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.


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Codel Lugar
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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.

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Iran
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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.

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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.

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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