KAZAKHSTAN: NATIONAL BANK CHAIRMAN FORESEES 2010

UNCLAS SECTION 01 OF 02 ASTANA 001744

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB/ESC
PLEASE PASS USTDA, OPIC, EXIM

E.O. 12958: N/A
TAGS: PGOV PREL ECON EFIN KZ
SUBJECT: KAZAKHSTAN: NATIONAL BANK CHAIRMAN FORESEES 2010
TURNAROUND

REF: A. ASTANA 1628

B. ASTANA 1626


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: At a meeting with the Ambassador on September
28, Chairman of the National Bank Grigoriy Marchenko predicted
economic recovery would begin early in 2010, following restructuring
of BTA Bank. He foresees 2-3% growth and a return to a normal
external debt ratio under 20% of GDP. As he considered the
economy's next steps, Marchenko argued for foreign banks to remain a
minority in Kazakhstan, because, in his view, they bring few
benefits to an economy in good times and stop lending in bad times.
END SUMMARY.

POSITIVE ECONOMIC OUTLOOK


3. (SBU) On September 28, Governor of the National Bank Grigoriy
Marchenko described to the Ambassador his cautiously positive
outlook on Kazakhstan's economy. Inflation has decreased to 6.2%
from its high of over 20% one year ago. He argued that, contrary to
rumors, the exchange rate is stable and will be maintained at its
current rate of about 150 tenge to the dollar. Given commodity
prices, he said, this position "is a no-brainer, that is
defendable." He termed bank liquidity increasingly healthy, having
risen from $2 billion February to $8 billion now.


4. (SBU) On troubled banks, Marchenko expressed his optimism about
a quick resolution at Alliance, because "it is smaller and
restructuring negotiations are more advanced" (ref A). According to
Marchenko, "the only black dot on the overall economic picture is
BTA Bank." All parties must find a speedy resolution to BTA's
restructuring (ref B),he argued, in order to return confidence to
the market. He expressed his hope that BTA and its creditor
steering committee will sign an overall agreement on December 7 in
light of the September 18 MOU. Echoing a statement to ECA
delegations, Marchenko argued the psychological importance of a
conclusion to BTA restructuring. Currently, banks are scared to
lend, he stated, but BTA restructuring would signal that the worst
is over. Banks would more readily loan money, and individuals and
companies would more willingly borrow it. Such a credit growth,
accompanied by a recovery in the real-estate market that would
increase the value of collateral, would lead to overall economic
improvement.


5. (SBU) Adding to his positive forecast, Marchenko predicted 2-3%
growth in the coming year, if Kazakhstan attracts foreign
investment. Although he posited international capital markets might
not lend until the fall of next year, Marchenko asked rhetorically,
"Why borrow when we are overly liquid?" Looking to the remainder of
2009, Marchenko predicted, "KKB [Kazakhstan Kommerce Bank] will
finish its repayment of $800 million before the end of the year, and
then it will owe nothing. BTA will only need to service its debt.
I hope Alliance will be done, and BTA close. Our $46 billion in
[total external] debt [as of January 2008] is now $32 billion, not
including BTA and Alliance restructuring. In January, it might fall
to $20-22 billion, which would return the debt to less than 20% GDP
-- more or less normal -- in two and a half years. Then, people
will feel more confident. The economy will improve."

FOREIGN BANKS ARE NOT OUR SAVIORS


6. (SBU) Marchenko argued that the Sovereign Wealth Fund
Samruk-Kazyna will not want to remain a controlling shareholder of
BTA and Alliance following their restructuring. Samruk-Kazyna must
sell, he said, but "should they sell to foreigners?" According to
Marchenko, Kazakhstan's overall banking environment would change if
foreign banks take control of BTA and Alliance, tipping the balance
of foreign ownership to four of Kazakhstan's six biggest banks.

ASTANA 00001744 002 OF 002




7. (SBU) When the Ambassador asked whether this would be a
"positive or negative change," Marchenko pondered the question and
concluded, "lateral." "Foreign banks are not our saviors. In their
18 years of operations in Kazakhstan, they have not done anything
[for us]. They have not brought in new technology. They prefer to
do what they know -- service large multi-national corporations," he
lamented. According to Marchenko, their "only value-added" comes
through training programs. "Increased competition, new technology
-- these are just hype by Western media funded by Western banks
themselves," Marchenko stated. He argued that the recent Central
European and Baltic experience has shown that too much foreign
involvement is bad in a time of crisis. Becoming obviously
frustrated, he continued, "They stop lending. Boards make decisions
far away that benefit the banks' bottom lines, not the countries
where they are operating. They do not listen to local staff when
they plead for a resumption of lending. They don't give a shit
about the countries!" Finally, he concluded that foreign banks
should not compose more than 40% of Kazakhstan's banking sector, and
the government should re-impose a 50% maximum.


8. (SBU) COMMENT: Although Marchenko, a trusted advisor to both
President Nazarbayev and Prime Minister Massimov, clearly believes
in the psychological nature of the current crisis, his positive
economic outlook is not simply an effort to "cheerlead" the country
out of the downturn. Because he is widely known as hard-headed,
pragmatic realist with a successful track record in both economic
and political spheres, and is especially credited for his precise
devaluation of the currency earlier this year, observers should
consider his analysis seriously. That said, successful BTA and
Alliance restructuring, upon which his optimistic outlook depends,
remains largely outside his control. END COMMENT.

HOAGLAND