earlier government promises to turn the country into a “second Kuwait” still not achieved, perhaps Kazakhstan seeks to improve its political image in addition to purely economic gains. Prime Minister Danial Akhmetov did not conceal the government’s ambition to push Kazakhstan into the ranks of Singapore, Malaysia, and the United Arab Emirates. Kazakhstan particularly regards the UAE as a model of economic prosperity. He also disclosed that policymakers drew upon these countries’ rich experiences when framing the Kazakh financial center. He added that establishing a financial center in Kazakhstan will mean partly sacrificing its sovereignty, as English rather than Kazakh would undoubtedly become the primary working language for finance. Furthermore, the center would be governed by laws different from those administered by the city government (Khabar TV, October 26). But before the financial center becomes reality, the government must overcome several serious challenges.
First, Kazakhstan must revise its domestic banking laws and regulations, including the new law on the banking system, which received considerable praise from international financial experts. One of the knotty issues is the question of granting preferential terms, a special legal status, and substantial tax cuts to registered members of the financial center in Almaty. Current plans call for the abolition of corporate taxes. The government set up a working group to draft a law “On the Financial Center in Almaty City” to address these issues.
he center’s legal foundation must be completed within a very short time. Perhaps the most difficult job will be conducting a feasibility study of the project. So far, only one unnamed consulting company has indicated its willingness to participate in preparing the prospectus. As Kazakh financial experts have no experience in this field, they obviously must rely on assistance from foreign specialists. It is too early to tell whether everything will go as smoothly as anticipated by the Ministry of Economic and Budget Planning. The possibility of attracting world financial resources to feed the ailing economy of Kazakhstan and to tower over the rest of the CIS as a financial power is very seductive.
Kazakhstan has substantially transformed its banking system by introducing modern technology and services, but the reform is by no means complete. Banks do not have sufficient resources to finance major social and economic projects. Therefore, the creation of an international financial center would be something of a bonanza for Kazakhstan. Yet previous attempts to direct financial flows to benefit the domestic economy have been unsuccessful. In April 2001 the Parliament of Kazakhstan adopted a law granting amnesty to individuals involved in shipping unreported money abroad. The intention was to stop the massive capital flight and encourage the return of money from abroad. But the amnesty did not stop money laundering.
Some statements suggest that the idea of financial center in Almaty is has been calculated to be synchronized with Moscow’s monetary policy. According to Prime Minister Akhmetov, “Russia very positively responded to the proposal of our head of state on creating a new bank in the CIS, and today the finance Minister [of Kazakhstan] Arman Dunayev is conducting talks with Ministry of Finance of the Russian Federation. The proposal on setting up the financial center fits in very well with the idea of creating this bank” (Izvestiya Kazakhstan, October 27).
The pitch for an international financial center comes at a time when Kazakhstan’s economy has begun to show some alarming symptoms of decline. At a recent press conference, the chairman of the National Bank, Anvar Saydenov admitted that fiscal measures should be taken to curb rising inflation. Kazakhstan’s foreign debt grew by 12.7% over the past six months, although direct foreign investment to the country’s economy totaled $2.5 billion. In September, industrial output was 1.2% lower than the previous month and in the mining the slump reached 2.8% (Epoha, October 22). The decline in production and distribution of gas, water, and electricity lead to a sharp rise in utility costs.
In this context the creation of a financial center might provide a positive morale boost for the government. But it is doubtful that the national economy will benefit from this much-publicized project any time soon.