- The Washington Times - Friday, December 12, 2003

ALMATY, Kazakhstan — In the summer and fall of 1993, fewer than a dozen officials worked feverishly in complete secrecy to save Kazakhstan from raging post-Soviet inflation and create its first-ever national currency.

Then, they decided to accept Russia’s offer to join the new Russian ruble, and changed direction again when Moscow withdrew the offer.

In Almaty, the country’s economic capital, Kazakh central bankers reminisced last month with foreign colleagues about those heady days at a conference marking the 10th anniversary of introduction of the monetary unit the tenge, which means “money” in Kazakh.

Kazakhstan is now a model of financial and monetary stability, with a financial system considered more advanced and transparent than Russia’s.

Over the past four years, it has enjoyed an average annual growth rate of 10.5 percent, the world’s highest after Equatorial Guinea, which is also in the midst of an oil boom. But unlike the tiny African nation, oil accounts for only one-fifth of Kazakhstan’s GDP growth, with the financial sector growing at a rate of 50 percent a year.

Horst Kohler, managing director of the International Monetary Fund, praised Kazakhstan’s “sound monetary policy” and “robust growth.”

In a long interview in his office after the conference, Grigori Marchenko, governor of the National Bank, Kazakhstan’s central bank, recalled that in 1993 this country was still part of the Soviet ruble zone and reeling from an inflation rate of more than 2,000 percent for the second year in a row.

“The Russian economy was going downhill and so was ours,” he said.

Things were so bad that “We had crisis committees, and their job was not to get the economy to grow, but to slow the decline.”

In Almaty — then still the national capital before the government was relocated to Astana in 1998 — President Nursultan Nazarbayev created a secret committee to oversee introduction of the tenge. The currency was covertly printed in Britain and shipped to Kazakhstan in June 1993.

“We started with a countdown calendar of 45 days,” Mr. Marchenko said. But halfway through that period, a group in Moscow led by President Boris Yeltsin and including Prime Minister Viktor Chernomyrdin and central bank governor Viktor Geraschenko offered to include Kazakhstan and three other former Soviet republics in a new Russian-ruble zone.

“They even told us they had printed 1 trillion new rubles for Kazakhstan,” Mr. Marchenko recalled.

In September, the Almaty working group convened, accepted the offer and dissolved. After all, unlike the Baltic countries, Kazakhstan had never had its own currency and 70 percent of its trade was with Russia. Caution and habit prevailed.

But another Russian faction — which included Boris Fyodorov, Alexander Shokhin and Yegor Gaidar — were against it, and eventually they prevailed.

“By late October it became obvious that we were out,” Mr. Marchenko said.

“So our group was convened again, and we were told to complete this work as quickly as possible.” The president made an announcement on Nov. 12, 1993, and six days later the tenge was Kazakhstan’s only legal currency.

“We had taken the Russians by surprise. They expected us to do this no earlier than mid-December, but they were very helpful — we should give them credit for that,” Mr. Marchenko said.

“It was a good decision for Russia,” he continued. “They were subsidizing other republics, so they decided to cut their losses. From a financial point of view they were right, but from a political and long-term economic point of view, I think the other group was always right.”

Today, Kazakhstan’s exchange offices work mostly with the euro and the dollar.

At first, the National Bank was subordinate to the parliament, which made it a pawn in disputes between the parliament and the government.

In February 1994, Kazakhstan embarked on its biggest post-independence mistake: a so-called “clearing exercise.”

The theory was that with companies owing debts to each other and taxes to the government, they all lacked working capital. Some people thought that if the government could lend them money, they would pay their debts and their taxes and start working again and create a “virtuous circle.”

But when the move was carried out — over the strenuous objections of the central bank — “the opposite happened,” Mr. Marchenko recalled. Companies used the loans to buy dollars, not pay their debts. First the tenge crashed, losing three-quarters of its value in a month. Then inflation soared to 46 percent a month.

“We had had no external shock — it was purely something of our making; it was very embarrassing,” Mr. Marchenko said. “It had been done elsewhere on a smaller scale, but never on such a large one.”

After that, “people realized you shouldn’t mess with monetary policy, and the president has always been very supportive of the bank.”

“In March 1995, the parliament passed a new law regarding the central bank, modeled after the 1957 [West German] Bundesbank law, and that’s when our independence was sealed,” he said.

By the time the Russian financial crisis of 1998 rolled in, Kazakhstan was better prepared: The tenge lost only half its value over a year.

Part of the bank’s ability to resist the parliament, the industrialists or the government grew from the consistency of its policies.

And that, Mr. Marchenko said, stemmed from the team assembled by a Soviet-era economist named Daulet Sembayev.

“In the first years of independence, nobody knew how the reforms should be done,” the gravel-voiced Mr. Sembayev said in an interview. So when the president, Mr. Nazarbayev, appointed him to head the central bank at the introduction of the tenge, Mr. Sembayev, then nearly 59, turned to a group of 30-year-olds educated in Moscow and known as the “Moskvitchi.”

“We became something of an incubator,” he said.

These he made his deputies and assistants, and in turn they replaced him as governor when he left the bank in 1995: Uraz Jandosov (governor at 36), Kadyrzhan Damitov, and Mr. Marchenko, the longest-serving, who this year was elected Central Banker of the Year by Euromoney magazine.

“The governors have changed, but the overall direction was the same, and the middle management has been very stable,” he said. “And that’s maybe the reason why we’ve been more successful than other agencies in implementing our objectives.

“In some ministries, when the minister comes in, he fires almost everyone in the middle level, he brings in his new team, complete with secretaries and sometimes with relatives. And he changes the furniture.”

Here, Mr. Marchenko said, waving at his desk and the polished conference table next to it, “We still have the furniture ordered by Sembayev.”


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