Andrei TZALYUK, Informational agency of the financial markets �IRBIS�

ALMATY, May 3

(Specially for THE GLOBE)

The question is being asked more and more often. Or to be more accurate, �When is the next fall of the exchange rate of the national currency expected?� At the current moment, which is the most unsuitable for such kind of prognosis, the author has decided to express his point of view - despite the absolute unavailability of the information about the plans of the government and the National Bank.

Why is the question being asked?

First of all, it is predetermined by the growing confidence of economists that as far as the rebirth of the domestic economy is concerned, the liberalization of tenge�s exchange rate seems to be belated. The main thing is that it is not effective enough. According to the economists, the program being realized at present, has an obvious monetary tinge, i.e. it is not also directed to restore the domestic industry.

Such an evaluation is confirmed first of all, if we turn our attention to our economic relations with Russia. Last year 28.9% of our exports were absorbed by Russia, while ithe country controlled 39.4% of our imports. According to the official rate of the Russian Central Exchange, beginning from the fatal 17th of August, the rouble �has thinned� in respect to dollar by 3.85 times (385.2%): from 6.29 to 24.23 rouble/dollar. As of April 30, in the same period, the tenge�s devaluation according to the official rate of NB was only 46.8%. If as was announced, the liberalization of tenge�s rate was executed to increase competitiveness of the domestic products in the internal market, the mentioned indices indicate the insufficiency of the current devaluation. Judging by the fact that an embargo on the importation of many Russian products was prolonged until June 23, the government had recognized it de-facto.

The second troublesome factor is a significant reduction in the growth rate of the monetary mass in Kazakhstan in the last two weeks of April. If in the first two weeks of �the free floating regime� the average daily increase was approximately 700 million tenge, according to the results of the last two weeks this index was not higher than 75 million. Such a decrease is predetermined by too rapid a return of tenge paid for the NB�s hard currency, to the domestic market.

From the above-mentioned observations, a simple conclusion may be done: to effectively protect the local producer from an inflow of cheap Russian (Kyrgyz, Uzbek, etc.) imports, the tenge must devalue to approximately 300 tenge/dollar.

However, as was confirmed by the events in April, the dollar cannot reach such a height without the help of the NB. Today nobody holds tenge. The currency�s rate is really a market one, at least its maximum rate. To increase the dollar rate, the NB will have daily to purchase dollar intensively at the auctions at a special very high price, and to give these dollars to the exporters, i.e. to economy.

Subsequently, there will be emission. This method of introducing an emission of money is optimal: through an exporter as a representative of the most developed sector of our industry. It is obvious that an initiative of authorities is required for such a devaluation increase.

When may it happen?

Today we have the grounds to suppose that Russia will soon receive a large stabilization credit from IMF. In general, this development will positively influence Kazakhstan economy, especially exporters. This influence will be immediately evident, it will take some time.

The prices of oil and metals, Kazakhstan�s main exports, have stabilized. In fact, oil prices have even increased. This has already resulted in a rise of oil outputs and a growth in the manufacturing of ferrous and non-ferrous metals in Kazakhstan. Subsequently, we should also wait for positive indices of this event.

In May the Ministry of state revenues headed by Mr. Kakimzhanov, plans to introduce a program of electronic monitoring for the largest taxpayers. Zeinulla Kakimzhanov�s style of work and his accomplishments in previous posts leave little doubt that he will succeed, especially if we take into consideration Aben Bektas� active participation in this project. But achieving results in this direction will also require some time.

It also should be taken into consideration that monopolies �were asked to be patient� and not to increase the costs of electricity, communication, and services.

Taking into consideration the above-mentioned facts, we come to the conclusion that all of the preconditions required for a second abrupt devaluation of tenge by means of emission, may become �ripe� not earlier than in the middle or in the end of the third quarter. But only if the above mentioned three factors do not improve economic and budget situation in the country. If at least one of them works, the �ripening� will last longer and may not occur in this year.

May it happen at all?

Possibly, the question is asked in a wrong way. Is an abrupt devaluation up to, for example, 300 tenge/dollar appropriate through emission?

We have the following thesis: the economy may release exactly that amount of money, which it can utilize. If the country�s industry is developed, money emission (of course, within the reasonable limits) is profitable. The manufacturing sector due to its developed infrastructure may �eat� this money quickly, gaining profits.

Alas, Kazakhstan�s economy today is very far from the ideal. A long list of all symptoms confirming such a diagnosis is not required here. At present, Kazakhstan�s economy is not able to utilize the emitted money. It requires another management and a number of rigid administrative measures to grow. The economy needs concessions on transport, electricity and a flexible taxation system. It should be isolated from the tyranny of the local bureaucracy. It requires a favorable conjuncture of the world markets, etc. The Kazakh economy needs all these factors before an emission of money. If money is given before these conditions, it will just be captured by the financial sector, importing companies and commercial structures. As a result emission will not lead to rebirth of the economy, but will cause more significant collapse of tenge and a worsening of the balance of payments of the country. It will be another 1994 -at least.

I do not doubt that all these circumstances are being taken into consideration by the government. The possibility of an abrupt devaluation to 300 tenge per dollar, through a single emission from the existing authorities is minimal.

For the time being