Andrei Tsalyuk, Informational agency of financial markets �IRBIS�
Almaty,
(Specially for THE GLOBE)
The second week in Kazakhstan financial market under �the free floating� tenge�s exchange rate has passed. This week was quiet enough, as everybody has calmed down. It is now possible to summarize the events and to make conclusions, which today are more thought-out than seven days ago. We may even be able to talk about the short-term prognosis.
Program
First thing which attracts attention is the PROGRAM. Everything that has taken place within the last two weeks is the result of its introduction and action. The program developed in the Finance Ministry and the National Bank is working, but not the generator of the casual events and accidental reactions to them. This program may be approved by somebody or not, but to have it is still better than just sitting around doing nothing.
I dare to believe that the authors of the program have not faced any unpleasant or unpredicted surprises. It is also obvious. Due to this, probably, the term �free floating� is not appropriate, as the helmsman�s hand is still very much on the rudder and the route is being thoroughly estimated. It will be this way for the time being. However, the names do not mean much. The term �free floating rate� exists in the world practice. It was called so. The title is understandable by people and provokes a smile. We do need smiles right now. I am sure, they will not prevent us from a normal perception of the serious things.
Force of tenge
In the author�s opinion, the first profit of the exporters appeared at KASE on April 8, when the auction volume amounted to US$ 7.815 million, and the average dollar rate pressed by the offer, fell to 112.79 tenge per unit. Before that, the only big turnover of the exchange auction had occurred on March 15. But we know, the conjuncture of the hard currency market at that time differed from the current. It was declared that on April 8 the National Bank assisted the dollar to be up to the mark, preventing the undesired increase of its rate, which could be profitable only for the speculators.
The main inflow of the �export� dollars began on Monday, April 12. The auction volume was US$ 9.195 million. The auction was opened at the very high rate � 114.66 tenge per dollar, but being pressed by an increasing supply, the rate of the American currency lost its points rapidly. The result of the auction was an average rate of 113.78. This rate indicates the balance achieved when the market fell to the level required by the buyers and encouraged them to be active.
In this week, for the first time, the investors were offered the exotic instrument MEKABM, the state�s short-term treasury hard currency notes, nominated in US dollars. MEKABM is the subject of the traders� dream, but alas, of a time gone by. As they had been required while influenced by the Russian crisis in August, the tenge began its fall at an annual rate of 18 to 20%. This was because most of the banks were anxiously getting rid of state securities nominated in tenge. Now the dollar is falling (for the time being). What will be tomorrow, we do not know. That is why two emissions of MEKABM with the reimbursement period 6 and 3 months did not lead to a feverish demand. MEKABM were delivered quietly, and I believe, with the significant participation of the main assistant of the Finance Ministry in this sector � the State Accumulative Pension Fund. The emissions did not have much influence on the hard currency market.
And its weakness�
A specific payments schedule under the contracts is that the exporters� revenue accumulates in their accounts in the first ten days of a month. As a rule, enterprises work under the long-term contracts. The payments are delivered regularly with the stipulated periodicity. The decree on the introduction of the obligatory sale of a half of their revenues at the exchange, came into force on April 6, i.e. from the date on its publication. After April 10 there is no revenue. Though the permitted period of realization is maximum 5 days. That means that the last applications of the exporters for dollar sale were to be anticipated on April 15 or 16.
To be just, we should mention, that this situation cannot last forever. A poll of the bank dealers, who provide the market with the main volumes of the export revenues, indicated that the authorities are taking some measures to guarantee a regular inflow of the �export� dollars to KASE. But, most probably, the results of this work will be obvious only in the next month.
On Friday the hard currency market was different. The sales volume reduced to US$ 3.270 million, the second level banks actively purchased the dollar for the first time. As a result of the increasing demand, the rate of the dollar climbed. The dollar�s average rate increased by 28 points, i.e. 113.55 tenge per unit.
What will be further?
Logically, taking into consideration the above-mentioned facts, we have to come to the following conclusion: in the nearest future the tenge will fall. Strictly speaking, this result is stipulated by the program. The Minister of Revenues says that in the current situation, a 3%/month (42.7%/year) depreciation will be optimal for the industry. Unofficial information confirms that the majority of the estimations made by the Finance Ministry, are based on the rate 134 to 137 tenge per dollar by the end of this year (that is 45.6 to 49.7% of annual, beginning from April 5). Will this rate be realized in the near future?
