ALMATY, Oct. 9 (The Conway Bulletin) — A Kazakh government bail-out for hundreds of thousands of savers who hold tenge denominated deposits hit by a currency devaluation in August could cost the state around $420m, according to the Bulletin’s calculations.
The bail-out adds to the lengthening bill that the Kazakh state is having to foot to weather a worsening economic storm that has hit the Central Asia and South Caucasus region.
It has spent billions of dollars propping up its currency and also said that it will give hand-outs and tax breaks to key industries heavily effected by the economic downturn such as car-makers and smaller oil producers.
And in an effort to shore up support immediately after the devaluation on Aug. 20, President Nursultan Nazarbayev said savers would be compensated for losses incurred when the Central Bank ditched the tenge’s peg to the US dollar and allowed it to drop heavily.
Now, at a press conference in Almaty, Alexander Trentyev, director of the consumer protection department at the Central Bank, for the first time hinted at the bill that the government was facing (Oct. 7).
“The compensation will cover the period August 18 2015 to September 30 2016. Over 1.7m accounts totalling around 250b tenge are eligible for the government aid,” media quoted him as saying.
The tenge is currently trading at around 275/$1, a drop of around 46% from its value of 188/$1 just before the devaluation on Aug. 20. This means that the 250b tenge in bank deposits will convert to 365b tenge and cost the government $420m in compensation.
Of course, though, as analysts have said, the tenge could well drop further in value before Sept. 30.
But there is a flip-side for savers.
Their accounts will be frozen for 13 months until Sept. 30 2016.
This measure appears to have been adopted to prevent customers from rushing to withdraw their savings and turning them into US dollars after they received compensation.
It will also keep a high level of tenge in the currency markets, a policy the Central Bank has said that it favours.
What the authorities are desperate to avoid during this period of economic turbulence is civil unrest. The bail-out of savers appears designed to ward this off.
>> This story was first published in issue 251 of the weekly Conway Bulletin newspaper.