KAZAKHSTAN

KAZAKHSTAN-IN-BRIEF

UZBEK CUTOMS OFFICERS ARRESTED IN SOUTH KAZAKHSTAN OBLAST. Almaty, a group of the Uzbek Customs officers were arrested in South Kazakhstan oblast, bordering with Uzbekistan. The detained Uzbek Customs officers reportredly attacked a car with Kazakh Justice officials, travelling in the Oblast this week. After the detainees were brought to the nearest village for interrogation, some local citizens recognized the Uzbek Customs officers, saying that those had been terrorizing the area inhabitants, racketeering and robbering them for a long time. Investigations are underway.

WOMEN OF SHYMKENT CITY ON STRIKE. undreds of female inhabitants of Shymkent City, the administrative center of the South Kazakhstan Oblast, staged a strike, blocking one of the main highways of the region and demanding the overdue financial compensations to the families with many children to be paid off. Local authorities have never responded to them. The strike is going on further reportedly.

Banks

Gulbanu ABENOVA

ALMATY, Jan 27

(THE GLOBE)

�The Board of the Valyut-Transit Bank made a decision on voluntary merge with the capital bank Akmola-Bank due to inability to meet the severe requirements of the National Bank�, stated the chairman of a Karaganda bank in Almaty on January 26.

Galym Ordabayev said that the National Bank had set the requirement to secondary level banks of 1 bln tenge authorized capital. One of the metropolitan banks Akmola Bank today is not capable to meet the requirement, therefore a decision on its merge with a larger Karaganda bank was made. The merged banks will be entitled Valyut-Transit Bank, which head office will be located in Karaganda.

According to Mr. Ordabayev, the trend to merge, which regional banks show today, is a mean of protection against the up-coming financial crisis in Kazakstan. He informed that the Board and Management of the Valyut-Transi Bank were reviewing similar requests submitted by three other regional banks.

The Valyut-Transit Bank was established about nine years ago. For this period the equities of the bank has grown, according to Mr. Ordabayev, from 2 mln up to 1 bln tenge, number of clients � from 200 thousand up to 2.5 thousand. Today the bank in involved in over 70 types of banking operations. Almost every large city has the bank�s cash departments. In 1999 the banks plans to expand its activity across the entire republic and start operating in the financial market of Russia.

�The Russian economic crisis will pass, however under depression real estate there is cheaper�, Mr. Ordabayev thinks. He said that that year they planned to establish branches in the nearest cities of the neighboring Russia. Initially the branches are to serve Kazak-Russian joint ventures.

The chairman of the Valyut-Transit Bank is sure that after merge with the Akmola-Bank they will not only increase the equities, but also expand their influence in the northern capital.

�The merge will allow currency operations, accelerate payments, as before we had no cash departments in the regional centers while the Valyut-Transit Bank had�, the Chairwoman of the OJSC Akmola-Bank stated.

Nina Petukhova informed, despite she has been working with profits of the Akmola-Bank for several years, despite the normal size of the loan portfolio, without economic problems, the equities of 120 mln was the only reason of merge to a larger bank, as the national bank requirement is to increase the authorized capital up to 1 bln tenge.

�After the Asian crisis and depression in Russia, having evaluated the situation, the shareholders came to a conclusion that they will hardly increase the authorized capital up to 1 bln by the year of 2000. Therefore, the issue of merge have arisen�, she added.

As bank authorities informed, in 1998 profit of the metropolitan bank had amounted to1 mln 350 thousand tenge, while Karaganda bank had gained as much as 30 mln. The representatives refused to name the shareholders, however noticed they were both individuals and legal entities running industry, trade and other business, including entertainment.

Galym Ordabayev informed that the bank invested in the entertainment a lot, as it brings immediate profits. He said they often credited culture and education. The bank is proud of financing repair and improvement of the Culture Palace Gornyak and Karaganda Finance University. �Besides, the bank financed construction of a closed aqua-park that has no analogs in the CIS�, he stated and added that they spent far less funds for five-month construction than Mr. Khrapunov intends to spend. (Let us remind of the $44 mln Contract on aqua-park construction concluded by the Akim of Almaty � ref. THE GLOBE issue 89 (307) as of 18.11.98).

According to the chairman of the Board of the Valyut-Transit Bank, the credits granted in 1997 grew 3.5 times in comparison to the previous year. it was possible because this year the bank selected another priority direction � crediting of long-term liquid projects like development, introduction and utilization of new technique and technologies. �Credits classified as bad debts or high-risky are absent�, he said. As for unwillingness to invest in large production and agriculture, the bankers deem it a task of the State, �Nobody supported our banks, we counted on our finance and force.�

In his opinion, today the banking situation is like this �banks have money, however production does not bring interest immediately�.

Mr. Ordabayev considers absence of corporate clients an advantage for the bank - �less risk, the bank is more stable�. According to him, today the bank pays more attention to crediting small and large business.

This year the merged banks plan to obtain an international rating so that �to have an access to cheap western credits.� He said that they were negotiating with five international audit agencies.

