When Kairat Kelimbetov describes the past few months, he refers to the period before August’s market turmoil as “prewar time”.
If one person has cause to feel embattled as a result of the emerging market meltdown triggered by China’s slowdown, it may be the Kazakh central bank governor.
After a year and a half of attempting to maintain the Kazakh tenge’s stability in the face of falling oil prices, the country’s main export, and sanctions against Russia, its top trading partner, Mr Kelimbetov on August 20 allowed the currency to float freely. The immediate result was a 23 per cent plunge in its value.
The move was a boost to Kazakhstan’s struggling resources sector, but it came at the expense of ordinary Kazakhs, who may now face higher inflation and higher costs for everyday goods. As such, it has highlighted the authoritarian government’s dilemma as it attempts to navigate lean times without triggering social unrest.
“There is now a turbulence globally,” Mr Kelimbetov says in an interview in Almaty, Kazakhstan’s financial capital. “We all fasten our belts.”
The logic behind Kazakhstan’s move was clear. Oil accounts for about 60 per cent of the country’s exports. Budget revenues have fallen sharply, with corporate tax receipts down 12.6 per cent in the first half of the year.
The central bank had spent $28bn propping up the currency in less than two years; equivalent to more than a quarter of the combined central bank reserves and national oil fund. Analysts and Kazakh businesspeople had been anticipating a devaluation of the tenge for months.
The move has not made Mr Kelimbetov a popular man at home. After a previous devaluation of 19 per cent in February 2014, Mr Kelimbetov had promised as recently as July that there would not be another.
The U-turn prompted derision on social media, with one commenter listing “there will not be a devaluation” alongside “we’ll call you” and “this is my last cigarette” as the statements most likely to be untruthful.
Mr Kelimbetov points out that the central bank had announced plans for a free float months ago, although it had intended to implement the shift over years rather than months.
He argues that relatively few groups in Kazakhstan will suffer as a result of the currency fall: three-quarters of depositors held savings in dollars, while 70 per cent of company borrowings were in tenge before the move.
To the man in the street, his response is blunt: “This is a market-driven decision. This is not socialism. We could not protect everything.”
That is unlikely to be a popular message in former Soviet Kazakhstan, where many people still expect the government to protect their jobs and guarantee a minimum standard of living.
Indeed, with memories of a month-long oil workers’ strike in Zhanaozen in 2011 that ended in bloody clashes with police, the Kazakh government has a deep fear of social unrest. One government official says the decision to let the tenge float was prompted by growing signs of economic distress in the oil and mining sector over the summer.
In the weeks leading up to the move, a drilling company in the western Kazakh city of Aktobe announced 200 lay-offs, while ArcelorMittal Temirtau, the country’s largest steelmaker, said it would cut salaries by a quarter, only to reverse the decision after the tenge weakened.
The central bank itself stepped in to aid the indebted state oil company by buying 10 per cent of its equity — a highly unconventional move for a central bank.
“Nobody is perfect,” says Mr Kelimbetov with a giggle.
Kazakhs are bracing for a rise in inflation which will erode their real incomes. Last weekend, the government deregulated certain petrol prices, triggering a 20 per cent price increase.
Mr Kelimbetov concedes that inflation is likely to breach the central bank’s 6-8 per cent target, but argues the central bank has charted a moderate course.
He compares its policy choice with that of other oil rich countries: at one extreme, Saudi Arabia, which has insisted it will maintain its dollar peg despite a dramatic loss of reserves; on the other, Russia, which allowed the rouble to float freely last November only to see it almost halve in value within weeks.
The central bank, which last week set its first ever benchmark interest rate at 12 per cent, is no longer intervening in the currency market at all, says Mr Kelimbetov.
He is far from optimistic, however.
Describing the tenge free float as a preparation “for the new shocks which are coming”, he cites the prospect of a forthcoming rise in US interest rates, which could further put pressure on oil prices, and uncertainty about Chinese growth.
“The world is really changing dramatically, the world is different from 20 years before. We have to create a system that helps us to absorb the external shocks and to prepare for future competition,” says Mr Kelimbetov. “Definitely it’s painful, but it’s the reality.”
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