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Kazakhstan: Discreet Silence On Impact Of Currency Float

  • Robert Lyle

Washington, 8 April 1999 (RFE/RL) -- The international financial community is keeping a discreet silence on Kazakhstan's attempt to float the foreign exchange rate of its currency, the tenge, and the impact this is having on the country's neighbors.

International Monetary Fund (IMF) resident representative in Almaty, Paul Ross, praised the move earlier this week, saying it would "restore the competitive position" of Kazakhstan globally and help promote growth.

He said it should have a positive impact on Kazakhstan's trade balance by heading off protectionist pressures which have been emerging in the last few months. It should also help reduce the high interest rates in the country, he said.

Additionally, said Ross, the move will reduce the vulnerability of the economy to future external shocks like the Russian financial crisis.

Wednesday, the World Bank's resident representative Kadry Tanzhu Yurukoglu added his institution's endorsement, calling the currency float "a step in the right direction" which will both improve Kazakhstan's competitiveness and its macroeconomic stability.

But beyond those comments, the fund, the bank, and even commercial financial analysts having nothing more to say about the early effects of the move and its impact on neighbors, especially Kyrgyzstan.

Kazakhstan Prime Minister Nurlan Balgimbayev said the move was necessary because since the start of the Russian financial crisis, Kazakhstan's foreign trade has decreased by $1.3 billion due to dramatically reduced exports. Kazakhstan's exports were far too expensive, especially in countries like Russia, because the tenge was at such a high rate.

But the country's trade union federation said that while Kazakhstan's export competitiveness may improve, it believes workers will be hurt. The federation predicts a radical drop in consumer purchasing power because it believes the floating tenge will hurt trade not help.

While there were reports of some hoarding of goods by consumers who quickly cleaned out retail store supplies in anticipation of higher import prices, the country's bankers late Wednesday said there had been no run on deposits in the Narodnyi Bank and that the supply of hard currency and the demand for it were about equal.

That would indicate, said National Bank Chairman Kadyrzhan Damitov, that the rate of around 118 tenge to the U.S. dollar is a relatively adequate reflection of the market.

The Kyrgyz Republic, which saw its currency, the som, drop in reaction to Kazakhstan's situation, waited anxiously as the som began to recover some on Wednesday. Still, observers in Bishkek were noting that privately owned exchange officers were not trading after Tuesday's 14 percent drop in the exchange rate of the som.

Government officials have been meeting with banks and other domestic financial organizations to look for ways to invigorate the development of small and medium-sized businesses as a way to broaden and strengthen the country's basic economy.

That is precisely why the IMF, the World Bank and others have refused to comment any more beyond endorsing the concept. It is a policy that the head of the U.S. Federal Reserve (Central Bank) Alan Greenspan and senior American treasury officials have followed religiously -- never comment on exchange rates. No matter what the comment is, they all say privately, it can have dramatically unexpected consequences.

So the IMF, the World Bank and others will continue their discreet silence for the foreseeable future, allowing their pointed inattention (they hope) to help take the focus off the exchange rate and return it to building more solid, market oriented economies. An IMF team will be flying to Kazakhstan at the end of this month to begin Almaty's annual review and to help decide what further lending the fund may need to provide. Kazakhstan is finishing up a three-year extended facility loan and is expected to draw the final $218 million shortly. The annual review will be the time when the fund can tell Almaty and the rest of the world just how it believes the currency float has been handled.