Andrey Tzaluk

Informational Agency of Financial Markets IRBIS

Almaty (exclusively for the Globe)

The presidential elections have gone. The first decade of February is coming to an end. The time when some analysts, mass media and people forecast a tenge collapse has gone, too. The Tenge was allegedly kept steady to demonstrate pre-election stability. In fact, the �show� had to begin after January 10th (an extract quotation from REUTERS interview with one of Russian currency traders in the beginning of this year).

Instead, the dollar began to fall (primarily cash dollar in exchange offices) thus confirming the forecasts of some specialists who recognized the true state of the local financial market. Despite expectations of the aforementioned forecasters, the dollar rate at AFINEX did not increase.

The situation is as typical as it is simple. There was no point to sleep on it unless people started phoning to the IRBIS agency. People who repeatedly became victims of their mistrust, which is a priori, addressed to every official issue, everything that comes from the government and the National Bank. Those people who, yielding to panic attitudes, withdrew dollars from banking deposits and sold it at exchange offices - complicated the lives not only of monetary authorities, but of themselves.

Everything happened is quite simple.

Kazakstan�s strong and steady authorities needed no pre-election farce at the local currency market. NBK�s foreign exchange reserves were sufficient to prevent the tenge�s collapse and for a collapsing dollar - if needed by the political situation. But nobody did. The tenge devaluation�s �new� speed was determined by the National Bank long time before elections - at the beginning of august. And it was defined not by the political situation, but rather by the economic motives under the influence of the world and Russian financial crisis.

The pre-election panic of the population in December made the cash dollar a deficit product. The deficit product always costs more than its real worth. Naturally, banks caught the moment and earned money on it. Having a facility to buy dollars by clearing at AFINEX� low rate, banks made a good profit. They transferred dollars into cash in America or Germany and, in two-three days, they delivered dollars to exchange offices selling at 2-3 tenge higher. Surrendering to popular forecasts of a tenge collapse after elections, banks, as long as regulating standards permitted, attempted to transfer assets to the dollar equivalent, thus opening long currency positions. If the tenge collapsed, a currency sale at higher rates would have allowed for a profit and for the protection of assets from devaluation.

All of this led to the $48 million rate of AFINEX weekly trades by mid-December with an average annual level of $25.2 million. During the last week of the year, this indicator reached $56.1 million, in the 199 first working week, $48.6 million and in the second week, $55.0 million. The exchange operated as a shop. Banks could purchase currency from the National Bank at a known rate without trading and satisfy demands of a population, frightened with a shadowy future, in cash dollars - thus providing high profits for themselves.

As a result, by January 15the, the market was flush with cash and clearing dollars. Nobody could buy more, People started receiving municipal checks to be paid in tenge. Elections have gone. Life kept on going. Nothing extraordinary happened. Much time was left before the January wages. People brought dollars to exchange offices and found out that the rate was lower than it was a month or one and a half-month ago when they purchased it. So simple. The economics rile - supply exceeded demand.

Banks have had an interesting situation, too

Banks have had an interesting situation, too. Having been deprived of cash demand by the population, they had to keep an unreasonably large amount of dollar on their accounts. It should be noted that the dollar volume if regulated by the National Bank and could not exceed a certain sum, which depends on bank�s regulations capital. Unfortunately, under the forenamed reasons, the dollar rate did not grow, but the tenge deficit increased. Even regularly tenge payments for state securities on banks� and investors� accounts were not directed to currency sector, because there was no place to direct hard currency. But the tenge remains the traditional demand source for hard currency in wintertime. It was unprofitable to sell the dollar at the available rate because purchases accounted for much more than the rate difference.

Clearly, the state of the currency market changed sharply. The AFINEX dollar trade volumes fell on the 4th week of 199 to $26.0 million, on the 5th, to $11.6 million and on the 6th, to $5.6 million. Not the National Bank, but second-level banks sold American currency. THENBK began preparations to dollar support the collapse of which is more perilous for Kazakhstan than the tenge collapse.

