09ASTANA150, KAZAKHSTAN: MINISTER OF ECONOMY SUPPORTS CLOSER

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Reference ID Created Released Classification Origin
09ASTANA150 2009-01-27 01:42 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO5522
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV
RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHTA #0150/01 0270142
ZNR UUUUU ZZH
O 270142Z JAN 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4448
INFO RUCNCIS/CIS COLLECTIVE 1093
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0491
RUEHKO/AMEMBASSY TOKYO 1197
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0666
RUEKJCS/SECDEF WASHDC 0582
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1125

UNCLAS SECTION 01 OF 03 ASTANA 000150 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/IFD/OMA, EEB/EPPD, ISN 
STATE PLEASE PASS TO USAID 
STATE PLEASE PASS TO USTDA FOR DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EFIN EAID KNNP KZ
SUBJECT:  KAZAKHSTAN:  MINISTER OF ECONOMY SUPPORTS CLOSER 
COOPERATION WITH U.S. GOVERNMENT 
 
REF: (A) 08 ASTANA 2547 
      (B) 08 ASTANA 2320 
      (C) ASTANA 0068 
(D) 08 ASTANA 2226 
 
ASTANA 00000150  001.2 OF 003 
 
 
1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
2.  (SBU) SUMMARY:  On January 23, the Ambassador met Minister of 
Economy and Budget Planning Bakhyt Sultanov and discussed the 
government's response to the financial crisis, the new tax code, 
administrative barriers to doing business, the joint 
U.S.-Kazakhstani Program for Economic Development (PED), and the 
transportation and storage of spent fuel from the decommissioned 
BN-350 breeder reactor.  The Minister said the government has set 
aside funds to continue PED for an additional three years, if the 
U.S. government is also willing to contribute to the program.  He 
declined to specify the amount of money Kazakhstan will provide for 
the safe storage of BN-350 spent fuel, but did say the government is 
committed to the program, which he argued will require an expensive, 
comprehensive solution.  The Minister also requested U.S. government 
support for the second annual International Economic Forum, to be 
held in Astana on March 11-12, and confirmed that the government 
will honor tax stability clauses in existing contracts, an issue of 
particular concern to international oil companies.  END SUMMARY. 
 
THE NEXT GENERATION IS HERE AND NOW 
 
3.  (SBU) The Ambassador met for nearly ninety minutes with Minister 
Sultanov, an accomplished and articulate 37-year old technocrat with 
degrees in electrical engineering and economics.  Sultanov has spent 
his entire career in government and has advanced rapidly through the 
ranks of the Ministry of Finance (1994-2002) and Ministry of Economy 
and Budget Planning, where he has served as Minister since August 
2007.  Sultanov's most striking characteristic is his youthful 
appearance, although he does not appear to be overwhelmed by the 
authority of his office.  During a long, comprehensive, and candid 
briefing, Sultanov spoke expertly on a wide-range of complex issues. 
 Throughout, he was relaxed, composed, and self-confident, without 
hubris or arrogance.  He listened politely, smiled frequently, spoke 
English easily, removed his stylish glasses to underscore a point, 
and joked with the Ambassador that government bureaucracy can be 
both a hindrance and a convenience, recognizing that it does provide 
checks and balances. 
 
4.  (SBU) Sultanov brought a large team to the meeting, including 
Baurzhan Tortayev, Director for International Policy, who is 
responsible for coordination with USAID; Zhamilya Tokabekova, 
Director of Budget Policy and Planning; Saltanat Kuzganova, Director 
of International Relations; Mirsakasim Baibekov, Director of 
Industrial Development, who covers manufacturing industries in the 
so-called "real economy"; Alibek Bakayev, Chief of Protocol; and 
Zhikar Yulianova, Press Secretary.  The assembled officials appeared 
even younger than the Minister, with the exception of Baibekov, who 
is in his mid-50s and played the role of elder statesman and senior 
advisor. 
 
HIGH PRAISE FOR PED 
 
5.  (SBU) Sultanov expressed his government's high regard for the 
joint Program for Economic Development (PED) and said the Ministry 
plans to continue funding the program, scheduled to end in 2009, for 
an additional three years, if the U.S. government continues to 
contribute as well.  (NOTE:  Sultanov did not say what percentage of 
future costs he expected the U.S. government to cover.  END NOTE). 
He said the Ministry has already consulted with all relevant 
administrative and government agencies to lay the groundwork for a 
three-year extension.  Sultanov said that if both governments decide 
to extend PED, they will need to prepare a report documenting the 
results of previous project activities.  "We must make the business 
case to the Prime Minister and parliament," he said, adding that the 
Ministry recently submitted similar reports on joint activities with 
 
ASTANA 00000150  002.2 OF 003 
 
 
the World Bank, the European Union, and the OECD.  Sultanov said the 
process of identifying, developing, implementing, and monitoring a 
project can be long and bureaucratic, but said the Ministry is 
willing to make the necessary invest
ment of time and money to 
deliver lasting results.  "We are results-oriented," emphasized 
Sultanov.  The Ambassador praised PED, said we will consider the 
request for an extension seriously, and promised to get back to the 
Minister.  (NOTE:  See reftel A for post's proposed approach to 
extending PED for three additional years.  END NOTE.) 
 
