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Kazakhstan: Currency Floatation Creates Uncertainty

By Edige Magauin and Bruce Pannier

Prague, 7 April 1999 (RFE/RL) -- The recent announcement by Kazakhstan's government that it will allow the value of the national currency, the tenge, to float has created an atmosphere of uncertainty in the Central Asian nation.

The value of the tenge remains unclear. That has led to the refusal by some currency exchange offices and banks to sell dollars for tenge and a decision by others to set their own rates of exchange.

A press conference in Almaty yesterday failed to shed any light on the matter. The chairman of Kazakhstan's National Bank, Kadyrzhan Damitov, limited his comments to noting that $3.5 million were sold yesterday on the country's stock exchange but that the bank itself did not participate in the trading.

The average exchange rate for the tenge, according to Damitov, is now 138.5 tenge to one U.S. dollar, down from the rate of 87 to 88 tenge per dollar last Friday. But neither the government nor the National Bank has set an official rate since the announcement came two days ago (Sunday).

Damitov told a news conference (April 5) that there is no reason for panic.

"We had enough reserves, and the situation permitted us to keep the rate (for tenge) on the level which we had for several months. But in actual fact, the economy needs development to prevent the decrease in an absolutely new foreign trade situation with open borders. And that is why our decision is an adequate response to a radically changed external situation."

Across Kazakhstan, reports indicate that the tenge is being traded at rates between 105 to 150 for one U.S. dollar. Most of the country's banks and exchange offices are willing to buy dollars, usually at a rate of around 100 tenge to a dollar. But only two banks in the capital, Astana, sold dollars yesterday --KazKommertz and Valyuttranzit. KazKommertz was selling it at 150 tenge to one dollar and Valyuttranzit at 140 tenge to one dollar.

Most exchange offices in the capital were closed yesterday. But some in the former capital, Almaty, remained open and offered one dollar for 150 tenge, though reports say there were few takers.

A statement from Prime Minister Nurlan Balgimbayev's office (April 5) gave some reasons for the decision. The statement reported that during the last nine months -- or from the time just prior to the start of the Russian financial crisis-- Kazakhstan's foreign trade had decreased by $1.3 billion. This was said to be because it has been difficult to export Kazakhstan's goods due to the artificially high rate of the tenge.

As other currencies --notably those of Kazakhstan's neighbors Russia, Kyrgyzstan and Uzbekistan-- declined in value, Kazakhstan used its gold and hard currency reserves to defend the tenge. This made Kazakh goods expensive and, as a result, Kazakhstan's citizens began buying lower-priced import goods from the neighboring countries.

In an attempt to protect domestic producers, Kazakhstan introduced restrictions on the import of some Russian goods in early January, then a month later imposed stiff tariffs on some goods from Kyrgyzstan and Uzbekistan. As of yesterday, all of those restrictions and tariffs have been annulled.

Some of Kazakhstan's opposition groups are unhappy that the decision to allow the tenge to devalue came now and not months earlier. The chairman of the opposition Orleu Movement, Seydahmet Kuttykadam, said the tenge's rate should have been floated at the end of 1998.

"Only the presidential elections [of January 10] postponed the government's decision to float the tenge."

At a press conference (April 5), the leaders of another opposition group, the Azamat Party, said that "the latest decision of the government could have a bad impact on Kazakhstan's national interest." For the average citizen, though, the decision simply means more uncertainty in already confusing times. Most believe prices for goods will go up. Interviewed by RFE/RL, one woman from Astana summed up what is likely on the minds of many in Kazakhstan.

"In any case, we don't have either dollars or tenge."

Much as the Russian crisis sent ripples into other CIS countries, the latest move by Kazakhstan seems already to be having an effect on at least one neighboring country. Reports from Kyrgyzstan yesterday indicate that the national currency there, the som, fell by 14 percent. Kyrgyz officials are blaming decisions in Kazakhstan for the drop in their currency's value..