According to the author, the program, based upon the fluctuation of Russian rouble, provides a gradual increase of tenge�s devaluation rate. This is why even 30%/year in the medium-term trend should be considered the rate limit until the middle of the summer. In the case of an excess of this rate, the national Bank will most probably use to its right to make some corrections in the �free floating� regime. As far as 30% of annual are concerned, we have seen such a rate before.
Unfortunately, for the time being it is difficult to make a more thorough prognosis. The mechanism does not work properly. Its gears are being adjusted to work under the new conditions. The authors of the program do not have all the information about the reaction of all the market sectors. As a result, the officials cannot make a detailed analysis of the situation. Much can be changed. But the two weeks which have passed were not in vain.
By Petra Wijnsema, KIMEP economist
ALMATY, April 19
After a few days of panic in Kazakhstan after the government�s decision to allow the Tenge to float freely, the exchange rate has more or less stabilised. In general, economists and companies back the decision to devaluate the Tenge.
But many individuals and companies lost money because of the new policy. ABN Amro bank manager O.E. de Jong said clients with a lot of Tenges either in their pocket or in the bank in general were dissatisfied with the devaluation. But most people had seen it coming. Clients who received money on Friday night before the introduction of the free floating exchange on Monday the 5th of April, were the unluckiest; they were too late to convert it to Dollars. On top of that, companies meet a devaluation of their hard currency capital investments. Little exchange dealings were made in the first week after the devalutation, according to the bank manager.
The American Professor with a phd in economics A. Mughal - teaching at the Kazakhstan Institute of Management, Economics and Strategic Research (KIMEP) - thinks it is quite understandable that the Government devaluated the Tenge, but even for him it was too sudden. Laughing: �Unfortunately I was giving a lecture at Monday morning. I had just got a lot of Tenges, so I lost money myself.�
He thinks the devaluation of Tenge may have prevented a more severe economical crises, but he also has some worries. �Devaluating is helpful for the economy in the current situation, but on the long term problems have to be resolved. Kazakhstan is way behind compared to succesful NIS economies as Estonia when it comes to restructuring enterprises and corporate governance. Indirect subsidies have to be withdrawn�. Another thing that needs to be improved is the transparency of Kazakhstan�s economy, the professor thinks. �At the moment the privitisation policy is not very transparent. The rules are there, but still a lot has to be done on the implementation of rules. For example bankrupcy laws are on the book but they are not enforced�.
Western import goods are likely to be more expensive, but only 5% of the market consists of such goods. The professor trusts that investors will see high prices of import goods as a signal to produce them locally. For the economy it is also very important to jump into that gap, he thinks. �The main export products are oil and gas. But Kazakhstan does not have influence on the world oil price. Therefore it is important to diversify Kazakhstan�s economy. More export industries and import substitution industries are necessary for a healthy economy from the perspective of long term growth�.
But the economist thinks the devaluation also has many positive sides. �It it expected to give a boost to the export and it is expected to have a positive effect on employment. The interest rate has been very high. Domestic investors could not borrow enough money. The interest rate is expected to go down and will stimulate domestic investments�.
Mughal is not afraid for a speculative attack on Kazakhstan�s economy as happened in Russia last year. The reason is that, unlike Russia, most foreign investment in Kazakhstan is real investment in oil and gas rather than in financial assets. He expects the new rate to be around 110/120.
Michail SERGEEV
ALMATY, April 16 (THE GLOBE)
�Our revenues in the hard currency market will cover all the expenses towards the conversion of the tenge deposits�, - the chairman of the National Bank declared at a press conference in Almaty.
According to Kadyrzhan Damitov, in the two weeks following the shift to the free-floating tenge�s rate, there have been no extraordinary negative situations. No nervousness was observed in the financial markets during the last week. The average dollar rate was fluctuating between the limits of 113.14 to 113.78 tenge per US dollar. The results of the auction at the exchange confirmed an active and confident participation by the banks. Mr. Damitov noted that offers of the hard currency at the exchange significantly exceeded its demand.
�In comparison with the previous week, the auction volume in the current week tripled from US$ 19.3 million to US$ 55.5 million�, the chairman said. In Mr. Damitov�s opinion, the opposite situation occurred in the inter-bank hard currency market. A rapid reduction of the selling rate of the dollar and a decrease in the spread between the sale and purchase rates were observed. At the current moment, the selling price of the dollar is fluctuating between 114 to 125 tenge, the purchasing rate is 112 to 116 tenge, and the spread is 6 to 8 tenge.
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