By the end of last week, Kazakhstan’s tenge appeared to have stabilized after the population rushed to buy up dollars over the weekend of September 5-8 (Russian agencies, September 8).
In reaction to TV news of the Russian crisis, the population’s dumping of the tenge had led to its devaluation in some regions from 75 to 120 to the dollar. But since most of the goods sold in Kazakhstan are locally produced, there were no major shortages and prices of imported goods rose only marginally. Official statements and interventions were deemed crucial in the currency stabilization. Repeated statements by the president, government and Central Bank on September 8 appear to have reassured Kazakhstanis. The Central Bank also provided US$30 billion to official exchange points around the country to alleviate the dollar shortage. No restrictions on conversion were imposed. As a further measure to compensate for the rise in the demand for dollars, the Central Bank on September 11 announced a reduction in commercial banks’ deposit holdings of hard currency from 50 to 25 percent of their authorized capital (Reuters, September 11). Local analysts forecast that the tenge will not devalue by more than 20 percent by year-end.
Like Russia, Kazakhstan is plagued by a widening budget deficit. Keen to learn from the Russian crisis and arguing that it stems mainly from Russia’s exorbitant borrowing costs, Kazakhstani authorities remain determined to hold down the country’s debt. A joint statement issued by the government and Central Bank on September 8 highlighted that Kazakhstani internal and external debt servicing amounted to only 9 percent of Kazakhstan’s budget expenditures, compared with 40 percent in Russia (Reuters and Russian agencies, September 8). Kazakhstan has resisted printing more money and has been reluctant to raise yields on its treasury bills, pinning its hopes instead on revenue from large-scale privatization. The Ministry of Finance stated on September 8 that the government hopes for a privatization windfall of 45 billion tenge to come now from strategic instead of portfolio investment (Reuters, September 8). Privatization revenue will partly depend on the government’s ability to weather the crisis and to convince foreign investors that its economy is securely insulated from Russia’s.–SC
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