In the conditions of �tenge rate market regulations towards dollar� (this was a declaration of the NBK attitude on the country�s currency market), the tenge�s devaluation speed towards primary world reserve currency does not directly depend on the correlation of demand and clearing dollar supply. The main task of the head bank in a crisis situation is to preserve the devaluation speed, chosen by economic criterion. Another issue is how it will be achieved and by what efforts.

Nevertheless, the sharp reduction of dollar demand at the end of January -beginning of February affected the devaluation speed. In December 1998, the tenge fell towards dollar by 13.1% annually on average at the exchange (speed, calculated by weekly trends, varied within 6.2 to 18.7% annually). In the last week of December, it did not exceed 7.3% and in the first week of February. 9.2% annually.

The NBK�s net-position dynamic at trades is more significant i.e., that currency volume spent by the head bank for providing a set devaluation trend. In the second week of 1999, the NBK sold currency 10.6 times more than in the last weekly period (01-07 February, 6th year week). In the third week, it sold 12.6 times more, in the fourth, only 4.8 times more and 2.1 times more than in the six week, on the 5th week. In other words, the pressure over the country�s foreign exchange reserves was null.

This story is interesting

This story is interesting because it repeats itself for the third year running at the same period of time. And it is also another lesson to a population, which easily falls into speculative attitudes, thus complicating lives not only for it, but making monetary authorities suffer from additional budget expenses - in an objectively hard situation, to provide market stability. The author believes the absence of unreasonable �pre-election currency fever� would have allowed the National Bank to save up nearly $100 million, which was spent for satisfying devaluation expectations of population and banks.

History shows that there was nothing extraordinary about the currency exchange in January 1999 as some analysts and mass media catastrophically forecast. The summary trade volume of US dollar in January 1998 reached $216, 725,000, while it was only $141,210,000 this year. The NBK sold 30.8% less dollars at AFINEX than in the past year.

In the author�s opinion, the near two-week

In the author�s opinion, the near two-week forecast is rather transparent. Population and banks will demand dollars again, but not as they did before elections. The problem of dollar abundance received is another factor. Today banks keep waiting on the market, forebearing active actions and work with short financial instruments. Everybody waits for results of IMF mission operation in Kazakhstan. Some observers said the mission could give other recommendations for tenge devaluation speed than in the past year. These recommendations could be a basis of the budget correction being held by the government. So banks would allegedly avoid active actions before the situation is finally cleared.

The National Bank, in its turn, would manipulate the situation with minimum expenses and devaluate tenge with approximately 10% annually on average, i.e., the speed, provided by the budget.

Gulbanu Abenova

ALMATY, February 8

(THE GLOBE)

(according to the EBRD�s materials)

The European Bank for reconstruction and development operations in the Republic of Kazakhstan have more than doubled during the twelve months to June 1998, indicating a strong commitment to the country. By July 1998 EBRD�s total investment commitments to Kazakhstan aggregated to ECU 492 million (approximately USD 550 million). A part from direct financing of projects, EBRD has provided ECU 31 million (approximately USD 3 5 million) in technical co-operation grants. As an example of technical co-operation projects, EBRD has committed USD 3 million for its Institutional Development Programme for two commercial banks: Kazkommertsbank and CenterCredit.

EBRD has played a key role inn the launch of the Foreign Investors� Council of Kazakhstan and Resident Office, which acts as a coordination point for the international corporations represented on this Council.

The EBRD has disbursed USD 45 million (approximately ECU 37 million) in favor of ten projects in different sectors of economy through an earlier credit line for small and medium size enterprises.

The EBRD as provided a long term loan totaling to USD 54 million (approximately ECU 48 million) to protect the Port of Aktau from the rising level of the Caspian Sea, undertake rehabilitation work to increase productivity.

For Kazakhstan, the Port represents a valuable low-cost outlet for its grain surplus, general cargo (metals, cement) and an alternative route for crude oil.

To upgrade one of the largest steelworks n the CIS, Karaganda Ispat Karmet Steel Works, the EBRD has financed USD 185 million (approximately ECU 167,6 million).

