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. Last Updated: 07/27/2016

Confidence in Nazarbayev waning Russia and West rethink investment plans for Kazakhstan

When President George Bush described the oil concession that Kazakhstan granted to the Chevron Corporation as "a landmark agreement", he probably didn't realize it could well be a landmark of a different sort.


This month, as teams from the International Monetary Fund and World Bank visit Alma-Ata, the Kazakh capital, to negotiate loans based on calculations of the economy's capacity for debt service, there is skepticism that the Chevron concession will be able to export oil in the foreseeable future.


A World Bank report, which has been circulating in Alma-Ata, has pricked the investment balloon that the republic's U. S. consultants, Rothschild Inc. of New York, have been floating.


'All major investments should be restrained", according to the World Bank. The investment priority now, it recommends, "should be the operation and maintenance of existing capacities and the completion of ongoing projects".


Russian officials also express concern that the Kazakh government's drive for independence may be undermining confidence in the future for Russian citizens in the republic. They represent 40 percent of the total population and dominate the urban administrative class.


A loss of Russian confidence in Kazakhstan - comparable to what is happening in Tajikistan and Azerbaijan - is likely to have very adverse effects on the Russian government's support for the transportation networks on which Kazakh exporters depend, and for the supplies of equipment without which the Kazakh economy cannot function.


Moreover, sources in Alma-Ata report that there is increasingly bitter opposition to the policies of President Nursultan Nazarbayev, which have led to a serious decline in domestic living standards.


Last week, several thousand demonstrators held the biggest protest rally since September in Alma-Ata, demanding changes of government personnel and a shift in government policy.


And hostility towards foreign economic advice is reported to be growing among younger officials of the Kazakh government, aimed at both ethnic Russians, who traditionally dominated the Alma-Ata government, and also at advisers from Western institutions.


As for the Russians, they are expressing growing concern at what they view as the role of the United States and Turkey in encouraging anti-Russian moves by President Nursultan Nazarbayev and his ministers.


From the Russian point of view, the


U. S. objective is to create in Kazakhstan a pliable administration that will allow U. S oil and mining companies exclusive concessions on advantageous terms at oil fields and mineral deposits which the Russians explored, proved and brought into production.


The Chevron concession is viewed as an important indicator of Kazakhstan's capacity to generate new hard-currency revenues. If it cannot, without reserves to speak of, and with a sizeable deficit in its trade and balance of payments, the republic lacks the capacity to repay an IMF loan.


The short-term IMF solution, accepted by the Nazarbayev government and endorsed by the World Bank, is to cut domestic spending, eliminate the budget deficit, raise taxes and tighten credit. The objective is to create a budget surplus and an improvement in hard-currency exports, so as to help pay for the new credits.


The results have been dramatic. According to data collected by the multilateral agencies for the first quarter of the year, the Kazakh budget collected more revenue than projected, while elimination of food subsidies and cuts in pensions and social welfare spending reduced expenditures. A


budget surplus was recorded.


But the offsetting effects are also acknowledged to be dramatic. There was a sharp decline in production;


GDP has fallen by 23 percent compared with the first quarter of 1991. Industrial output is down 14 percent.


In the agriculture sector - already hard-hit by drought - meat production is down 27 percent, milk down 24 percent, eggs down 16 percent, butter down 36 percent and cooking oil down 32 percent, and the yield dropped to an unprecedented low. For the new sowing season Kazakh farmers have much less fuel than they had a year ago. IMF policy is driving fuel prices steadily higher, as farm incomes fall and taxes increase.


Liberalization of trade and Nazarbayev's much-touted new state divestiture policy have not had the hoped-for effect on enterprise performance. Instead, there has been a proliferation of new banks and financial intermediaries and an explosion of bad loans and interenterprise indebtedness.


A World Bank report now circulating in Alma-Ata recommends even more belt-tightening, starting with a "substantial" raise in rents for public housing and higher prices for staple foods.


But World Bank experts also warn that cuts in government spending are leading to a public health disaster.


"The present situation is barely tolerable", they have written, "and a further deterioration will result in much suffering".