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Comment: Kazakhs steady themselves for the impact of Devaluation 2

SEPT. 4 2015 (The Conway Bulletin) – Timing is everything and fortune favoured me last month.

By chance, I flew into Almaty 24 hours after Kazakh President Nursultan Nazarbayev and Central Bank chief Kairat Kelimbetov had released the tenge from its US dollar peg.

This effectively triggered a 23% devaluation of the currency. I would be able to experience Ground Zero in the latest Emerging Markets currency crisis. If you’re a journalist, this is a good thing.

But if my timing had been fortunate, Mr Nazarbayev and Mr Kelimbetov hadn’t been so lucky. They had overseen an earlier devaluation of the tenge, let’s call this Devaluation 1, which hadn’t worked out. The current currency crisis, Devaluation 2, is a direct result of this mismanagement.

Without warning Mr Nazarbayev and Mr Kelimbetov had devalued the tenge by 20% in February 2014, hoping to make the Kazakh economy more competitive. The timing was poor, though, and within weeks Russia had become a pariah state in the eyes of the West because of its support for rebels in east Ukraine. Sanctions followed, denting Russia which is still the main economic driver in Central Asia. Within another six months oil prices collapsed and the Russian rouble went into free-fall.

The original Nazarbayev-Kelimbetov devaluation strategy, was undermined.

And this forced them into a corner. Defying economic logic and trying to rescue their own pride, they defended the new tenge-dollar peg despite neighbouring currencies sinking and oil prices flat-lining.

In the end, Mr Nazarbayev and Mr Kelimbetov bowed to the inevitable. The tenge is now around 39% cheaper than it was in January 2014.

On the streets of Almaty, ordinary Kazakhs generally greeted the devaluation with a shrug. There was also a palpable sense of relief. A second devaluation was always going to happen. The day after the devaluation, the run on the exchange kiosks was for tenge which signalled that most people thought it had bottomed out and wouldn’t devalue further.

And, crucially, it felt as if people had seen it all before.

We know what is going to happen next. The fallout from Devaluation 1 will guide us through the fallout from Devaluation 2. There will be price inflation, followed by salary rises. There will be job losses and the competitiveness generated by the devaluation will recede.

The major difference now is that the tenge currency is, theoretically at least, floating free.

By James Kilner, Editor, The Conway Bulletin

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(News report from Issue No. 246, published on Sept. 4 2015)

Uzbek president wants neutrality

AUG. 30 2015 (The Conway Bulletin) – Speaking at a ceremony to mark 24 years of independence from the Soviet Union, Uzbek president Islam Karimov said that he wouldn’t allow a foreign military base to be established in Uzbekistan and that the country would always maintain its neutrality. Germany has a military base in southern Uzbekistan

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(News report from Issue No. 246, published on Sept. 4 2015)

Kazakh president defends democratic record

AUG. 28 2015 (The Conway Bulletin) – In a speech to mark the 20th anniversary of the Kazakh constitution, President Nursultan Nazarbayev defended his democratic record and said Kazakhstan’s particularly diverse ethnic make-up made full democracy difficult to achieve.

Mr Nazarbayev, who won a presidential election in April with 98% of the vote, said that it was unfair to accuse him of being an autocrat.

“I know that we are sometimes accused of autocracy,” media quoted him as saying.

“How can we talk about autocracy when every four to five years the people vote in free elections to choose a president and elect a parliament?”

Western vote monitors have never judged an election in Kazakhstan to be either free or fair and Mr Nazarbayev’s opponents have previously accused him of being an autocrat, an accusation that clearly irks him.

Mr Nazarbayev who is 75-years- old and has yet to name a successor, has ruled over Kazakhstan since 1991 when the Soviet Union collapsed and the Central Asian states became independent countries for the first time.

He has often defended his record and said that Western-style democracy takes time to build.

“We need to consider that we are an Asian society, we have different traditions from the West,” Mr Nazarbayev said in his speech.

“We have other religious and cultural views, therefore we need to move carefully.”

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(News report from Issue No. 246, published on Sept. 4 2015)

Comment: Growing dissent crack down in Azerbaijan

SEPT. 4 2015 (The Conway Bulletin) – Azerbaijan has disgraced itself, yet again, in the eyes of the West by locking up for 7-1⁄2 years, journalist Khadija Ismayilova.

Perhaps it is about of paranoia triggered by the Arab Spring of 2011 or perhaps it’s the whispering from Russia to clamp down on dissenters, but over the last few years the authorities in Azerbaijan have developed an unfortunate habit of jailing dissidents on various financial and drug-running charges.

Although Ismayilova and other dissenters may now sit in jail, it is the authorities in Azerbaijan who look foolish.

It’s impossible to take seriously all the charges thrown at the dissenters over the past few years. There have been too many of them, from similar backgrounds, facing similar charges.