The EBRD provides USD 40 million (ECU 38,8 million) for the purposes of reconstruction of LLC Karaganda Power. This Kazakh company operates two coal-fired CHP plants. The total of EBRD�s USD 40 million ( approximately ECU 35,6 million) is designed to improve the ability of a small group of selected local banks in Kazakhstan to finance trade flows between the country and its commercial partners.

Model of Double Zero and the Future of Kazakhstan

We offer a model for governing Kazakhstan on the presumption that the industry and the population are absent, which constitutes double zero. The chief thing is that raw materials resources are located far from sales markets. The model permits one to undertake the best measures for governing the country. If you are the President of this country or you are going to be nominated, then these speculations could be useful for you.

The Model

The model is your attempt to give more or less simple picture of the reality. Neither model could give a full description of life. However, it has a chance to correlate to something real if:

1. The consequences forecasted by the model are observable;

2. Amendments to the model, i.e. factors taken into consideration in it, are non-significant and do not substantially destroy the depicted picture.

The Model of Double Zero

In the offered model describing the governing of Kazakhstan from the point of view of such a LARGE SCALE we�ll take into account (we�ll try to take into consideration) that this country:

a) occupies a vast territory full of natural resources and is situated between the following two states-monsters:

� China (the population of which is mainly the Chinese and which is situated to the south of your country�s borders. However, the territory, inhabited with Moslems /the Chinese are not Moslems/ and separating you from China, is a kind of a peculiar buffer)

� Russia (it is inhabited mainly by Russians. To tell the truth, this is a former monster currently significantly weakened, but having considerable interests in your state with virtually transparent frontiers. It is situated in the north);

b) export of natural resources to sales markets is extremely difficult because your country is continental and existing schemes of export are Russia-oriented with all ensuing consequences;

d) And finally, the chief thing in the model is that your country is absolutely empty. Lord forbid, of course we do not mean natural resources!

Double Zero: Neither the Population, nor the Industry

This makes the model constructive and serious. Exactly such a daring supposition for the description of your country will permit you to make an analysis and elaborate best measures for the prosperity of your country in future.

Consequences of the Model of Double Zero

If you are the President of the country (you were nominated), then here is a simple recipe of measures that have to be undertaken within the framework of this model.

Secondly, it is required to take urgent measures for selling your oil on international markets. It is necessary to attract investors, in particular the Partner�s investors. It is better not to welcome investors of the northern partner. It is almost useless to give a chance for local businessmen of being engaged in the oil business because they have no funds.

You should advertise symbols of your sovereignty on the international arena. You yourself are the best symbol.

Amendments to the Model of Double Zero

Now it is necessary to recollect what spoils your model, namely the presence of the population and the industry. These are amendments to your model. In order to achieve the working model, it is required to reduce factors which were not taken into consideration in the model itself. For example, it is possible to simply decrease the number of the population. You can introduce the following different procedures in order to obtain required results: the law on languages, renunciation to appoint the Russians to state posts, permission to live in cities given only to the local population. Perhaps, the Russians will emigrate �home� to the north. And they emigrated.

However, somebody does not change the permanent place of residence. In such a case it is necessary to make such arrangements in order factors, which were not taken into consideration by you, namely the industry and the population, �mutually killed� each other. You are advised to sell your industry using any method or to anybody. It makes no difference. The main thing is that new owners would feed the population and the working model would be achieved. Please return to external markets, symbolize sovereignty and introduce the model of double zero, including making attempts on selling oil on foreign markets; protect sovereignty from external encroachments. If you finally receive any money from privatization, there�s no necessity to allocate funds to the industry because you do not need it. You should simply feed your population in order to avoid any disturbance on its part. You should lay all your hopes on oil, foreign investors and a pipeline because it is an instrument destined for pumping oil.

Let�s simply make estimations. You could easily produce 100,000,000 (100 million) tons of oil. Even if your profit is only $1 per barrel (this is approximately $7 per ton), you will receive $700 million. If your profits equal �dollars per barrel, then it will give you 0.7X�billion dollars. At the same time it will give you an opportunity to feed the remained population. As for the �old� industry, it will not be interesting for you at all.

