09ASTANA218, KAZAKHSTAN: GOVERNMENT DEVALUES TENGE

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Reference ID Created Released Classification Origin
09ASTANA218 2009-02-06 03:09 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO4368
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 #0218/01 0370309
ZNR UUUUU ZZH
O 060309Z FEB 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4538
INFO RUCNCIS/CIS COLLECTIVE 1142
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0539
RUEHKO/AMEMBASSY TOKYO 1245
RUEHUL/AMEMBASSY SEOUL 0265
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0716
RUEKJCS/SECDEF WASHDC 0632
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1173

UNCLAS SECTION 01 OF 02 ASTANA 000218 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/IFD/OMA, EEB/EPPD 
STATE PLEASE PASS TO USTDA FOR DAN STEIN AND USTR 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EFIN EINV ELAB KZ
SUBJECT:  KAZAKHSTAN:  GOVERNMENT DEVALUES TENGE 
 
REF:  ASTANA 204 
 
ASTANA 00000218  001.2 OF 002 
 
 
1.  (U) Sensitive but unclassified.  Not for public Internet 
distribution. 
 
2.  (U) SUMMARY:  The National Bank of Kazakhstan allowed the 
country's currency, the tenge (KZT), to devalue on February 4 from 
its exchange rate of approximately 122 to the dollar.  Announcing 
that it would abandon its support of the tenge in a bid to conserve 
foreign exchange reserves and increase domestic competitiveness, the 
National Bank set a new target rate of 150 tenge to the dollar. 
The move to quickly and significantly devalue was attributed to new 
National Bank Chairman Grigoriy Marchenko.   The devaluation set off 
a rush among the public to buy dollars, resulting in dollar 
shortages at banks and exchange points.  Stores moved to quickly 
adjust tenge prices upward.  Twelve-month futures contracts for 
tenge were trading at 186 tenge to the dollar on February 5, but 
Marchenko said publicly the National Bank would not allow the tenge 
to slide to that level.  END SUMMARY. 
 
DECISIVE MOVE TO DEVALUE ATTRIBUTED TO NEW NATIONAL BANK HEAD 
 
3. (U) Kazakhstan's National Bank announced on February 4 that it 
would stop supporting the country's national currency, the tenge 
(KZT), at its current exchange rate of approximately 122 per dollar, 
and allow it to devalue to the range of 145-155 per dollar.  The 
announcement caused a rush among the public to exchange tenge for 
dollars, leading to dollar shortages at banks and currency exchange 
booths.  The tenge immediately dropped toward 150 per dollar, with 
"street rates" reportedly approaching 200 tenge to the dollar in 
some provincial towns. 
 
4. (SBU) A devaluation had been widely expected -- but not so steep, 
and perhaps not so soon.  As late as February 2, Minister of Economy 
and Budget Planning Bakhyt Sultanov assured the public that a tenge 
devaluation would not exceed 10 percent.  Prime Minister Masimov 
told the Ambassador on February 3 that the government had a 
"confiden tial plan" to devalue, but gave no hint that it would be 
implemented the following day. 
 
5. (U) Analysts attribute the decisive move to devalue to 
newly-appointed National Bank chairman Grigoriy Marchenko, a 
widely-respected economist and banker who was most recently CEO of 
Halyk Bank and previously headed the National Bank following the 
1998 Russian financial crisis.  The National Bank reportedly spent 
more than $6 billion from its foreign currency reserves over the 
past four months defending the tenge, including $2.7 billion in 
January alone. (NOTE:  Prior to the February 4 devaluation, the 
tenge had effectively been pegged at a rate of 120 tenge to the 
dollar since September 2007, never moving more than three percent 
above or below that level.  END NOTE.)  The move to devaluate was 
taken in part to improve Kazakhstan's terms of trade, particularly 
in light of the recent devaluation of the Russian ruble.  Russia is 
Kazakhstan's largest trading partner, and with a 40 percent 
devaluation of the ruble since the summer of 2008, Kazakhstani 
enterprises were being placed at a growing economic disadvantage 
relative to their Russian competitors. 
 
NATIONAL BANK PLEDGES TO MAINTAIN NEW BAND 
 
6.  (SBU) The National Bank has pledged it will maintain the 
currency within a new band of 145-155 tenge to the dollar. 
Marchenko said that the government and National Bank will provide 
assistance to help banks withstand the potential negative effects of 
the devaluation.  Samruk-Kazyna National Welfare Fund Chairman 
Kairat Kelimbetov urged the population to remain calm and pledged 
that inflation, at least for daily necessities, will be kept 
manageable.  Despite his reassurances, on February 5, many shops in 
Almaty and Astana closed to adjust tenge prices upward.  Some 
Embassy suppliers are threatening to break their contracts and are 
demanding higher prices for their services in response to the 
devaluation.  Even the Intercontinental Hotel in Almaty raised rates 
 
ASTANA 00000218  002.2 OF 002 
 
 
by 25 percent literally overnight -- slipping a revised bill under 
the Ambassador's door while he was asleep in his hotel room. 
 
7.  (SBU) It remains unclear whether the National Bank will be able 
to hold the
tenge within the new 145-155 band.  On February 5, 
twelve-month forward contracts used to speculate on or hedge against 
future currency fluctuations were trading at 186 tenge to the 
dollar.  "The pressure will be there at 150 for the tenge and 
they'll have to devalue again," Lars Christensen, head of 
emerging-market strategy at Danske Bank in Copenhagen told 
Bloomberg.  "As long as oil prices remain subdued, there is nothing 
telling you to buy the tenge and there will be pressure there," he 
argued.  However, National Bank Chairman Marchenko dismissed this 
speculation on February 5, saying "We will hold to the announced 
corridor.  Talk that the exchange rate will be 180 tenge per dollar 
in two months and 300 tenge at the end of this year is not truth, 
but fantasy." 
 
8. (SBU) COMMENT:  It remains to be seen how this devaluation will 
affect the ability to Kazakhstani banks to make repayments on their 
foreign debt obligations, which are usually denominated in dollars. 
Kazakhstani banks owe approximately $40 billion to external lenders, 
of which more than $10 billion is due to be repaid in 2009 and 
another $10 billion in 2010.  END COMMENT. 
 
HOAGLAND

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