Kazakhstan’s Flickering Succession Embers
Kazakh shares slumped 30 percent in 2011 by the MSCI Index as President Nazarbaev marked the 20th independence anniversary with an emergency security declaration against rioters in the western oil town of Zhanaozen ahead of scheduled parliamentary elections slated to bring in formal opposition. Police opened fire on crowds that torched buildings amid a festering labor dispute in the region which had been watched by international energy groups pressured for a new deal on the Karachaganak project. KazMunaiGas, the London-listed state unit, asked European partners to dilute their shares as its head was dismissed by the President. His son-in-law and manager of the sovereign wealth fund Kulibayev was also purged from the ruling circle and the former Interior Minister was dispatched to the restive region in advance of a CIS meeting in Moscow where the longstanding power clique is likewise poised for a shakeup. The succession issue has become more urgent in Astana following reports that the President was recently treated abroad for cancer. The instability comes in the aftermath of a sovereign ratings upgrade to BBB+ on foreign exchange reserve replenishment to $70 billion, and hydrocarbon-led 6 percent GDP growth reflecting healthy FDI and fiscal positions. The currency has stayed at 150 to the dollar, but banking system vulnerability lingers with private credit flat and NPLs averaging just under one-third of portfolios. Eurobond access has eroded after major financial institution defaults, although the government plans to test the external sukuk market. The IMF in its latest Article IV probe called for stricter loan accounting and provisions in addition to “further governance and transparency” gains to mirror broader trends in Central Asia and the Caucuses, where Georgia for example has been hailed in “Doing Business” rankings.
Ukraine with a 45 percent loss was at the bottom of the European and overall frontier pack with the $15 billion IMF program still off course on continued gas pricing, pension and other differences. The current account deficit doubled to 4.5 percent of GDP last year and international reserves at $35 billion are below the 2008 crisis amount. Public and private external debt repayments are estimated at around $60 billion in 2012 and foreign banks have already announced cutbacks as the government will be unable to tap Russian and Eurobond financing even under favorable conditions to cover its $10 billion sum due without multilateral endorsement. Privatization has stalled since the controversial $1 billion sale of the phone monopoly to an Austrian group aligned with local oligarchs, and steel and agricultural exports may suffer from harvest and Asian demand constraints. The US and EU have added political reservations to the mix with outrage against the jailing of opposition party chief Tymoshenko for alleged crimes previously as prime minister within the CIS’s spotty succession saga.
