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Kazakhstan: Bank President Offers Warning Amid Praise

The president of the European Bank for Reconstruction and Development (EBRD) is in Kazakhstan today for his first official visit to Central Asia since taking office just over a year ago. RFE/RL correspondent Ron Synovitz reports that President Jean Lemierre is warning Kazakh leaders to focus attention on economic sectors other than energy so that the country does not become overly dependent on international prices for oil and natural gas.

Prague, 13 June 2001 (RFE/RL) -- The president of the European Bank for Reconstruction and Development, Jean Lemierre, arrived in Kazakhstan today with words of praise regarding the country's political and macroeconomic stability.

After meeting with Kazakh President Nursultan Nazarbaev, Lemierre told reporters in Almaty the country deserves more cooperation with the EBRD.

Lemierre said he thinks Kazakh authorities are pursuing what he called solid and realistic reform policies that are helping to bring foreign investment to the country:

"We had a very fruitful discussion about the present situation of the country and about the priorities of the actions we should undertake. From our point of view, Kazakhstan has reached political stability, macroeconomic stability, and it is becoming known that the oil and gas resources are important."

But an EBRD statement says Lemierre is telling Kazakh authorities they need to promote more balanced economic growth so the country does not become overly dependent on its oil and natural gas exports.

For example, the EBRD says investment into transportation infrastructure is needed to help revive neglected agriculture in Kazakhstan. Most of Kazakhstan's agricultural production is exported. The EBRD says improved roads, railways, and port facilities would make it easier for grain to reach the country's main export destinations: Iran, Uzbekistan, Russia, and Belarus.

Lemierre also is urging greater development of Kazakhstan's financial sector, as well as reforms that help small- and medium-sized private firms.

A recent internal report by the EBRD warns that Central Asian economies are at risk because of their overdependence on energy exports.

The report warns that high international energy prices are causing inflation and higher exchange rates for the energy exporters of Central Asia.

At the same time, encouraged by the high prices, Central Asian leaders have been focusing much of their attention on developing their energy industries -- at the expense of other economic sectors.

The EBRD's latest macroeconomic data indicate that Kazakhstan is in a similar situation. The money generated by oil and gas exports helped Kazakhstan's overall industrial output grow last year by nearly 15 percent.

But during the same period, the EBRD says agricultural output declined 5 percent. In fact, agricultural production was the second-largest sector of Kazakhstan's economy during the early 1990s, when it contributed more than one-third of the country's economic wealth and employed 18 percent of the workforce. But by 1999, agriculture accounted for only 10 percent of the Kazakh economy. The EBRD says restructuring of the sector has proceeded slowly since Kazakhstan declared independence from the Soviet Union.

David Hexter, the EBRD's vice president for Russia and Central Asia, told RFE/RL that foreign investors see Kazakhstan as the most promising Central Asian republic:

"We cover all of the countries of Central Asia. But in terms of critical mass, the two big ones are, of course, Kazakhstan and Uzbekistan. I think Kazakhstan is on the right track. I expect we'll do about 250 million euros [$212 million] this year of projects there. What I want to do is to get to about 500 million euros in aggregate -- with another couple hundred [million euros] going to Uzbekistan. We won't get there this year -- and therefore, our ability to achieve that plan in the medium term will be very dependent upon Uzbekistan's reforms."

Hexter explained that both Uzbekistan and Turkmenistan are hurting themselves by continuing to use multiple exchange-rate systems for foreign currencies:

"Uzbekistan should be one of our major clients. Last year we did a very modest level of new lending of about 50 million euros. Based on population size and GDP potential, you would expect us to be doing something in the order of 200 million euros a year. The reason for that gap is not because we aren't looking for bankable projects -- but the exchange-rate system, in particular, is making it a very confusing environment for foreign direct investors."

The EBRD already is participating in 14 projects aimed at developing Kazakhstan's infrastructure and supporting small businesses. EBRD investments in those projects so far amount to more than $550 million.

Although Lemierre's two-day visit is his first to Central Asia since becoming EBRD president just over a year ago, he does not plan to visit other Central Asian states this week. That itinerary highlights the EBRD's position that Kazakhstan is the Central Asian republic where reforms have progressed enough to create conditions for the most bankable projects.