FRIENDLY COMPETITION 
 
6.  (SBU) Sultanov said the government takes very seriously the 
various international rankings and indices used to assess economic 
performance.  In particular, he cited the World Bank's Doing 
Business index and the World Economic Forum's Competitiveness index. 
 He said they have helped to stimulate administrative reforms that 
he hopes will lower barriers to business growth.  Sultanov confided 
that colleagues in the government of Kyrgyzstan also monitor their 
government's ranking on these indices and acknowledged that there is 
a friendly competition to join the ranks of the top 30 countries. 
Sultanov emphasized, however, that the ranking itself is less 
important than the results of reforms.  "The rating is a convenient 
way for external observers to assess the business climate," but what 
really matters is the reality on the ground.  Sultanov said his team 
is currently working to combine the various international indicators 
into a single, comprehensive index that will track Kazakhstan's 
progress toward its goal of developing an open, diverse, competitive 
economy. 
 
SOCIAL PROGRAMS PARAMOUNT 
 
7.  (SBU) Sultanov said that Kazakhstan was one of the first 
countries in the world to experience the effects of the global 
financial crisis, having suffered through the August 2007 banking 
crisis (reftel B).  He argued that the lessons learned during this 
earlier crisis helped to prepare the government for the broader 
events of 2008.  Sultanov said the abrupt end to external borrowing 
seriously affected Kazakhstan's banking sector, while the high price 
of oil in the fall of 2008 constrained plans to diversify the 
economy.  In a comprehensive thirty-minute presentation, Sultanov 
summarized the government's anti-crisis program, which has been 
previously reported (reftel C).  He confirmed that the government's 
projected GDP growth rate in 2009 is from one to three percent, with 
two percent growth the consensus opinion of the Ministry and the 
International Monetary Fund.  He also confirmed that the government 
has based its current three-year budget on the assumption that oil 
prices will average $40 per barrel. 
 
8.  (SBU) In a moment of surprising candor, Minister Sultanov 
admitted that the government "missed an early opportunity" to take 
care of individual apartment owners whose buildings have not yet 
been finished.  (NOTE:  Sultanov was referring to the so-called 
"dolshiki," or those who are owed apartments but have not yet 
received them.  A significant number have become grass-roots social 
activists and have gained increasing attention and influence over 
the past nine to twelve months through public protests.  END NOTE). 
Sultanov claimed that the government is now responding very quickly 
and ably to the needs of the dolshiki and stressed that the 
government's anti-crisis program guarantees funding for all 
essential social programs; other programs will be funded only if 
they have a "multiplier effect" on economic growth and unemployment, 
he said. 
 
PROMISES, PROMISES 
 
9.  (SBU) When asked whether the government would provide the 
minimum amount ($5 million) required this year to transport spent 
fuel from the BN-250 breeder reactor in Aktau to its long-term 
storage site near Semipalatinsk, Sultanov hesitated and, for the 
first time, asked for guidance.  He turned and whispered a question 
 
ASTANA 00000150  003.2 OF 003 
 
 
to Baibekov, Director of Industrial Development, who shook his head 
in response.  Sultanov then told the Ambassador, "I'm sorry, but I 
don't have all the details about this program at the moment." 
Sultanov did say, however, that $5 million alone would not solve the 
problem of transport of the spent fuel and its long-term storage, 
and called for a long-term, comprehensive solution, which he 
admitted would be very expensive, costing as much as $500 million. 
"We cannot commit to this amount of funding right now," he said, 
"but we will maintain current safety measures and will begin to 
develop a more comprehensive solution."  (COMMENT:  Sultanov was 
clearly not briefed on the details of the BN-350 program, including 
the fact that the U.S. government is bearing a significant portion 
of program expenses.  END COMMENT.) 
 
TCO TAX STABILITY GUARANTEED 
 
10.  (SBU) EconOff asked the Minister whether international oil 
companies with tax stability clauses in existing contracts should 
pay taxes according to the terms of their contracts or according to 
the new Tax Code, adopted earlier this year (reftel D).  Sultanov 
responded that the new Tax Code will certainly alter the tax regime 
of new contracts, but companies with contracts containing tax 
stability clauses -- he specifically mentioned Tengizchevroil (TCO), 
in which Chevron owns 50% and ExxonMobil owns 20% -- will be 
protected and should continue to pay taxes according to the terms of 
their contracts. 
 
INTERNATIONAL ECONOMIC FORUM 
 
11.  (SBU) In closing, Sultanov announced that the government will 
host the second annual International Economic Forum in Astana on 
March 11-12, and asked for the support and assistance of the U.S. 
government.  The Minister said that he had just received 
confirmation that morning that President Nazarbayev would open the 
conference and he said the keynote speakers would be Columbia 
University professors Edmund Phelps and Robert Mundell, who won the 
Nobel Prize for Economics in 2006 and 1999, respectively.  The 
Ambassador said that he would certainly support the event and would 
encourage colleagues in the U.S. government and other diplomatic 
missions to participate. 
 
HOAGLAND

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