Business Forum. In Quest of a Panacea
On 10 December, Almaty hosted the National Business Forum aimed at seeking the ways for Kazakhstan to overcome the crisis. According to the forum organisers, Business Media Group, the primary goal of this event was to create conditions for unification of the intellectual and organisational resources "of that part of the Kazakh society which possesses strong professional competence, progressive values, and the ability to convey these to the society." BMG believes that these people come from various walks of life in the society and make up no more than one per cent of the entire population. The National Business Forum has been one of the first attempts to gather them on a special consultation and advisory platform. According to BMG, it is these 'one-percenters' that could mobilise Kazakh citizens to tackle the internal systemic problems like general deprofessionalisation, loss of values, and cultural and intellectual decay that are getting more acute with the crisis. The forum was presented with a new financial ideology, based on the additional emission of the tenge and strengthening the national currency's role in financing the economy, to serve as the touchstone for comparison.
Dollar versus tenge
The proposed model is based on the analysis of the global financial crisis and its potential impact on Kazakhstan, conducted by the Macroeconomic Research Group led by Olzhas Khudaibergenov. The researchers collected qualitative and quantitative indicators for a total of 52 countries with a focus on Kazakhstan.
According to Mr Khudaibergenov, in the first instance they analysed the principles of economic development during 1999-2007 from the viewpoint of financing. The experts determined three major sources, viz. external loans, export revenues, and the tenge money supply. The devised econometric model shows that during these years 80% of GDP growth was formed from the external credit inflow. Thus, every $1bn borrowed from abroad raised the GDP by an average of $915m. Hence one can presume that now, when the credit windows have shut for an indefinite time, the drop in external lending by $1bn will result in a GDP decrease by the same $915m. Of course, the financial shortage could be replenished by the export revenues from the sale of natural resources, which used to account for just 8.9% of GDP, since the greater share was sent to the National Fund. However, with the prices for major resources having descended, Kazakhstan's export earnings have fallen respectively.
Therefore, with the two sources being cut-down, we have to confine ourselves to increasing the third one – the tenge supply. Throughout the growth cycle, the shortage of the tenge in Kazakhstan was compensated by means of foreign loans. As a result, the ratio of the tenge supply to GDP currently amounts to some 16%. Compare this with the ratio of around 80% in the developed countries. Normally, a country's domestic economy accounts for 80%, while the remaining 20% fall under export and import operations involving foreign currency. Mr Khudaibergenov believes that in this context, Kazakhstan should start gradually increasing its national currency supply, during seven to eight years to come, as other countries did it.
To this end, the model developers propose setting up the state credit issuing bank, accountable to the president personally. Such a bank will transfer the additional money to investment lending (rather than to consumer lending) through second-tier banks and development institutions. This will allow us to replace the foreign lending system in the euro, dollar or other currency, for the domestic one operating in the tenge. All the procedures and criteria applied for external borrowing will be sustained, such as financial audits, due diligence, ranking loan guarantees, etc. To avoid discrepancies among the sectors, which used to occur earlier (55% of all overseas loans attracted by second-tier banks were directly or indirectly involved in the real estate sector) the experts advocate for the tight control over the targeted use of the provided funds, not excluding the criminal liability. Priority must be given to the projects for the development of import substitution industries as well as to the infrastructure projects of national importance, including heating, electricity, gas and water supply systems, utilities, roads, communications, affordable housing, and social and environmental projects. The interest margin for the second-tier banks and development institutions must be limited to 3% for conventional projects, and to 0.5% for the infrastructure development projects.
Among the potential risks the programme may confront are inflation growth, increased volatility of the tenge exchange rate, and corruption. A number of mechanisms have been elaborated to counteract the first two factors including restricted consumer lending, equal distribution of financing among the sectors, introduction of a limit for emission of the cash tenge amounting to 5% from the total amount, enhancing the tenge convertibility through a new payment system with major foreign trade partners, etc. Meantime, Mr Khudaibergenov admits that the corruption risks remain but this is "the problem of the political system and not that of the money distribution system."
According to the authors, the expected effects will include the recovery of the GDP growth rates at 7-8% per year and more, reduced unemployment to 4-5%, sustainable development of the existing and new industries, introduction of a crisis-resistant development model, modernisation of the whole country's infrastructure, de-dollarisation of the economy, and strengthening the tenge exchange rate alongside increasing its convertibility.
Many opinions, good and different
Since the discussion of the proposed measures was conducted in the form of opinion exchange, the guest speakers agreed that the programme bears a number of rational aspects and deserves thorough attention, also on the side of the government. Alongside this, they discovered a number of arguable issues as regards its practical implementation.
