Kazakstan Struggles With Devaluation Impact
Emergency measure designed to correct trade and monetary imbalance, but may spark inflation.
Kazakstan Struggles With Devaluation Impact
Emergency measure designed to correct trade and monetary imbalance, but may spark inflation.
Last week’s devaluation of the Kazakstan currency was too sudden and too late, and is fuelling inflation as a result, according to critics of the way the measure was introduced.
The devaluation was announced on February 4 by Grigory Marchenko, who had been appointed as chairman of the National Bank of Kazakstan, NBK, only the week before. The tenge immediately tumbled from an exchange rate of about 120 to the dollar to around 150, the NBK’s new target rate.
For the last year, the NBK had been supporting the tenge at an exchange rate of around 120 to the US dollar. But as NBK officials acknowledged, that was becoming less and less tenable since the bank had been forced to sell foreign currency and gold reserves worth six billion dollars to maintain the tenge’s value. It could not afford to go on, especially as government revenues had been slashed by falling world oil prices.
Secondly, Kazak exports priced in tenge had been growing increasingly expensive in countries like Russia, which had pursued a policy of gradual devaluation in the face of the global financial turbulence of recent months. Realigning the tenge to fit the new trading conditions could give a boost to Kazak producers who make items for export.
However, another effect of devaluation is to make imports more expensive.
The minister for industry and trade, Vladimir Shkolnik, told a cabinet meeting on February 9 that the prices of basic foodstuffs had rocketed in the first week following devaluation. He attributed this sudden inflation to imported items, products made locally out of raw materials from abroad, and those whose production was funded by loans denominated in dollars.
At the same meeting, the chairman of Kazakstan’s anti-competition agency, Majit Esenbaev, predicted further price rises for wheat products, sugar, cooking oil, fuit and vegetables, and for fuel.
Esenbaev warned that some businesses might engage in profiteering and thereby “create an artificial shortage on the food market”.
Few commentators have taken issue with the decision to devalue; their complaints relate to the way it was done.
“In our view, devaluation should have been introduced gradually as it was in Russia,” Gulnara Rahmatullina, head of economic research at the Kazakstan Institute for Strategic Research, told IWPR.
Rahmatullina said the tenge’s loss in value had had a major psychological impact, as people felt the tenge in their pay packets were worth less than before.
Meruert Mahmudova from the Centre for Analysis of Public Policy Issues said the decision had been expected.
“It was obvious that at a time when the Russian currency was falling, it was neither realistic nor beneficial to keep the dollar-tenge rate stable, as was done last year, since Russia is Kazakstan’s biggest trading partner. The fall in oil prices from 150 dollars to 35 dollars a barrel exhausted the possibilities for [creating currency reserves and] stabilising the tenge,” she said in an interview to the Kazakstan Today news agency on February 4.
At the same time, she said, “Gradual devaluation would have been a more prudent decision in economic terms.”
Oraz Jandosov, a former NBK chairman turned opposition politician who heads the Centre for Economic Analysis, expressed a similar view.
“The government did everything right, but too late; it should have started letting the tenge go three or four months ago when the [Russian] rouble was losing its value,” he told Russian Newsweek on February 10. “That would have saved us a quarter of our gold reserves.”
Even the governing Nur Otan party has voiced concern. Addressing a party meeting on February 6, deputy chairman Rauan Shaekin said devaluation should have taken place in December, and not in one fell swoop. He said its implementation and timing were “politically unwise” since it had effectively cancelled out increases in pay for public sector workers and in benefits for the less well-off.
Another area hit by devaluation is the value of loans, as political analyst Oleg Sidorov explained. “People who took out a mortgage five years ago were using 150 tenge to the dollar as their baseline,” he said.
Experts are divided on whether the move will, as it is supposed to, protect and encourage domestic producers both by making their exports cheaper and by curbing the flow of rival imported products.
Rahmatullina is among the optimists on this front, saying, “Exporters sell their products for dollars and convert them into tenge inside the country. They earn large profits and pay [taxes] to the budget, creating greater opportunities to implement social programmes.”
Other analysts are less certain, arguing that the Kazak economy does not necessarily fit within this standard textbook model.
As Viktor Yambaev, head of the Association of Entrepreneurs in Almaty, told Kazakstan Today on February 4, “85 per cent of our economy depends on import, so there’s a simple chain reaction – given that the dollar’s value has risen 30 per cent, everything is going to be 30 per cent more expensive.”
Kazakstan does not have a strong manufacturing base, and a wide range of items, both foodstuffs and manufactured goods, have to be imported.
As Mahmudova put it, “Devaluation serves only the interests of exporters who can recover earnings hit by falling prices on world markets. Other sectors of the economy depend on imports, and can only lose out.”
Analysts were also sceptical about the government’s pledge to curb rising prices.
“Holding prices down is possible only in a command economy. In a market economy, it’s an impossible task,” said political analyst Asylbek Kojahmetov.
In a statement on February 9, three opposition parties said, “Hopes have not materialised that government agencies can prevent increases in price for consumer goods, above all foodstuffs, and also provide social assistance to those who need it.”
Raisa, 42, works as a market trader in Almaty, and told IWPR that devaluation has forced her and her colleagues to raise prices, as they buy their goods wholesale from China and Turkey.
“Municipal officials have already visited our market and sought to persuade traders not to increase prices,” she said, warning that anyone who followed that advice was likely to be ruined.
Andrei, who owns a small food store in Almaty, said he had not put up his prices yet, but that was only because he was still selling stock purchased at the old prices. “My suppliers have already warned me that the next consignment is going to be priced in line with the devaluation,” he said.
