FINANCE

Kazakhstan in the focus of ADB

Sergey MATYUSHENKO

ALMATY, April 22

(THE GLOBE)

In March, the Asian Development Bank published a review of the economies of its member-countries for the year 1998. Kazakhstan became a full fledged member of the bank at the end of 1993. In this connection, the review is of special interest when it speaks about the economic and political aspects of the development of Kazakhstan since its independence.

While Kazakhstan�s postindependence economic traumas have come to an end, much deeper reforms in policy and governance structures are now needed to accelerate growth. In addition, prudent management of the country�s natural resource wealth will be critical, according to Asian Development Outlook, 1998.

The experts from the Asian Development Bank (ADB) emphasized that in the short run, the main challenge for economic policy is to consolidate the progress made toward macroeconomic stabilization while providing strong foundations for future growth.

At the same time, experts believe that the government must develop safety net mechanisms that can assist the most needy and ease some of the pains of poverty.

The experts believe that the future progress of macroeconomic stabilization in Kazakhstan will rest upon three pillars, i) the government must persist with its anti-inflationary monetary stance, ii) it must strengthen revenue mobilization efforts so that fiscal balances improve, and iii) it must take steps to support the development of a modern and robust financial system. The banking sector remains weak and unable to provide attractive savings facilities and meaningful intermediation for loanable funds. It also has limited capacity for commercial risk assessment for evaluating loan portfolios.

Regarding the challenges Kazakhstan has faced since its independence, the experts of ADB note the following. Achieving sustainable growth over the longer run will require restructuring of and reinvestment in the operations of both farms and firms. In most sectors, enterprises are handicapped by a set of interlocking disadvantages: they continue to operate with obsolete equipment from the Soviet era for which spare parts are often difficult to obtain; managers who possess basis business skills are in short supply; most enterprises are heavily indebted; owing suppliers and the government (for tax payments and pension contributions); deteriorating utility and infrastructure services, especially electricity, hamper enterprises� operations; and enterprises lack financing for either trade or investment credit. To date, privatization has resulted in the formal transfer of some assets, but not the development of entrepreneurs willing to take risks, new investment, and competitive markets.

Unreconstructed enterprises are a source of considerable inefficiency for the economy and jeopardize fiscal stability. In 1996 government subsidies to loss-making firms amounted to 2 to 3 percent of GDP; however, it has demonstrated some willingness to tackle this complex problem. It has shut down some nonviable operations, and retrenchments have occurred in others as part of restructuring. Nevertheless, more determined efforts are needed. While Kazakhstan�s location means that foreign investors are unlikely to be attracted to more than a few sectors, the role of foreign investment in providing needed capital and technological, managerial and institutional know-how is still likely to be important. However, even where foreign takeovers of enterprises have occurred, effective restructuring has been fraught with difficulties. Above all, foreign investors require a predictable legal and policy environment, which in turn necessitates evenhandedness and consistency in implementing rules and regulations. Without improved governing structures, particularly in government-private sector relationships, kindling growth is likely to prove difficult.

While natural resources will be an important future source of income for Kazakhstan, the management of these resources will present challenges. Looking to the longer term, the development of manufacturing industries often seems to be problematic in resource-rich economies like Kazakhstan, partly because an abundance of natural resources automatically tends to shift the terms of trade against the manufacturing sector. To the extent that the manufacturing sector is where most productivity gains are realized, economic dynamism is then lost.

In addition, large resource rents often seem to present difficult problems for public sector management, especially in economies where governance capacities are weak. Despite these difficulties, some economies have managed their natural resource wealth well. These economies have actively promoted economic diversification, partly through processing before export, but also through policies of openness to FDI and trade and wise investment of their resource windfalls. These economies have struck a judicious use of rents. Kazakhstan could benefit from looking at these experiences.

