08ASTANA2338, KAZAKHSTAN: GOVERNMENT MOVES SWIFTLY TO STABILIZE BANKING

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Reference ID Created Released Classification Origin
08ASTANA2338 2008-11-25 10:56 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO9057
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV
RUEHSR RUEHVK RUEHYG
DE RUEHTA #2338/01 3301056
ZNR UUUUU ZZH
O 251056Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3943
INFO RUCNCLS/SCA COLLECTIVE
RUCNCIS/CIS COLLECTIVE 0850
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0249
RUEHKO/AMEMBASSY TOKYO 0959
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0417
RUEKJCS/SECDEF WASHDC 0332
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 02 ASTANA 002338 
 
SIPDIS 
SENSITIVE 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS USTDA FOR DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN KZ
 
SUBJECT:  KAZAKHSTAN:  GOVERNMENT MOVES SWIFTLY TO STABILIZE BANKING 
SECTOR (PART 2 of 3) 
 
REF:  A) 08 ASTANA 2320 
 
1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
2.  (U) This is the second in a three-part series analyzing 
Kazakhstan's response to the global financial crisis. 
 
3.  (SBU) SUMMARY:  On October 13, President Nazarbayev announced a 
series of sweeping measures to be enacted by the Government of 
Kazakhstan in response to the global financial crisis.  Established 
to ensure the stability of Kazakhstani financial markets, these 
measures include the accelerated establishment and implementation of 
the Asset Stabilization Fund (ASF), the merger of the two largest 
asset-generating and wealth-distributing state holding companies 
Samruk and Kazyna, the Law on Financial Stability (since adopted), 
and the government's intention to purchase 25% equity stakes in the 
four key banks sometime in the coming months.  As the merger of 
Samruk and Kazyna moves forward, officials inside the previously 
distinct agencies are working to create a unified vision for the 
future.  Meanwhile, international groups are guardedly optimistic 
there will be increased transparency, competent leadership, and 
minimized disruption in commercial operations.  END SUMMARY. 
 
MERGER OF SAMRUK-KAZYNA UNDERWAY 
 
4.  (SBU) Government economic assistance plans name the newly 
combined National Welfare Fund Samruk-Kazyna as the primary 
implementer of its stabilization programs.  Meanwhile, the merger of 
these two distinct institutions continues, with behind-the-scenes 
negotiations ongoing.  The clear heavyweight of the two, Samruk, 
owns 91% of Kazakhstan's asset base according to Peter Howe, Deputy 
Chair of the Samruk Managing Board.  Kazyna has been home to the 
country's financial development institutions since it was created in 
2006, but its operations have notably lacked transparency. 
Initially led by Kairat Kelimbetov, and tasked primarily with the 
diversification of the Kazakhstani economy, there is little tangible 
progress for which it can claim credit.  Critics inside and outside 
the government argue that it has been a tool for the distribution of 
wealth within the upper political echelons of the government with 
little accountability.  Kazyna has little clout with legitimate 
western development institutions. 
 
MERGER MORE CONSOLIDATION THAN CRISIS MEASURE 
 
5.  (SBU) The reasoning behind the merger remains somewhat murky. 
On October 13, Nazarbayev said that the new, combined institution 
would strengthen Kazakhstan's ability to respond uniformly to the 
developing financial crisis.  With the expected consolidation of 
government shares of ownership in Eurasian Natural Resources Group 
(ENRC), KazAtomProm, Kazakhmys (mining), the Kazakhstan Mortgage 
Company and seven regional holding companies (also known as Social 
Entrepreneurial Corporations) under the Samruk-Kazyna umbrella, the 
new National Welfare Fund will be the largest institution of its 
kind in the CIS.  Its capitalization will be greater than $40 
billion and it will represent more than 50% of the Kazakhstani GDP. 
The CEO of Citibank-Kazakhstan Dan Connelly believes the move is 
more likely to concentrate oversight of the country's greatest 
assets with someone the president trusts. 
 
CONCERNS THAT SAMRUK-KAZYNA WILL BE FURTHER POLITICIZED 
 
6.  (SBU) Outsiders and insiders alike hope the merger will not 
divert the larger goals of these previously distinct organizations. 
According to Howe, the overarching long-term priorities of 
Samruk-Kazyna will remain the same, including a focus on 
infrastructure development, solicitation of foreign investment, and 
priority programs such as the expansion of the electricity grid. 
Kazyna Managing Director Marat Aitenov also believes that the 
overall strategy and goals of Kazyna will not change as it is 
incorporated into the larger fund.  Connelly said he hoped it would 
be "business as usual" and praised the decision to appoint 
Kelimbetov to lead the fund.  However, Senior Banker and Acting Head 
of the EBRD Representative Office in Astana Ulf Hidstrom said that 
 
ASTANA 00002338  002 OF 002 
 
 
"the jury is still out" as to how well it and other western 
financial institutions will be able to work with the named 
leadership, noting that Kelimbetov is clearly a "political animal" 
and that Timur Kulibayev [President Nazarbayev's son-in-law] is "a 
good businessman, but extremely politically exposed."  According to 
Hindstrom,
 the greatest challenge for the new fund will be to keep 
political considerations separate from commercially driven 
decision-making processes, noting that the merger is "obviously 
increasing political influence over the economy." 
 
7.  (SBU) Both Howe and Aitenov separately stated that the two 
organizations are now working to develop their organization as an 
integrated whole with a combined vision for the future.  The process 
is expected to take at least two months.  A new organizational chart 
should be released by the end of the year. 
 
8.  (SBU) COMMENT:  The newly formed Samruk-Kazyna will play a major 
role in managing the government's participation and oversight of the 
Kazakhstani banking sector's response to the financial crisis.  It 
is hoped that neither an expanded bureaucratic structure, nor a 
politically visible leadership will negatively impact the 
government's ability to weather these turbulent financial times. 
END COMMENT. 
 
HOAGLAND

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