Status Update on U.S.-Kazakhstan Cost Sharing

UNCLAS ALMATY 001029

SIPDIS


DEPARTMENT FOR EUR/CACEN (J.MUDGE); EUR/ACE (M'ONEAL)
DEPARTMENT PLS PASS TO USAID/E&E T.ALEXANDER

SENSITIVE

E.O. 12958: N/A
TAGS: EAID PREL KZ ECONOMIC
SUBJECT: Status Update on U.S.-Kazakhstan Cost Sharing
Program


1. (SBU) Summary: An official in Kazakhstan's Ministry of
Economy and Budget Planning (MEBP),Maulen Utegulov,
confirmed in a meeting with USAID the Government of
Kazakhstan's commitment to finalizing a cost-sharing
agreement with a budget allocation in 2006. While signing
of the agreement must await ratification of the U.S.-
Kazakhstan bilateral agreement, the official stated that, if
necessary, the budget allocation in 2006 can be done based
on a draft agreement with supplementary budget
justification. USAID is collaborating with line ministries
to ensure all relevant program justifications are provided
to MEBP in time to be included in the 2006 budget. End
Summary.


2. (SBU) On March 14, the Director and two other members of
USAID/CAR's Enterprise and Finance Office met with Maulen
Utegulov, Director of State Borrowing and Lending Planning
Department within the Ministry of Economy and Budget
Planning (MEBP) of the Republic of Kazakhstan and the key
counterpart responsible for realization of the Program for
Economic Development (PED). The PED refers to the set of
programs aimed at helping Kazakhstan diversify its economy
and broaden the benefits of economic growth through
strengthening the competitiveness of small and medium
enterprises and the environment in which they operate. It
encompasses activities under the so-called Houston
Initiative, but entails cost-sharing on the part of the
Government of Kazakhstan. The purpose of the March 14
meeting was to discuss the status of the agreement and next
steps for moving it


3. (SBU) Utegulov described the process MEBP had taken to
acquire input from Ministries on the PED. They had
solicited and reviewed budget and program justifications
from all the Ministries. Of the 13 received, only four were
accepted as having relevance to the PED. However, upon
review of the rejection list, USAID noted that at least one
was of relevance. In addition, many program justifications
that we would like to have funded were not included on the
list. Utegulov agreed to give USAID two more weeks to work
with Ministries on the submission of their justifications so
they could be included in the program. He also agreed to
fund existing programs (current contracts) rather than only
new contracts as had been the GOK's position previously.


4. (SBU) USAID EF director sought and received clarification
on the relationship of the PED agreement (which is
effectively a Memorandum of Understanding) to the budget
allocation. The PED agreement refers to the U.S.-Kazakhstan
bilateral agreement for treatment of taxation, but the GOK
does not agree to this language because the bilateral has
not been ratified by Parliament. The process is underway
for ratification of the bilateral, but Post does not want
this process to disrupt the PED budget allocation. Utegulov
said that ideally the bilateral would be ratified prior to
submission of the 2006 budget to Parliament in September,
but in the event that it was not, the budget could still go
forward with inclusion of the PED budget. A draft PED
agreement could be attached to the budget along with
corresponding justification. Thus, any slowdown in the
ratification process should not affect our obtaining a 2006
budget allocation.


5. (SBU) It was agreed that the PED agreement would serve
as a framework for the collaborative program. Every year,
the specific program elements would be agreed upon in a
process similar to that currently underway wherein USAID
works with the line ministries to obtain agreement and
formulate program elements that are then submitted to MEPB
for final review and acceptance. USAID also agreed to
review the proposed new programs that were not specifically
envisioned, but which may fit within the context of PED and
thus be worthy of funding and inclusion in new program
designs.


6. (SBU) USAID EF director asked Utegulov whether it would
be possible to include an allocation in the 2005 budget
rectification. He responded that it would depend on how
closely activities aligned with the priorities outlined in
the President's State of Union speech. EF director noted
that considerable attention was paid in the President's
speech to SMEs and that strengthening SMEs was the essence
of the PED. Utegulov did not rule out the possibility of
2005 funding.



7. (U) Minimize for Dushanbe considered.

Ordway


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