Kazakhstan: Government Focusing On Domestic Economy, Not Upcoming OSCE Chairmanship

By Joanna Lillis

With Kazakhstan’s parliament now in its fall session, President Nursultan Nazarbayev has made it clear that Astana’s top priority in the coming year is economic rejuvenation, not political democratization.

As the administration continues to grapple with the global financial crisis, the economy is top of its agenda, overshadowing Kazakhstan’s forthcoming chairmanship of the Organization for Security and Cooperation in Europe in 2010. "We must not only overcome a difficult period, but thoroughly prepare for the post-crisis stage of development," Nazarbayev told the opening session of parliament on September 1. "This requires a serious and overall rejuvenation and modernization of our legislation."

Nazarbayev set out a number of priorities aimed at tackling post-crisis economic restoration. He expressed particular interest in promoting heavy industry, ordering the government to present by the end of the year a five-year plan to boost industrialization. He likewise asked parliament to adopt a law on industrial policy. There is little doubt that the legislature will follow up the president’s request: all elected seats in the Mazhilis (lower house) are held by members of the Nur Otan party, which is led by Nazarbayev. The senate is also stuffed with his supporters.

Nazarbayev announced that one of the cornerstones for economic recovery will be a new "conception for the national financial architecture," of which the stricter regulation of the banking sector will be a major component. Prior to the global financial crisis Kazakhstan’s banking system was often hailed as the most developed in the CIS, but the credit crunch exposed the sector’s vulnerabilities.

To compound the banking sector’s problems, this year it has been rocked by scandal. The state forcibly nationalized the country’s largest financial institution, BTA Bank, in February, and declared that it had been run by a criminal ring led by the former chairman of the board, Mukhtar Ablyazov, who fled abroad. The institution later defaulted on over $12 billion in debts, which it is now seeking to restructure. By its own admission, BTA also suffered from an outflow of deposits: the bank says that in the wake of the nationalization some 6.7 billion tenge ($45 million) was withdrawn. BTA blames the reporting of the independent Respublika newspaper for this, and is now suing Respublika for 80 million tenge ($530,000).

AstanaProblems have also emerged at Alliance Bank, another financial institution nationalized in February. Zhomart Yertayev, the former chairman of the board, was arrested in August on suspicion of stealing $1.1 billion from the bank, leading some observers to suggest that the state is seeking scapegoats.

Addressing parliament, Nazarbayev optimistically said the financial system had achieved a "general stabilization," but called for banks to show restraint. "It is important for Kazakhstan’s banking system to restrain all commercial, financial and hard currency risks within permissible limits," he told deputies.

He said oil revenues must continue to be sent to the National Oil Fund. State stabilization expenditures have so far totaled $19 billiondollars, or roughly 14 percent of GDP. Some $10 billion of the state’s assistance funding has come from the National Oil Fund, whose assets were reported as decreasing from $27.4 billion at the end of last year to $23.2 billion at the end of August.

Government forecasts put GDP growth this year at 1 percent, but officials are now tentatively suggesting that the worst of the crisis may be over. Minister of Economy and Budget Planning Bakhyt Sultanov told the cabinet on August 18 that the economy may have bottomed out during the first half of the year, and that a recovery may be underway.

As the administration focuses on kick-starting the economy, the political agenda is taking a back seat. Next year is an important one for Astana, as it will assume the OSCE chairmanship. Nazarbayev waited until the end of his speech to touch upon the topic of the OSCE. "This honorable mission lays a great responsibility on us and at the same time provides us with wide opportunities," he said, calling on deputies to apply the experience of the parliaments of other OSCE member states in Kazakhstan.

In 2010, Kazakhstan will be in a curious position: it will be a country with only one political party represented in its parliament that is heading a multilateral organization dedicated to democratization. Several months ago, some experts speculated that the country might call fresh legislative elections before the chairmanship in order to bring about a multi-party parliament. But such talk has faded of late. "No one has demanded from us: you will become chairman of the OSCE if there is a multi-party, ’multi-hued’ parliament. And we will not go for that now," senator Gani Kasymov said on the day parliament opened in remarks quoted by the Interfax-Kazakhstan news agency.

Editor's Note: Joanna Lillis is a freelance writer who specializes in Central Asia.