KAZAKHSTAN: AMBASSADOR'S AUGUST 1 MEETING WITH

C O N F I D E N T I A L SECTION 01 OF 02 ALMATY 002800 SIPDIS SIPDIS DEPT FOR SCA/CEN (J. MUDGE) E.O. 12958: DECL: 08/04/2016 TAGS: PREL EFIN KZ SUBJECT: KAZAKHSTAN: AMBASSADOR'S AUGUST 1 MEETING WITH DEPUTY PM MASIMOV REF: A. ALMATY 2464 ¶B. ALMATY 2673 ¶C. ALMATY 1404 Classified By: Amb. John Ordway, reasons 1.4 (B) and (D). ¶1. (C) Summary: Secretary of Agriculture Johanns' recent visit was very successful and highlighted the importance of agriculture and water issues in Kazakhstan, according to Deputy Prime Minister Masimov. Environmental issues and migration are also serious challenges, he added, noting that the latter issue had resulted in violent conflicts in Almaty. Masimov offered to host Senator Lugar during his upcoming visit to Astana. Masimov said that nuclear cooperation agreements with Russia announced July 25 were only preliminary; Kazakhstan was in negotiations with U.S. firms as well. Finally, Masimov gave a positive assessment of the Kazakhstani economy, noting the GOK's actions to control foreign borrowing and improve corporate governance. End summary. ¶2. (SBU) In an August 1 meeting with the Ambassador in Astana, Deputy Prime Minister Karim Masimov commented on the success of Agriculture Secretary Johanns' recent trade mission to Kazakhstan. He said that the visit had caused him to change his thinking regarding the biggest challenges Kazakhstan faces today. He plans to pay more attention to agricultural and water issues in the future. ¶3. (SBU) Environmental issues and migration are also serious problems for Kazakhstan, Masimov commented. The conflicts in Bakay and Shanyrak (Ref A) had occurred because the government had not paid enough attention to urbanization and internal migration issues. Masimov, himself an ethnic Uighur, commented that the authorities' harsh action to demolish illegally built houses had provoked discontent among ethnic Kazakhs that "foreigners" were receiving preferential treatment over citizens of Kazakhstan. -------------- Codel Lugar -------------- ¶4. (SBU) The Ambassador told Masimov that Senator Lugar planned to visit Kazakhstan August 18-20. We are exploring the option of a meeting with Nazarbayev in Aktobe. Masimov noted that he would be in Astana those dates and would be happy to host Senator Lugar for a lunch or dinner. -------------- Iran -------------- ¶5. (C) Turning to Iran, Masimov said that he did not believe that Iran would comply with UNSCR 1696 within one month. He was also concerned about the harshness of Israeli military action in Lebanon, which he saw as exacerbating world opinion and strengthening Russia's hand by raising world energy prices. -------------- Nuclear Cooperation with Russia -------------- ¶6. (C) The Ambassador asked Masimov about the July 25 announcement of nuclear cooperation with Russia. Masimov replied that at this point the agreements are all preliminary, adding that until the 2004 deal with Canadian firm Cameco to develop the Inkai uranium deposit (Ref B), Russia had paid little attention to Kazakhstan's resources. The GOK realizes that interest in nuclear energy is rising in both the U.S. and Europe, and sees this as an opportunity to develop its nuclear sector while decreasing its reliance on Russia and other suppliers. He stressed that the GOK wanted to manage nuclear-related development more wisely from the start than it had the oil and gas sector. Masimov said that Kazakhstan is interested in producing fuel but would not pursue enrichment. He added that negotiations are underway with U.S. firms, and that Kazakhstan would choose its partners based on objective economic criteria. -------------- Kazakhstani Economy -------------- ALMATY 00002800 002 OF 002 ¶7. (SBU) Kazakhstan's economy is doing well over all, Masimov said. Inflation was increasing due to high government spending last year. When the Central Bank was controlling the tenge exchange rate, there was tremendous pressure. Now that the rate ahs been allowed to float there is a significant inflow of capital. The money supply had grown 30% in the first quarter of 2006 alone. Foreign borrowing had also increased sharply, although the recent decision to increase reserve rates (Ref C) had brought the situation under control. Kazakhstan's external debt was $12 billion in 2005; banks borrowed an additional $5 billion in the first quarter of 2006. ¶8. (SBU) Masimov added that the GOK is taking steps to improve corporate governance. A "prominent person" with a good reputation had been chosen to head the Samryk holding company, he said. Masimov said that he frequently counsels Kazakhstani businessmen that by paying their taxes and opening their books, they can go public and increase their profits dramatically. ORDWAY