…WITHOUT IMF OR WORLD BANK LENDING.

The last month saw approval of a three-year World Bank country assistance program for Kazakhstan. It provides for three lending scenarios, ranging from US$270 million to US$820 million. Program priorities are fourfold: reform of the public sector, promotion of broad-based private sector led growth, social support and environmental protection (Russian agencies, February 18). Given its favorable economic situation, however, Kazakhstan has been reluctant to take on additional debt from international financial institutions. Astana may therefore choose to hold off from World Bank assistance, just as it has from IMF loans. Kazakhstan’s foreign debt, which was at US$3.3 billion at the start of 2001 (approximately 20 percent of GDP), remains quite moderate, and its successful Eurobond issues in 2000 show that–alone among the CIS countries–Kazakhstan continued to enjoy good access to international capital markets. Approximately US$1.1 billion of Kazakh foreign debt is owed to the World Bank and US$1 billion is owed through Eurobonds. Domestic debt amounts to approximately US$605 million (Russian agencies, February 11).

Kazakhstan is not alone in the region in making do without IMF financing. For most of the period since the August 1998 financial crisis, both Russia and Ukraine have either been out of compliance with their IMF programs, or have been without IMF programs altogether. Loan tranches for Georgia, Azerbaijan, Kyrgyzstan and Moldova during the past two years have frequently been delayed due to these governments’ noncompliance with the conditions of their IMF programs. Meanwhile, the IMF and World Bank continue to play virtually no role in Belarus, Uzbekistan and Turkmenistan.

One implication of these trends is that the Bank and the Fund are becoming less relevant for much of the region. Thanks to Russia’s US$61 billion trade surplus, the Kasyanov government does not need IMF financing. Moscow only wants a deal with the Fund because such an agreement is a prerequisite for commencing negotiations on restructuring Russia’s debts to the Paris Club of sovereign creditors. Despite years of negotiations with Minsk and Tashkent, IMF financing for these countries remains highly unlikely. Meanwhile, the Bush administration is bringing increased pressure to bear on the IMF to scale back or halt lending to countries with unstable financial systems. This pressure–combined with Turkey’s ongoing financial crisis–could prevent significant IMF lending to region for years. Similar (albeit weaker) pressures are being applied to World Bank as well.

Kazakhstan’s willingness to forgo multilateral financing on offer thus contrasts sharply with the rest of the region. In some respects, Astana’s preference for private capital flows over IMF and World Bank financing–similar to the policies pursued by Poland, Hungary and the Czech Republic–is a measure of the success of Kazakhstan’s economic transition. On the other hand, Kazakhstan’s economy remains much poorer than the Central European economies–and heavily dependent on the energy sector and exports to Russia. Such a reliance does not bode well for the prospects for sustainable growth in Kazakhstan.

AZERBAIJAN’S PUBLIC FINANCES UNDER CONTROL.