Emerging Europe's Future
Life after Marchenko
Anvar Saidenov has the unenviable task of filling the much-admired Grigorii Marchenko's boots as head of the National Bank of Kazakhstan. He tells Simon Pirani his strategy to ensure Kazakhstan maintains its strong economic story
EM: Kazakhstan's economy has made significant strides forward, with growth consistently higher than 10% for the last four years. But economists are concerned about the danger of ?Dutch disease?. How are the authorities responding to this challenge?
AS: ?Dutch disease?, with all its symptoms such as contraction of the manufacturing base, is a real danger for natural-resource-rich countries. But we do not share the concerns expressed on this score, since measures to deal with this danger have been taken by the government.
Firstly, additional revenues that have accrued from high world prices, particularly of oil, are being accumulated in the National Fund. As for pressure on the exchange rate, it should be noted that the nominal appreciation of the tenge has gone alongside a real devaluation against the currencies of our principal trading partners. Between December 2002 and December 2003 this devaluation was about 2.5%.
Secondly, a strategy has been adopted to develop non-oil sectors of the economy (the Industry and Innovation Development Strategy of the Kazakh Republic 2003-2015), under which development institutions have been established, including the Kazakhstan Investment Fund, the National Innovation Fund, the Kazakh Development Bank, the Export Credit Insurance Corporation and others.
Measures to stimulate domestic private savings and effective financial mediation, the establishment of inflation targets, the continuation of a cautious financial policy, the creation of conditions for more active participation in non-oil sectors, further de-monopolization of the service sector, liberalization of capital accounts and total convertibility of the tenge by 2007 ? all this will counteract ?Dutch disease?.
EM: Could you say more about the aims and functions of the National Fund?
AS: The Fund was set up in 2000 and the first payments made in May 2001. On June 30, 2004 the Fund's assets stood at $3.7 billion (11% of GDP). It is expected that in the next few years, contributions to the fund from taxes and the sale of land only will be between $600 million and $1 billion a year.
The Fund comprises financial assets in government and National Bank accounts and is part of the budget system. It is fully invested in external markets under a diversified investment strategy. The uses of funds are strictly prescribed; the money may not be used to finance any private or state entities or as loan security.
The Fund has a dual function: to preserve the state's accumulated wealth, and as a stabilizer, to reduce the budget's dependence on world price trends. The use of the Fund for other purposes is at present not considered appropriate. The issue of using the Fund for specific projects inside the country has been reviewed a number of times, but at present ? with rapid economic growth spurring heightened investment activity in both private and state sectors, with specific institutions to stimulate investment and innovation having been set up ? an extra stream of resources from the National Fund could unnecessarily sharpen the competition to finance projects and crowd out private investment.
EM: Are you satisfied with the effect of the measures you have taken to restrain the upward pressure on the tenge?
AS: In 2003 the supply of foreign currency was many times greater than demand, and so, for the first time in the history of our foreign currency markets, we raised the nominal exchange rate of the tenge against the dollar. There were no negative impacts on the economy on a scale that would have required action on our part. Nevertheless the National Bank is following the situation on the domestic forex market closely, and in the case of rapid movements of the exchange rate, we will take appropriate measures.
In 2003 the National Bank, as well as doing its job of maintaining low inflation, had to put the stress on preventing too great a strengthening of the real exchange rate of the tenge against a basket of foreign currencies. As a result, the Bank spent $2.2 billion on purchases of foreign currency during the year. The real effective exchange rate for CIS countries fell by 4.2% in 2003, and for other countries by 1.5%. In real terms, the tenge appreciated against the dollar by 12.6%, and devalued by 6.9% against the Russian ruble and 5.3% against the euro. In that way, despite the underlying appreciation of the tenge against the US dollar, we were able in 2003 to better ensure the competitiveness of Kazakh exporters than in 2001-02.
EM: Are there other implications of a weaker dollar for Kazakhstan?