A prominent Russian economist, Mikhail Khazin, spoke rather highly of the developments of his Kazakh counterparts. He believes that while America and Europe are coming through the capital surplus crisis, countries like Russia and Kazakhstan experience an underfunding crisis, which means that there is not enough money for normal economic development. And this is the reason why we have this resource that has to be used. "What we are discussing now here, in Kazakhstan, is actually a breakthrough of the international scale. These are alternative methods of economy management." According to Mr Khazin, unlike USA and Europe, where money emission will inevitably lead to the undesired upsurge in the inflation, this will not harm Kazakhstan with its strain on liquidity. "The soft devaluation and careful increasing of monetary stock can be remedies against the deflation and halt in the economic growth." The Russian expert believes that the state loans for the infrastructure development would be the most logical solution, given that the private banks are not in the position to finance such kind of projects without providing for all possible risks in their rate.
Deputy Chairman of the National Bank, Medet Sartbayev, acknowledged that Kazakhstan should indeed think about its sovereignty as regards the ability of the central bank to ensure autonomous operation of the financial system. Alongside this, he reminded the forum of the risks associated with excessive interference of the state in the economy and return to the Soviet plan system. "One can construct super roads where no one will ever drive. Kazakhstan's economy cannot function independently as we have a thin market."
The Head of the DAMU Entrepreneurship Development Fund, Gosman Amrin, agrees that a broader application of the national currency will diminish the external risks and strengthen tenge. However, one should first of all be focused on developing the source of value, i.e. the real sector and value-added industries.
According to the Chairman of the Samruk-Kazyna National Wealth Fund, Kairat Kelimbetov, the idea of increasing the monetary stock is correct per se. "What we are doing today through the fiscal policy mechanisms increasing the public expenses is an attempt to pump extra money into the economy. But to save this money from being used to settle the banks' debts, we require the appropriate monetary policy. Now we intend to issue Samruk-Kazyna bonds, which will be purchased by the National Bank as well as pension funds. Why to have a new issuing bank then?"
Mazhilis deputy Altai Tleuberdin also spoke against creation of another investment institution. "It has always been attractive – over the recent years we have set up quite a number of such institutions whose capacities have not yet been fully used and could be utilised now." In his opinion, the key point is to upgrade the economists' professionalism, first of all of those working in the state bodies, and create a mechanism for the public assessment of the state programmes' efficiency. It is especially relevant today when the National Fund’s resources are being used for anti-crisis measures.
Raimbek Batalov, Head of the Entrepreneurs' Forum emphasised that the value of the research lies in the attempt to review the strategy as such, and the approaches it uses. "Olzhas asks himself what are the macroeconomic reasons behind the current situation. The measures proposed by the government are rather of tactic nature. No one will refuse the necessity of these measures. But another question is what will be their efficiency like?"
To be or not to be
The programme developers stated themselves that their goal is not to oppose the government but to assist it in overcoming the crisis by means of increasing the efficiency of the state bodies. However, how likely is the government to agree to the use of such a non-market mechanism as the additional emission of money?
On the one hand, Kairat Kelimbetov stated: "Despite the talks about the fall of liberalism, monetarism and other '-isms', we have to be aware that we will live according to the rules developed by other people. And these rules were adopted in 1991, whether someone likes it or not. And it is quite another question whether we use them correctly in this or that areas."
On the other hand, he notes, everything bad that could happen to Kazakhstan has already happened. The national budget for 2009-2011 was primarily formed basing on the world oil price of $60 per barrel. However, at the last moment it had to be revised in view of the forecasted price of $40. Furthermore, Prime Minister Karim Massimov has already instructed the minister of economy to develop the draft amendments to the country's budget on the basis of the price of $25 per barrel, which is the level of 2001. The situation at the domestic mining companies is none the better considering that most of them are major enterprises in one-company towns. This means that a stake placed on increasing the tax burden on extractive industries will hardly be fully effective. Besides this, the government has to deal with the banks' problems connected with their declining credit portfolios and the construction sector that has lumped millions of dollars. Though the state has so far maintained the assets of the National Fund and pension funds it will run out of these at this pace.
It is likely that, provided the approach is selected correctly, this can really become a great opportunity. What disturbs us is that the current crisis has factually become a crisis of unrealised opportunities for Kazakhstan. The economic development priorities were defined a number of years ago but most of them have failed to grow into real goals. Today everyone is looking for someone to blame: the government finds fault with businesses, constructors blame bankers and bankers accuse the oil sector, and so on. This is the way to nowhere and therefore we must create new models of interrelation, a new system of beliefs and values.
As one of such measures the organisers have proposed joining the efforts of the leading representatives of the authorities, business and humanitarian sector, to create a kind of centre for the generation of ideas, expertise and exercising control. This will allow the enhancement of the quality of state programmes, the improvement of the management culture and an increase in the labour productivity. And the key is to lay the basis for a progressive ideology capable of changing the cult of easy money that has developed in all areas of the society. Otherwise we will be destined to remain a country of unlearned lessons…
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