In conclusion, the analysts of ADB warn that Kazakhstan faces a number of other difficult challenges, which require more integration of Kazakhstan into the World economy. For a landlocked and remote country such as Kazakhstan, regional transport and communications systems are particularly important. Regional cooperation aimed at harmonizing and coordinating investment in transboundary transportation and distribution would be one way to ease the constrains of geography. Regional cooperation might also help to develop markets, making investment feasible in sectors that might otherwise not be viable. While the difficulty of overcoming the disadvantages of physical isolation should not be underestimated, the process of integration in the global economy is likely to be easier if integration starts close to home.

DEMAND ON SHORT-TERM TREASURY CURRENCY BONDS EXCEEDS PROPOSAL IN 2 TIMES

ALMATY. According to the Ulttyk Bank of Kazakhstan, the short-term treasury currency bonds /��/, with 3 months manipulation term auction held on April 20. The demand on the ��-3 exceeded the proposal in 1,9 time. Sales volume made $4,53 millions at 7,33% annual interest profitability rate.

Currency exchange tenders� results on April 21: transaction volume - $8,81 million, transactions carryed out in T113,54-T113,62 interval for 1 USD, average weighted rate - T113,57 for $1 (on April 20: T13,66 �� for $1).

INDUSTRIAL PRODUCTION�S VOLUME DECREASES

ALMATY. In the first quarter of 1999 volumes of industrial products, produced by industrial enterprises of Kazakhstan, makes 95,9% to the last year�s same period, the National Statistics Agency said.

In the mining industry, which gives almost a quarter of industrial products� volume, the production decreased by 7,8%. The agency explains that by the reduction of extarction of iron ore, coal and natural gas.

At the same time, by agency�s data, the volume of non-ferrous metalls� extraction increased by 9,1%, of crude oil and passing gas - by1,9%.

The index of physical volume of products� output�s volume made 96,4% in processing industry, whose share is 50% in the total volume of the republican production.

The production�s growth is being observed in chemical industry (116,4%), ferrous metallurgy (113,1%), paper and cardboard production and publishing (110,2%), transport equipment (109,4%) and production of other non-metalic mineral products (100,3%).

Prices of enterprises, producers of industrial commodities, including services of producting nature, reduced by 2,4% in the first quarter. In 1998 and 1997 they had iincreased by 0,7 and 7,2% correspondingly.

KAZAKH MAJILIS DEPUTIES APPROVE AGREEMENT WITH KYRGYZSTAN AND CONVENTION WITH ROMANIA

ASTANA. 34 questions considered on the Kazakh Parliament Majilis plenary meeting on April 21.

The deputies payed main attention to the draft law �On Agreement Ratification between Government of the Republic of Kazakhstan and Government of the Republic of Kyrgyzstan about railway transport� enterprises, establishments and organizations activity regulation features� and �On Convention Ratification between Government of the Republic of Kazakhstan and Government of Romania about double taxation avoidance and taxation evasion prevention concerning the income and capital taxes�.

Parliamentaries approved both draft laws.

HUNGARIAN PARLIAMENTARY DELEGATION VISITS KAZAKHSTAN

ASTANA. The Kazakh Parliament Majilis Deputy Chairman Vasilii Osipov received the Hungarian parliamentary delegation.

Activity of parliaments of two countries considered at the meeting.

The Chairman of the Hungarian parliament Michy Wargi emphasized, that the general history of Kazakh and Madyar people began in XIII century, when Madyar people lived on coast of the Tobol and Esil rivers. And now, declared the Hungarian guest, the mutual relations between our peoples are developed successfully.

CHINA IS READY FOR NEGOTIATIONS WITH KAZAKHSTAN ON ILI AND IRTYSH

ASTANA. Consultations of the Kazakh and Chinese experts on the Irtysh and Ili border rivers� problems will begin on May 5 in Beijing.

Consultations will be prolonged till May 12, the joint protocol, determining main principles and directions of further negotiations on problem of border water resources use will be signed at the result of these consultations.