Old Methods Won't Curb Inflation
Monday, 26 February, 2007
Old Methods Won't Curb Inflation
Monday, 26 February, 2007
The government’s economic programme for 2007-09, aimed at keeping inflation between five and seven per cent, was approved by parliament on February 9. Measures to help contain price rises include stricter credit rules; correlating state budget expenditure with economic growth; preventing petrodollars from leaving the National Fund; restricting the amount commercial banks can borrow from foreign sources and increasing refinancing rates.
NBCentralAsia economic analysts say this programme contains standard methods for curbing inflation through curbs on the money supply.
According to an economic expert working in one of the state agencies who wishes to remain anonymous, the government’s anti-inflation plans are feasible provided the government and national bank take action to prevent the excessive flow of petrodollars into the economy and stop increasing social spending in the absence of healthy economic growth.
“The new government has no new controls - they are all the same - to freeze excess money,” suggested the expert. “The most important thing Masimov’s government has to do is withstand pressure from parliament, which is pursuing its populist goals and trying to increase social expenditure.”
Other analysts do not think that the government is focusing on the real causes of Kazakstan’s inflation, suggesting it adopt a different strategy by applying non-monetary methods.
According to Kanat Berentaev from the Centre of Public Issues Analysis, tightening control over money supply through standard mechanisms is “theoretically right, but in [Kazakstan’s situation] it will restrain economic growth and lower standards of living”.
He doesn’t think that the government and the national bank have come to an agreement about the nature of Kazakstan’s inflation problem, an error made by the previous government.
By failing to diagnose the state of the economy correctly, the former government was unable to reduce inflation even though it tried hard. At its peak in 2006, inflation stood at 8.6 per cent.
“We think that inflation in Kazakstan is of a non-monetary nature, so completely opposite measures are needed. [The government needs to] promote increased production in all sectors of the economy, not just the [natural resource] extraction sector,” said Berentaev.
The non-monetary factors behind inflation should be assessed and instead of combating inflation as such, the government should create a long-term strategy to develop the economy as a whole, he adds.
Non-monetary methods for combating inflation include: stimulating demand to boost economic growth; increasing large state orders for goods and resources; and drawing up voluntary agreements between businesses, trade unions and workers to freeze prices and salaries.
(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)