AS: The strengthening of the tenge has further reduced the dollarization of the Kazakh economy. So over the last year-and-a-half, the proportion of residents' bank deposits held in tenge, as opposed to dollars and other currencies, has risen to 54.5% of the total from 40%, and the proportion of credits disbursed in tenge to 46.2% from 31.5%. We see these processes ? which are being stimulated not only by external factors but also by state policy in the monetary, tax and financial regulation fields ? as positive.
EM: Could you tell us how the regulation of domestic markets is proceeding since the Agency for the Regulation and Inspection of Financial Markets and Organizations was separated from the National Bank at the beginning of the year?
AS: The division of functions will enable both institutions to work more effectively; it means that the National Bank now carries out the classic functions of a central bank. The bank undertakes a monetary policy in accordance with prevailing economic conditions, ensures the uninterrupted functioning of payment systems and is responsible for regulation and control of the currency. Naturally we continue to work closely with our colleagues from the agency, since financial stability remains one of our key concerns.
EM: Is the level of inward investment into Kazakhstan sufficient? What are you doing to encourage it?
AS: Aggregate foreign direct investment (FDI) in the decade from 1993 to 2003 was $25.8 billion. It grew steadily during that period, and in 2003 reached a record level of $4.6 billion (15.4% of GDP). FDI is mainly directed into major exploration and production projects in the hydrocarbons sector, which since 1999 have accounted for 70% of the total. The concentration on this sector also affected the make-up of FDI by source: the US dominated, and there were also significant levels of investment from Switzerland, the Netherlands, the UK, Italy, China and Russia.
There is positive news, too, on FDI in the non-oil sector, which for the last three years amounted to $3.2 billion. These flows were chiefly to the non-ferrous metals, building and financial sectors. It all speaks of the macroeconomic stability and reliable investment climate.
The Foreign Investors Council founded by the Kazakh president, which comprises senior executives of international financial institutions and the largest foreign companies working here, ensures a face-to-face dialogue with investors working in Kazakhstan and the effective resolution of problems as they arise. The council works as a consultative body, under whose auspices, members of the government meet regularly with foreign companies working here. Proposals for improving the legal framework for business and specific issues relating to investment projects of strategic significance are discussed and recommendations elaborated.
EM: Are the negotiations on Kazakhstan's entry to the WTO proceeding satisfactorily?
AS: Entry to the WTO, in order to take advantage of the framework it offers for trade, is one of Kazakhstan's central aims at present. The negotiations are currently focused on the services sector, above all the finance, telecoms and tourism sub-sectors. There is much to be done at the talks with regard to the agricultural sector and customs and tariff regimes for consumer goods.
EM: How do you evaluate the work of the IMF in general, and in the post-Soviet countries and Kazakhstan in particular?
AS: The IMF has done a great deal of important work in the post-Soviet countries on balance-of-payments issues, the development of financial systems, the liberalization of currency regimes and the development of standardized statistical methodologies.
Although we have no borrowing programme with the IMF in Kazakhstan at present, we naturally value its work in the country highly. In August 2003, in accordance with Article IV of the agreement between the IMF and Kazakhstan, the Fund's permanent representative left Kazakhstan. That decision was made because of the considerable progress made by Kazakhstan in stabilizing its economy and its positive mid- and long-term economic and financial prospects. The IMF's permanent representatives in Estonia and Latvia were withdrawn for similar reasons.
Biography
Anvar Saidenov succeeded Grigorii Marchenko as president of National Bank of the Republic of Kazakhstan in January this year, having served as Vice President since June 2002. He had a previous spell as vice president between 1996 and 1998; prior to that (1993-96) he worked as a consultant and special adviser at the European Bank for Reconstruction and Development in London.
Between 1998 and 2000 Saidenov worked as executive director of the State Committee for Investment, president of the national investment agency and deputy minister of finance. From 2000 to 2002 he worked as the chief executive, and then president, of the Narodny Bank of Kazakhstan.
Saidenov, 43, was born in a Moscow-based Kazakh family, and has a Bachelor's degree from the Moscow State University and a Masters from the University of London.