Pensioner Amanjol Karibaev was struggling to get by even before the devaluation, and fears that even if the government takes action, “all its measures will be designed to help big business, not ordinary people.”
Marik Koshabaev and Daulet Kanagatuly are IWPR-trained journalists in Almaty.
The devaluation was announced on February 4 by Grigory Marchenko, who had been appointed as chairman of the National Bank of Kazakstan, NBK, only the week before. The tenge immediately tumbled from an exchange rate of about 120 to the dollar to around 150, the NBK’s new target rate.
For the last year, the NBK had been supporting the tenge at an exchange rate of around 120 to the US dollar. But as NBK officials acknowledged, that was becoming less and less tenable since the bank had been forced to sell foreign currency and gold reserves worth six billion dollars to maintain the tenge’s value. It could not afford to go on, especially as government revenues had been slashed by falling world oil prices.
Secondly, Kazak exports priced in tenge had been growing increasingly expensive in countries like Russia, which had pursued a policy of gradual devaluation in the face of the global financial turbulence of recent months. Realigning the tenge to fit the new trading conditions could give a boost to Kazak producers who make items for export.
However, another effect of devaluation is to make imports more expensive.
The minister for industry and trade, Vladimir Shkolnik, told a cabinet meeting on February 9 that the prices of basic foodstuffs had rocketed in the first week following devaluation. He attributed this sudden inflation to imported items, products made locally out of raw materials from abroad, and those whose production was funded by loans denominated in dollars.
At the same meeting, the chairman of Kazakstan’s anti-competition agency, Majit Esenbaev, predicted further price rises for wheat products, sugar, cooking oil, fuit and vegetables, and for fuel.
Esenbaev warned that some businesses might engage in profiteering and thereby “create an artificial shortage on the food market”.
Few commentators have taken issue with the decision to devalue; their complaints relate to the way it was done.
“In our view, devaluation should have been introduced gradually as it was in Russia,” Gulnara Rahmatullina, head of economic research at the Kazakstan Institute for Strategic Research, told IWPR.
Rahmatullina said the tenge’s loss in value had had a major psychological impact, as people felt the tenge in their pay packets were worth less than before.
Meruert Mahmudova from the Centre for Analysis of Public Policy Issues said the decision had been expected.
“It was obvious that at a time when the Russian currency was falling, it was neither realistic nor beneficial to keep the dollar-tenge rate stable, as was done last year, since Russia is Kazakstan’s biggest trading partner. The fall in oil prices from 150 dollars to 35 dollars a barrel exhausted the possibilities for [creating currency reserves and] stabilising the tenge,” she said in an interview to the Kazakstan Today news agency on February 4.
At the same time, she said, “Gradual devaluation would have been a more prudent decision in economic terms.”
Oraz Jandosov, a former NBK chairman turned opposition politician who heads the Centre for Economic Analysis, expressed a similar view.
“The government did everything right, but too late; it should have started letting the tenge go three or four months ago when the [Russian] rouble was losing its value,” he told Russian Newsweek on February 10. “That would have saved us a quarter of our gold reserves.”
Even the governing Nur Otan party has voiced concern. Addressing a party meeting on February 6, deputy chairman Rauan Shaekin said devaluation should have taken place in December, and not in one fell swoop. He said its implementation and timing were “politically unwise” since it had effectively cancelled out increases in pay for public sector workers and in benefits for the less well-off.
Another area hit by devaluation is the value of loans, as political analyst Oleg Sidorov explained. “People who took out a mortgage five years ago were using 150 tenge to the dollar as their baseline,” he said.
Experts are divided on whether the move will, as it is supposed to, protect and encourage domestic producers both by making their exports cheaper and by curbing the flow of rival imported products.
Rahmatullina is among the optimists on this front, saying, “Exporters sell their products for dollars and convert them into tenge inside the country. They earn large profits and pay [taxes] to the budget, creating greater opportunities to implement social programmes.”
Other analysts are less certain, arguing that the Kazak economy does not necessarily fit within this standard textbook model.
As Viktor Yambaev, head of the Association of Entrepreneurs in Almaty, told Kazakstan Today on February 4, “85 per cent of our economy depends on import, so there’s a simple chain reaction – given that the dollar’s value has risen 30 per cent, everything is going to be 30 per cent more expensive.”
Kazakstan does not have a strong manufacturing base, and a wide range of items, both foodstuffs and manufactured goods, have to be imported.
As Mahmudova put it, “Devaluation serves only the interests of exporters who can recover earnings hit by falling prices on world markets. Other sectors of the economy depend on imports, and can only lose out.”
Analysts were also sceptical about the government’s pledge to curb rising prices.
“Holding prices down is possible only in a command economy. In a market economy, it’s an impossible task,” said political analyst Asylbek Kojahmetov.
In a statement on February 9, three opposition parties said, “Hopes have not materialised that government agencies can prevent increases in price for consumer goods, above all foodstuffs, and also provide social assistance to those who need it.”
Raisa, 42, works as a market trader in Almaty, and told IWPR that devaluation has forced her and her colleagues to raise prices, as they buy their goods wholesale from China and Turkey.
“Municipal officials have already visited our market and sought to persuade traders not to increase prices,” she said, warning that anyone who followed that advice was likely to be ruined.
Andrei, who owns a small food store in Almaty, said he had not put up his prices yet, but that was only because he was still selling stock purchased at the old prices. “My suppliers have already warned me that the next consignment is going to be priced in line with the devaluation,” he said.
Pensioner Amanjol Karibaev was struggling to get by even before the devaluation, and fears that even if the government takes action, “all its measures will be designed to help big business, not ordinary people.”
Marik Koshabaev and Daulet Kanagatuly are IWPR-trained journalists in Almaty.
