KAZAKHSTAN: A/S BOUCHER AND DEPUTY PRIME MINISTER

UNCLAS SECTION 01 OF 03 ALMATY 003274

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SENSITIVE

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DEPARTMENT FOR SCA/CEN (M. O'MARA)

PLEASE PASS USTR

NSC FOR MILLARD, MERKEL

E.O. 193056: N/A
TAGS: PREL ETRD ECON EINV ENRG AF KZ
SUBJECT: KAZAKHSTAN: A/S BOUCHER AND DEPUTY PRIME MINISTER
MASIMOV FOCUS ON THE ECONOMY, INVESTMENT, AND AFGHANISTAN


1. (SBU) Summary: Deputy Prime Minister Masimov expressed
concern regarding the pace of bilateral WTO negotiations
with the U.S. during a September 8 meeting with Assistant
Secretary Boucher and requested a sign of U.S. support for

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Kazakhstan's early accession during President Nazarbayev's
upcoming visit to Washington. The Deputy Prime Minister
briefed A/S Boucher on Kazakhstan's efforts to diversify its
economy and informed Boucher that he expected the
Kazakhstani delegation visiting Afghanistan in September to
identify one or two investment projects. Masimov also
responded positively to A/S Boucher's suggestion to expand
dialogue on nuclear energy issues. End summary.


2. (U) Assistant Secretary of State for South and Central
Asian Affairs Richard Boucher met on September 8 in Astana
with Deputy Prime Minister Karim Masimov. The Ambassador
and Pol-Econ chief (notetaker) were also present. From the
Kazakhstani side, A. Kamaldinov and Zhanna Sartbayeva of the
Prime Minister's staff, director of the MFA's European
Cooperation Department Yerkin Akinzhanov, and deputy
director of the MFA's Europe and Americas Department Dauren
Toleukhanov also participated.

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Concern Regarding WTO Negotiations
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3. (SBU) A/S Boucher opened the meeting by noting that the
U.S. looks forward to President Nazarbayev's upcoming visit
to Washington, which will be an excellent opportunity to
discuss Kazakhstan's many accomplishments. Masimov agreed
that the visit was likely to contain many positive elements,
quickly adding that after receiving the U.S. Trade
Representative's most recent response he was concerned
regarding progress on bilateral World Trade Organization
negotiations with the U.S. Boucher reassured Masimov that
the U.S. fully supports Kazakhstan's early accession, and
promised to convey his concerns to the experts handling the
negotiations. Masimov asked for the State Department's
active engagement in the negotiations and for a sign of U.S.
support during the visit.

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Singapore Meetings
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4. (SBU) Masimov noted that he was looking forward to seeing
Under Secretary Josette Sheeran during the upcoming World
Bank/International Monetary Fund meetings in Singapore,
particularly at the September 18 Kazakhstani presentation on
regional economic cooperation. (Note: Post learned later
that Assistant Secretary for Economic and Business Affairs
Dan Sullivan is attending the Singapore meetings on Under
Secretary Sheeran's behalf. End note.) A/S Boucher said

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that the U.S. had been in contact with all the Central Asian
countries except Uzbekistan to encourage their participation
in the event. Masimov said that the Vice President of the
World Bank had promised to send good representatives.

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Economic Diversification
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5. (SBU) In response to A/S Boucher's question, Masimov
described progress on the diversification of Kazakhstan's
economy. 100% of oil revenues began going directly to the
National Fund as of July 1, he noted. The fund was now over
$10 billion and would reach $18 billion by the end of the
year. President Nazarbayev had announced a new stage of
administrative reform in his September 1 address to
Parliament, Masimov said, including civil service reform,
reduced government intervention in the economy, and further
economic liberalization. Masimov cited New Zealand and
Singapore as good models for civil service reform;
Kazakhstan seeks a smaller, more professional, better paid
corps of public servants. Development of small and medium
sized enterprises is a priority, according to Masimov, as is
agricultural reform. Forty-three percent of the Kazakhstani
population lives in the countryside. Secretary of
Agriculture Johanns' July visit to Kazakhstan had been

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particularly important, Masimov said, in setting the stage
for expanded cooperation with the U.S. on things such as
genetically modified organisms. Predicting that the world
could face a severe food shortage within 20 years, Masimov
predicted that Kazakhstan could play a major role in the
global market if it reformed its agricultural sector.