The authorities of the new bank pin their hope on �the new old Government�. �Uraz Dzhandosov is an ex-member of the National Bank team and he has several times proved to be a professional. So, I as a financier hope that in the future the financial situation in the country will be stable�, Mrs. Petukhova thinks.

�The new old Government proved it is able to hold the rate�, Mr. Ordabayev added, �May they not hamper our work�.

The Editor's column

Discovery of Mongolia Or Vaccinations against Communism

We are preparing the next edition of �The Power of Kazakstan� magazine. Steven Fish, associated professor from Berkley, California is one of its authors. His article about Mongolia became a revelation for me. The country appeared to be internationally recognized democratic and free. It is ranked the ninth after Hungary, the report of �The House of Freedom� said. Kazakstan took the position, nearer to the end of the list.

Mongolia is a free country? How? Why?

I have a general idea about Chaybolsan, but I remember Tsedenbal for sure. A gray-haired Mongolian wearing glasses, who looked like an aged student, an excellent student at the face of it, but a student with only lowest marks at a bottom of fact. He was very fussy. Steven Fish wrote the following about him: he was an absolute ruler in his country and lived in luxury. In other words in contrast with other soviet and East European State Secretaries he did not live in a luxury apartment, but in a guarded low-key building in the center of the city. As for the foreign policy, he was even more servile to his soviet colleagues and particularly Brezhnev, than other leaders of the soviet block. Only Todor Zhivkov from Bulgaria seemed to outstrip him.

Most Mongolians considered the soviet regime without any patriotism, absolute dictatorship headed by a marionette�.

Here is a key: give the power to one person, and he will find who to cringe before: before the Chinese, the Koreans, the Japanese and the Russians. The first tsedenbal � Choybolsan also cringed before Stalin, the author stated. This is clear as well.

This very sad experience fostered the immunity against the absolute ruler system, the author thinks. As a result the country created semi-presidential power and a strong parliament. That means, the system where �the president is weak enough not to become a new Tsedenbal, but at the same time strong enough to prevent Tsedenbal to appear in the Government or legislative bodies�.

The country established strong political parties. However in contrast to Hungary and Poland, which are Mongolia�s neighbors in the list of free countries, where the institute of parties has been already considerably developed by the early 90-ies there were not any political parties in Mongolia at all. Before 1993 all opposition parties were small while the analogue of the Communist Soviet Party was the absolute force. In 1993-1996 they made aggressive attempts to strengthen their positions, particularly in small settlements and rural regions, where two thirds of the total population were concentrated. First the parties were represented in each of 21 aymaks (provinces) of the country and then they unified in such a way that allowed reducing number of parties and facilitating co-ordination during election campaign, Steven Fish said.

But there was another rule contributing to the development of the multi-party system. They prohibited different associations, blocks and other groups to ran a candidate in the election. In contrast to other post-communist states, in Mongolia this right was granted exclusively to the parties. Currently, the Parliament debates movement towards the mixed and proportionally majority system for the next election.

It is obvious that the development of the political system in Kazakstan started with contrary steps: absolute presidential power and no real establishing of political parties. At best only 10 seats in the new Parliament to be elected this year will be given to parties. In connection with Tsedenbal�s important role we would like to remember our soviet leader Dinmukhammed Kunayev: he did not vaccinate our people. Is it just another grimace of history?

N. A.

(Continued from

# 6(324),7 (325))

By Hartmut Fischer

San Francisco

Febr 7, 1998

(Specially for THE GLOBE)

Currency boards were associated with colonialism and central banks with political independence. Now many countries must realize they traded monetary stability for monetary mismanagement when they switched from currency boards to central banks. Monetary mismanagement is a major reason for their present poverty.

The downside? Countries can no longer cover a budget deficit by printing money. They will be forced into making difficult adjustments. Other reforms of the banking system and the privatization of public sector enterprises must be part of the solution. Many economists would call this a plus.

The IMF is strongly opposed to Indonesia introducing a currency board system at this time. This is a mistake. If Suharto offers to give up printing money, shouldn\rquote t the IMF work with Indonesia to make the new system work? There have been a number of explanations in the press. One argument is that this may be a way for Suharto and his family to transfer their fortune out of Indonesia. This depends on the rate of exchange, which would be initially set between the rupiah and the U.S. dollar.

The rate should be set below the market rate. This will attract capital into rather than out of Indonesia. This happened with other countries that introduced currency boards. They were suddenly flooded by capital flowing into the country.

Another argument is that a currency board should not be introduced into countries with bad financial systems. Just the opposite is the case. Countries with sound financial systems don\rquote t need currency boards, while countries with bad financial systems do. Argentina\rquote s banking system was no better than Indonesia\rquote s and neither were Estonia\rquote s, Bulgaria\rquote s or the Bosnia banking system before they introduced currency boards. A currency board establishes a stable currency in spite of a deficient financial system.

The IMF helped the Bulgarian economy a year ago with an IMF-prescribed currency board. It is working well. The IMF should do the same for Indonesia.

