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Central Asia: What Impact Does Falling Dollar Have On Region?

The U.S. dollar has fallen sharply in recent months against other major world currencies, from the euro and the British pound to the Japanese yen. Its value has also dropped against a number of smaller currencies, including those of Central Asia, where the dollar's decline has had a negative impact on people's financial outlook.

Prague, 4 February 2004 (RFE/RL) -- Vera and a business partner sell imported shoes at a market in the Kazakh capital, Astana. She says the fall of the U.S. dollar is hitting her business hard, as Kazakhs' savings dwindle and the prices of many imported goods skyrocket.

"You know what happened [last month]: everybody started getting rid of their dollars. And the dollar rates even reached 130 tenges." "We're going to shut down," she says. "It's not profitable." The Kazakh National Bank spent much of 2003 attempting to stabilize the dollar-tenge exchange rate. But despite its efforts, the dollar this year hit a four-year low, dropping to 130 from 153 tenges last summer.

It's a difficult situation for merchants like Natalya, who stocks her shop in Astana with clothes she buys abroad -- at prices that are becoming increasingly expensive: "This is very wasteful. The whole business is very wasteful. It's not profitable for me to go abroad anymore."

"Here everything is 'dollarized.' People are talking in terms of dollars as far as it concerns salaries, rents, and the sale of any commodity."
The dollar has also recorded a sharp drop against the other Central Asian currencies, particularly over the past weeks. Askar Nuraliev, of Tajikistan's Trade and Economics Ministry, says local currencies are following a global trend.
"The cost of the dollar in European countries is falling. We are following them."

The euro gained about 30 percent against the dollar in 2003, closing the year at a record high. The U.S. currency has also fallen against the British pound, the Japanese yen, and many other currencies.

Giorgio Fiacconi is the publisher of the English-language newspaper "The Times of Central Asia" in Bishkek, the capital of Kyrgyzstan. He says imports coming from many countries are becoming too expensive with the increased value of their currencies having a negative effect on small traders.

But Fiacconi points out that goods coming from countries whose currencies are pegged to the dollar -- such as China and other East Asian states -- are still competitive.

"Those people who are clients for imported goods of course find the goods more expensive. This applies to people who are buying in Turkey, Dubai, and Europe. But those people who are buying, for example from China, find the goods very competitive. So there will be a contraction in terms of import from European countries, but there will be also probably an expansion of trade with the Far Eastern countries that are pegging to the dollar."

Sapar Orozbakov is a Bishkek-based economist. He says the fall of the dollar negatively impacts the assets of small businessmen.

"The fall of the dollar will not influence the ability of small traders to sell their goods [in Kyrgyzstan]," he said. "However, most of Kyrgyzstan's trade is quoted in dollars, while [small traders] usually keep their money in dollars. That is why the dollar became the second main currency [after the national som]. So, of course, the fall of the dollar depreciates [small businesses'] assets."

In the region a lot of savings are kept in dollars as a hedge against local inflation. The sliding of the dollar is biting those savings, while prices globally remain the same: A woman in Tashkent says the fall of the dollar and price stability have decreased her purchasing power. "I think the prices remain the same. They have not changed since [the fall of the dollar]."

Consequently, the fall of the dollar has pushed the population to diversify its portfolio.

Janat Baimanova, from Kazakhstan's Central Bank, says in Astana alone, where fewer than 500,000 people are living, the population sold as much as $45 million in the last three months of 2003. She recommends Kazakh citizens diversify their savings in the following way: "I recommend our people to keep their savings in the following way: 50 percent in our national currency and the other 50 percent split in dollars, euros, and Russian rubles."

"The Times of Central Asia" Fiaconni stresses the population's eagerness to diversify its portfolio is not due to the population's loss of faith in the dollar: "Here everything is 'dollarized.' People are talking in terms of dollars as far as it concerns salaries, rents, and the sale of any commodity. There is a tendency to switch to euros but this still represents very limited transactions. Most transactions are made in dollars, although in several cases there is a switch to the local currency. For example, here in Kyrgyzstan there are many cases of companies who were [previously] quoting everything in dollars [and who] now are quoting everything in the local currency."

The year 2003 will be remembered for the radical turn from U.S. dollar toward the Kazakh tenge, Grigoriy Marchenko, Kazakhstan's first vice premier and former chief banker, told reporters last month.

Marchenko stated that what he called the "epidemic de-dollarization" of the country touched nearly all areas of the economy, including commodities, for which prices are gradually being recalculated in the national currency.
Fiacconi says the trend is expected to continue in the coming months as markets have become convinced that the U.S. will not intervene soon to prop up its currency.

(RFE/RL's Kazakh, Tajik, Uzbek, and Kyrgyz services contributed to this report).