6. (SBU) Masimov explained that the second stage of economic
modernization in Kazakhstan focused on increased
competitiveness and transparency. The Kazakhstani
government sought to promote better corporate governance,
accountability, and transparency -- all of which were
required for Initial Public Offerings. Masimov noted that
they were in negotiations with a "prominent Westerner" to be
on the boards of Samruk, Kazyna, and KazAgro (a new state
holding firm in the works). These measures were all
intended to support Nazarbayev's strategy of joining the 50
most competitive countries in the world, said Masimov. He
pointed out that Kazakhstan had moved from 82 to 63 in the
World Bank's "Doing Business 2007" report.


7. (SBU) Kazakhstan is also working to support high
technology and the financial sector, Masimov said. A
delegation from Microsoft recently examined the prospect of
using Kazakhstan as a regional hub. The Almaty Information
Technology Park will open in mid-September, Masimov added,
and efforts to develop Almaty as a financial center
continue. The Kazakhstani financial system enjoys a strong
competitive advantage in the region, and Kazakhstani banks
have been quite successful in raising capital on world
markets. Kazakhstan is now the largest source of foreign
direct investment in Georgia, Masimov noted.
Masimov said that he would meet with World Bank president
Wolfowitz in Singapore to finalize a cooperation agreement
which would help Kazakhstan play a larger role in Central
and South Asia, including Afghanistan.


8. (SBU) A/S Boucher told Masimov that the issues he had
highlighted were very important. Problems such as
corruption, abusive tax audits, and inconsistent government
processes hindered foreign investment. He noted that the
world financial centers are always known for having the
cleanest record on corruption and the strongest anti-
corruption agencies. Hong Kong was a particularly good
example, having been quite corrupt until the establishment
in 1975 of the Independent Corruption Commission.

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Investment in Afghanistan
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9. (SBU) Masimov told Boucher that a Kazakhstani delegation
would visit Afghanistan before Nazarbayev's visit to
Washington in order to examine, among other things,
investment opportunities. He directed his staff to ensure
that the delegation included a representative of the state
holding company Kazyna, which had created a special vehicle
for investment abroad.


10. (SBU) A/S Boucher noted that he had shared a list of
investment ideas in Afghanistan with Ambassador Saudabayev,
and had highlighted the projects which supported regional
economic integration. He urged that the Kazakhstani
delegation examine the investment question closely. Roads
and electric networks are not just economic projects,
Boucher noted; they are also crucial to security and
stability because they allow the central government to
extend its authority to the regions.


11. (SBU) Masimov told Boucher that Kazakhstan would
"definitely find one or two projects" in Afghanistan. A/S
Boucher welcomed the news and promised to find a way to
include at least symbolic U.S. participation in the
projects.

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Nuclear Power
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12. (SBU) A/S Boucher asked Masimov whether nuclear power

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would be important in Kazakhstan in the long term. Masimov
noted that nuclear cooperation had been the main issue
during Japanese Prime Minister Koizumi's recent visit.
(Note: According to the Japanese, discussions on nuclear
issues were limited to uranium mining and processing.)
Koizumi's top energy advisor had told Masimov that by 2020,
the developed world would rely primarily on nuclear energy.
Nuclear power already supplies 60% of Japan's energy needs.
Masimov said that these trends would benefit Kazakhstan,
which possesses 25% of world uranium reserves. Boucher
highlighted the need to raise the level of cooperation with
the U.S. on nuclear power generation, including safety and
regulatory issues. Masimov indicated that he looked forward
to more dialogue on the issue.

ORDWAY