\tab Kazakstan ought to consider the idea of a currency board. Being an oil economy, Kazakstan ought to be linked to the US Dollar since most of its future revenues will be linked to dollar denominated oil prices. A currency board system would create exchange rate certainty, low interest rates and price stability. This would strengthen Kazakstan\rquote s economy.

It is interesting to contemplate what will happen once many developing countries realize that they would be better served by currency boards than by central banks. There would be no need for major bailouts, and the world would be a more stable place. Capital would flow more freely to emerging countries as it once did under the gold standard \emdash long before the IMF was born.

Dear Mr. Ablyazov,

In your January 19, 1999, No. 5 (323) issue of THE GLOBE, a story was printed that contained incorrect information regarding The United States-Kazakhstan Council (USKC). The article appears on page 2 and is entitled, �Monopolists to Enfeeble the Anti-monopolistic Committee, - Nikolay Radostovets.�

The first sentence of the English version is correct. It reads, �A number of foreign companies and first of all HAGLER BAILLY company together with the Russian-American Council submit a proposal to the President, the Parliament and the Government of the republic to re-organize the Anti-monopolistic committee,� Nikolay Radostovets said on January 16 in Almaty.

The first sentence of the Russian version, however, is incorrect. In the Russian version, the Russian-American Council was incorrectly translated as the Kazakhstan-American Council, which is another name for USKC. The United States-Kazakhstan Council is in no way connected with the submitted proposal by HAGLER BAILLY to the President, the Parliament and the Government of the republic. I would appreciate it if THE GLOBE would print a correction in both English and Russian clarifying this matter.

Thank you for your prompt attention to this matter. If you have any questions, please do not hesitate to contact me.

Sincerely,

The European Union expects elections in the local administration and Parliament of Kazakhstan be free and fair

Almaty, Jan 25

(The Embassy of the Federal Republic of Germany as acting presidency of the European Union in Almaty)

Declaration by the Presidency on behalf of the European Union on the presidential elections in Kazakhstan issued on 21 January 1999

The European Union follows very closely the process of democratisation in the Republic of Kazakhstan. The presidential elections of 10 January 1999 were of particular importance in this context.

In their declaration of 5 November 1998 and 17 December 1998, the Presidency of the European Union called upon Kazakhstan to take all appopriate measures to guarantee a free and fair election campaign as well as open, free and fair voting procedure. It was in particular pointed out that the European Union Partnership and Cooperation Agreement with Kazakhstan, which is due to come into effect in early 1999, includes the respect of OSCE norms and commitments. These specify that elections should be free and fair.

Observer�s Column

NATO Ghost is Roaming about Caucasus

To oppose the Russian-Armenian alliance in the region it is necessary to place NATO military bases in Azerbaijan, the state Adviser to Geydar Aliyev on external policy stated on January 25 in Baku.

Not going into details on the reasons of such statement one should point out that everything is happening at the background of clear and rapid weakening of Russia as a great power. Last December Washington deemed unnecessary to inform Moscow on launching �Fog in Desert� operation in Baghdad. The USA impose sanctions on Russian institutions and organizations for co-operation with Iran. Most recently Bill Clinton sent a letter containing the proposal to re-examine the Anti Missile Treaty, concluded as early as in Soviet times to Russian President Boris Yeltsyn. Strategic importance of this document may be hardly overestimated. Russia�s opinion was not taken into account when solving problems in Kosovo as well. Currently, one may continue the list with speculations on the theme of NATO bases placement in Caucasus, which strictly speaking may become the second expansion of the alliance to the east.

The noted statement of Baku may be considered the fruit of Russia�s external policy concerning the CIS countries � Kremlin is not able to refuse �imperial� policy and admit that new independent states are now beyond its control and moreover Russia�s competitors in the oil market. In this case Azeri beginnings are the adequate reaction of Baku to military and political support, provided by Moscow to Erevan under conditions of the opposition between the two Caucasian countries.

On the other hand some experts think that this event is connected with Caspian oil projects. Azerbaijan does its best to guaranty security of a transit pipeline to influence the final decision of foreign investors on pipeline route. One should take into account that the military presence will not solve problems of Baku-Dzheykhan direction, which is the basic reason why the Turkish direction was rejected.

Possible placement of military bases in Azerbaijan may hardly contribute to stability in the region as this will lead to a new turn of tension not only on the Caucasus but in the Caspian region as well by provoking tough reaction of Moscow and Teheran.

In this connection American statements on the priority of renewing relations with Iran and approval of a new reformation course of president Hatami, as well as speculations about bases� placement are able to considerably strengthen positions of conservative Islamite forces inside of the country.

There is no doubt that all the political forces of Russia will unanimously criticize pro-American and pro-Turkish policy of Azerbaijan. However Moscow will hardly take any drastic measures particularly under conditions of the financial dependence on the west.

Astana has not yet demonstrated its official position but most likely Kazakstan has already made its choice in favor of Russia. This may be proved by Kazakstan�s initiatives to create the single air defense system in the CIS.

Rashid Dusembayev.