Instead, the intrigue is just what has spooked President Ilham Aliyev and the authorities in Azerbaijan? Why does the country feel so insecure?

And there is also the worrying precedent that has been set. Last month a sports journalist was attacked and killed after criticising an international Azerbaijani footballer on Facebook. Journalists in Azerbaijan, it seems, who challenge the establishment are in great peril.

This is important for investors looking at Azerbaijan from a business viewpoint. There comes a tipping point when it becomes just too negative for a company or persons to invest in a country. The reputational damage outweighs any potential profit.

If it hasn’t done so already, Azerbaijan may fast be approaching this point.

By James Kilner, Editor, The Conway Bulletin

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(News report from Issue No. 246, published on Sept. 4 2015)

Turkmen president orders economic policy

AUG. 4 2015 (The Conway Bulletin) – At a government meeting, Turkmen president Kurbanguly Berdymukhamedov ordered his ministers to investigate how they could pursue a more aggressive import substitution policy. This is a policy that Turkmenistan’s neighbours have also talked of introducing.

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(News report from Issue No. 246, published on Sept. 4 2015)

Economy grows in Georgia

AUG. 31 2015 (The Conway Bulletin) – Georgia’s economy grew by about 3% in the 12 months to the end of July, Geostat, the Georgian statistics agency, said. Geostat said that this was roughly inline with June and above April and May’s growth rate. The economies of the South Caucasus have been struggling this year to deal with the falling rouble and low oil prices.

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(News report from Issue No. 246, published on Sept. 4 2015)

Kazakh miner and Chinese bank sign $2b deal

SEPT. 2 2015 (The Conway Bulletin) – Eurasian Resources Group, owner of Kazakhstan’s miner ENRC, signed a financing agreement with the China Development Bank for $2b in Kazakhstan, the FT reported. The Kazakh government and a group of businessmen own the Eurasian Resources Group. Marred with corruption allegations, the management of ENRC de-listed from the London Stock Exchange in 2013. The company now works with China on aluminium, iron ore and power projects in Kazakhstan.

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(News report from Issue No. 246, published on Sept. 4 2015)

Kazakh Central Bank picks new interest rate

SEPT. 2 2015 (The Conway Bulletin) – Kazakhstan’s Central Bank picked the overnight repo rate as its benchmark interest rate and main tool for manipulating monetary policy, setting it at 12%.

The decision came two weeks after the Central Bank allowed the tenge to free float, abandoning the peg to the US dollar. The free-float pushed the value of the tenge down by 23%, the second devaluation in less than two years.

“This rate is aimed at directing nominal rates in the money market and will become a key instrument of the credit and monetary policy, in the new inflation-targeting regime,” the Central Bank said in a statement.

The tenge traded at around 240 to $1 immediately after the new interest rate was announced, having strengthened from 252 to $1 after the US dollar peg was ditched in August. By comparison, in February 2014, before the first devaluation, the tenge traded at 155 to $1.

Analysts welcomed the relatively high benchmark interest rate, saying that the tenge needed this level of support.

Sabit Khakimzhanov, head of research at Halyk Finance, said that the Central Bank may even need to increase this key interest rate by one percentage point to 13%.

“The interest rate in the money market is the only instrument left at the disposal of the NBK (National Bank of Kazakhstan) to manage inflation and the exchange rate,” he said.

“Only by keeping the rates credibly high, that is, at a level sufficiently high to enforce the necessary discipline and for a sufficiently long time. The interest rate corridor 12-14% meets these requirements.”

Other analysts said the high interest rate may encourage Kazakhs to keep their money in the bank.

“The high rate levels are clearly seen as securing the banking system from deposit outflows and anchoring inflation expectations,” Dmitry Polevoy, a Moscow-based economist at ING Groep NV, told Bloomberg News.

Previously the key interest rate had been the ineffective refinancing rate set at 5.5%.

Earlier this year the Kazakh government said that targeting inflation was going to be the main driver of its future economic policies.

The problem is that with the tenge devaluing and with oil prices remaining stubbornly low, the Kazakh government has already said that inflation is likely to climb above its 6-8% corridor target.

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(News report from Issue No. 246, published on Sept. 4 2015)

Qazaq Air flies for the first time in Kazakhstan

AUG. 28 2015 (The Conway Bulletin) – Qazaq Air, the new state-owned domestic Kazakh airline, flew its maiden flight from Almaty and to Astana on the night of Aug. 27, media reported. Qazaq Air is a fully-owned subsidiary of Samruk-Kazyna, Kazakhstan’s sovereign wealth fund.

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(News report from Issue No. 246, published on Sept. 4 2015)

Kazakh Central bank unveils new rate

SEPT. 3 2015 (The Conway Bulletin) – Kazakhstan’s Central Bank said that it was introducing a new key interest rate that would be its main tool for manipulating monetary policy. It set the new refinancing rate at 12%.

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(News report from Issue No. 246, published on Sept. 4 2015)