Thus, your model is more or less stable. The only thing you need is an additional time until the oil pipeline�s commissioning. Afterwards you�ll start to sell your oil on external markets. And for the time being it is necessary to continue to sell the state property and reduce the number of the population. And finally the MODEL OF DOUBLE ZERO WILL BE EFFICIENT. Do you want it?

To tell the truth, I invented this model after the sale of the Kormet integrated plant in autumn of 1995. That enterprise produced about 10% of GDP as far back as in the early nineties. If 10% of GDP are not important for you, then what is important at all?

By the way, being the prime minister, Akezhan Kazhegeldin explained the sale of the Karmet integrated plant as follows in a private talk with journalists in summer 1998: �We understood already during that time that we were loosing sales markets for Karmet�s products in Russia. It would be rather difficult to search them independently. Therefore��

By the way once again. You do not need agriculture as well. 20 million tons of grains are not significant for you because they should be sold. Do you want to try?

The fact is that neither model could be best of all, even the simple model of double zero. By the way, any model should be simple enough. And in such a case it is necessary to study the development of events and try them on this or other model. Do you want?

N. A.

Gulbanu Abenova

Almaty, Febr 3 (The Globe)

Expecting huge oil reserves does not mean their availability, Richard Jones, the ambassador of the USA to Kazakhstan said.

The Ambassador believes that everything depends on the feasibility study results of the Baku-Ceyhan project.

He reminded the audience that the USA was satisfied with the Washington agreement with Kazakhstan and that �the principal players - the largest oil companies,� signed last December. The agreement stipulates both an elaboration of the feasibility study and different developments of the Baku-Ceyhan pipeline construction.

Richard Jones pointed out that Azerbaijani organizations involved in the oil business are developing a special system and creating favorable conditions to ensure the successful realization of the project.

It will depend on all the countries of the region, as well as on the actual oil reserves, whether the pipeline will be constructed. For the moment we estimate the Caspian potential reserves to be really huge; however the estimations have not been yet proved. The USA is waiting impatiently for the results of the study to be carried out early this year, as this will impact on the decision of all the participants, including the US private companies and governments, the ambassador said.

Gulbanu Abenova

Almaty, Feb 3 (the Globe)

The USA expressed its opinion on forthcoming presidential elections. I do not think that I can add anything to these commentaries, the ambassador of the USA to Kazakhstan said.

Though Richard Jones refused to give any commentaries regarding the most recent presidential elections in Kazakhstan, he paid his attention to the forthcoming parliamentary elections.

It is very important for parties and social groups to be registered beforehand, independently of the principles they uphold, he said.

He thinks that it is also very important for the republic to continue the reformation of its election legislation. It is very important because during the parliamentary elections some members of the Parliament will be elected as representatives of their parties, which means on the party basis.

Potential candidates should be given enough time to properly prepare for the elections.

To improve the election process in general, Kazakstan should develop its co-operation with the OSCE, the ambassador concluded.

Banu Marat , Almaty Feb 8, (The Globe)

K�cell company launched a new service in the sphere of telecommunications - subscription to the digital cellular communication of GSM standard of mobile communications global system for the first time in Kazakhstan, announced Haluk Ege, general executive director of the company. K�cell joint venture is the operator of the new standard of cellular communication in the republic, founded by Kazakhtelecom JSC and TURKCELL company, one of the GSM standard operators working in Turkey, Azerbaijan and Georgia.

Kazakhstan�s market is attractive for the company, as the republic is a leader in the Central Asian region in the sphere of economic development, Mr. Ege said.

He thinks that compared to the existing analogue system of cellular communication the digital standard has a number of advantages; including the low price of air time: 25-30 cents a minute, the calculation on a second and not on a minute basis, free of charge incoming calls, confidentiality and interference prevention. International roaming means that the subscriber will be able to use his telephone not changing the number in over 180 countries throughout the world. The company is going to open representative officers in all large cities of the republic.

According to Mr. Ege, the company obtained the license for 15 years and plans to invest much in the communication field of the republic. At the moment it has already invested $350 million. The company is able to service 160 thousand of subscribers. Currently the number of its clients makes 135 people.