Publication: Eurasia Daily Monitor Volume: 3 Issue: 14

The inauguration ceremony in Astana on January 11 for Kazakh President Nursultan Nazarbayev was a widely trumpeted political event conceived to attract international attention and world leaders to Kazakhstan. Yet the propaganda effect of the inauguration ceremony obviously fell far short of the expectations, as most prominent Western leaders did not appear for the event and sent lukewarm messages of congratulation. In all other aspects, it was a pompous and solemn celebration attended, as announced by official sources, by representatives of more than 70 countries—and most significantly by leaders of Central Asia, Russia, Ukraine, Belarus and Georgia.

Nazarbayev did not seem discouraged by the conspicuous absence of Western leaders from the inauguration ceremony and told journalists at a news conference that “the participation of Russian President [Vladimir Putin] in the inauguration festivities raises the status and international significance of this event.” He added that he was planning to make his first foreign trip to Moscow after the inauguration (Central Asia Monitor, January 13).

Talks that were held on the sidelines of the main event showed that Astana still adheres to the idea of forging an economic and political alliance within the Single Economic Space states, despite the cool attitude from Kyiv to any Russian-dominated alliance in the CIS space. Given the prolonged chill between Moscow and Kyiv, the talks conducted between Yushchenko and Putin in Astana in a bid to break the political and economic deadlock in gas war can be regarded as a major breakthrough. It remains unclear to what extent President Nazarbayev influenced the thaw in relations between Ukraine and Russia, but the rapprochement of two Slavic states, the envisaged Ukrainian-Russian nuclear energy cooperation, and the agreement on Black Sea Fleet are welcome developments for Astana, which is concerned over the fate of Single Economic Space.

After his talks with Vladimir Putin, Nursultan Nazarbayev told journalists that Single Economic Space members Russia, Belarus, Kazakhstan and formally Ukraine, will sign a package of documents in March to set up a customs union. Yet long-standing differences on customs duties, transit fees and other issues still remain among even the closest partners of the SES, such as Kazakhstan and Russia. Perhaps the most tangible outcome of Vladimir Putin’s talks with the Kazakh leader was the agreement concluded between Russian Vnesheconombank and the Development Bank of Kazakhstan. The ultimate purpose of major financial groups of the two countries is to set up a Eurasian Bank with its head office in Almaty to finance joint projects. However vague the details of this joint financial structure, the event can be welcomed as a step toward real economic integration (Panorama, January 13).

In his inauguration speech President Nazarbayev outlined economic achievements made in the years of his rule, stressing that more than $40 billion of foreign direct investment was pumped into the Kazakh economy. He reiterated the earlier announced plans of raising Kazakhstan to the level of the 50 most developed and economically competitive countries of the world in the next decade. Nursultan Nazarbayev noted that 10 percent GDP growth in the last five years was possible due to “Kazakhstan model of economic development” (Sayasat, January 11).

This optimistic note clashes with economic realities pointed out by some analysts. In 9 months of last year, foreign debts of Kazakhstan grew by 14 percent to total nearly $37 billion. The most saddening aspect of the oil-based economic development is continuing capital flight and shortage of investments, particularly in the social sphere. Last year inflation rate reached 7.5 percent, an insignificant level in economic terms, but a very alarming sign in political terms, because all attempts of the government to curb the inflation and keep it at the 5 percent level failed over the last three years. The primary cause of this dangerous trend is that the government has failed to keep its promise of boosting industrial production in order to reduce imported goods, control the currency rate, and create a competitive environment (Delovaya Nedelya, January 13).

The effectiveness of the current government headed by Prime Minister Daniyal Akhmetov, who has been in office since June 2003, has long been doubted. Analysts had forecasted a government reshuffle even before presidential elections, but apparently Nursultan Nazarbayev thought it wise not to change horses in midstream. Presidential aide Yermukhambet Yertysbayev ambiguously noted in a recent interview that the president has little reason to change the government, but that a young and vigorous head is needed to cope with all complex tasks of the economy.

It is feared, however, that any government reshuffle will hardly bring about economic prosperity for the benefit of the people as long as national economy remains subordinated to the geopolitical interests of Russia and China. On January 10, Daniyal Akhmetov and Chinese deputy chairman Tzen Zinhun signed a statement on strategic partnership and discussed the construction of a joint gas processing and petrochemical plant. This partnership is fully in line with the multi-vector foreign policy reiterated in Nazarbayev’s inauguration speech. Yet it is not even clear to government members what real economic benefits Kazakhstan can derive from strengthening ties with its great neighbors.