KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JULY 20 - AUGUST 2,

UNCLAS SECTION 01 OF 02 ASTANA 001501 DEPT FOR SCA/CEN - O'MARA DEPT PASS TO OPIC - BALLINGER DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER DEPT PASS TO AID - EE-PHILLIPS/RUSHING TREASURY FOR OASIA/VELTRI USDOC FOR 4231/ITA/MAC/MLONDON, 4201/BISNIS USDOC FOR 6110/ITA/TD/BI/RHALPERN ANKARA FOR CFC SIPDIS E.O. 12958: N/A TAGS: ECON EIND ENRG EPET EFIN KTDB KZ SUBJECT: KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JULY 20 - AUGUST 2, 2008 ASTANA 00001501 001.2 OF 002 ¶1. Summary: This information is drawn primarily from the Kazakhstani press, and has not been verified for accuracy. -- New Minimum Reserve Requirements for Banks -- Kazakhstan's Foreign Reserves -- HSBC Expands in Kazakhstan -- Cooperation with Brazil -- No Increase in Kazakhstani Wheat Prices -- Labor Ministry on Foreign Labor and Illegal Migration New Minimum Reserve Requirements for Banks -------------- ¶2. Interfax reported on July 29 that the National Bank of Kazakhstan (NBK) has lowered its minimum reserve requirements to support the short-term liquidity of commercial banks. Reserve requirements on domestic liabilities were reduced from 6% to 5%, and on other liabilities from 8% to 7%. According to the NBK, this cut will enable banks to release around 90 billion tenge (approximately $745 million) that can be used to maintain bank lending activity. Kazakhstan's Foreign Reserves -------------- ¶3. The gold and currency reserves of the National Bank increased by $3.8 billion during the first six months of 2008, totaling $21.23 billion as of July 1, 2008. This amount is still slightly lower than the gold and currency reserves of the National Bank as of July 1, 2007 ($22.23 billion). In addition, as of July 1, 2008, the assets of the National (Oil) Fund were approximately $25.6 billion. HSBC Expands in Kazakhstan -------------- ¶4. Aspiring to increase its presence in Central Asia with a network of branches in major cities across Kazakhstan, HSBC has opened its first branch office in Astana. According to HSBC, the new branch offers a range of retail and commercial banking products and services as well as foreign exchange and capital markets expertise. This is the first of three branches scheduled to be opened in Kazakhstan in 2008, with plans for a second branch in Atyrau already underway. Cooperation with Brazil -------------- ¶5. KAZNEX, Kazakhstan's corporation for the development and promotion of exports, which is a subsidiary of the Kazyna Sustainable Development Fund, has signed a memorandum of cooperation with Brazil's agency for exports and investments promotion, Apex-Brazil. According to a KAZNEX press release, the memorandum will improve the bilateral business environment for Brazilian and Kazakhstani companies as well as facilitate trade and exchange of business experience. No Increase in Kazakhstani Wheat Prices -------------- ¶6. According to the July 18 edition of the Times of Central Asia, Minister of Agriculture Kurishbayev believes that there will be no panic buying of Kazakhstani wheat during the Fall of 2008, and that wheat prices will not be higher than the level of last year. He contended that both Russia and Ukraine will have good wheat harvests and thus high export potential this year, which will decrease the immediate demand for Kazakhstani wheat on the global market. Labor Ministry on Foreign Labor and Illegal Migration -------------- -------------- ¶7. The Ministry of Labor and Social Protection is dissatisfied with foreign employers with respect to the hiring of local labor and has announced its intention to better protect the rights of Kazakhstani citizens regarding this issue. Of the estimated 41,000 foreign specialists legally working in Kazakhstan, only 1,176 (3.9%) were replaced by Kazakhstani nationals during the first half of 2008. ASTANA 00001501 002.2 OF 002 ¶8. On a separate issue, Labor Minister Saparbayev said that Kazakhstan needs to establish new mechanisms to encourage migrant laborers to work legally. According to Saparbayev, between 200,000 and 300,000 people, mainly from other CIS countries, are working illegally in Kazakhstan at present. To better address this problem, Kazakhstan and Kyrgyzstan are looking to establish conditions favorable for free labor movement between the two countries. Saparbayev also expressed his belief that labor migration within in the CIS should be regulated via an inter-country database that tracks the regional demand and supply of labor. ORDWAY