KAZAKH TENGE FREE FLOAT - DAILY UPDATE


APRIL 7, 1999

AFINEX resulted in exchange rate of 118.1556 T/$. Trade volume is not large - $2.425 mln. The way information has been presented causes some concern. Lack of data on details of session like minimum and maximum rate, closure, etc. Just rate and volume. 20 participants compared to 22 and 15 on April 6th and 5th, respectively. 

The official rate, which is now fixed for each day, was established at 118 T/US$. Interesting to note that the official rate for April 7th was fixed yesterday night while that for April 6th was established only Tuesday afternoon. It is quite possible that today trades at AFINEX have taken the official rate as a reference point. Thus if NBK does not intervene directly as it did yesterday; it might make some "recommendations" in respect of rate to the exporters selling their foreign currency today - in order to reduce tensions and save the image of its credibility, which was completely undermined on Monday, April 5th. Such "relations" are quite specific but nevertheless usual for local market.


APRIL 6, 1999

The IMF Resident Representative met with the mass media and commented on the policy decision made by Kazakh government. He said that IMF supports this action and views it as a way of improving the economic position both domestically and externally. However, he expressed a concern of the IMF about protection of deposits and requirement of obligatory sale of forex receipt by exporters as it will be difficult for the budget to perform these expenditures. IMF thinks that individuals and legal entities have to incur themselves the risks on their deposits. 

The IMF thinks that as a non-market method the obligatory sale may restrict the process of financial improvement of exporters. It is not clear how this requirement (obligatory sale) corresponds to the Article IV of the IMF Articles of Agreement, which Kazakhstan joined in mid-1996. According to this Article the state is not supposed to introduce any restrictions preventing foreign currency current account transactions, except for the balance of payments purposes. In principle, under dramatically falling exports, because of both falls in world prices and a supported national currency, there may appear a threat to the balance of payments. The situation is aggravated this year due to the dual impact of commencement of Kazakhstan's principal repayments on official borrowing, and Eurobond maturity in December '99. This is a strong argument in convincing the IMF. 

The IMF Resident Representative also stated that regular IMF mission would be coming to Kazakhstan in the end of April for reviewing the position of the economy. He declined to comment on the issue of the next tranche of the IMF loan, the first allocation of which ($217 mln.) was made in December '98. The primary purpose of this loan is to replenish NBK's reserves. 

The NBK Chairman assured that despite the IMF concern the government shall implement the announced measures, as they know local situation better than the IMF does. He continued to assure that situation is under control and professional market operators do not reveal any rush. He repeatedly called for waiting for a few days, he reckons until Friday, for the situation to settle down. He also mentioned that exporters have already started selling their foreign exchange. He expects the Tenge to move in the range of 100-120 T/US$ and therefore appeals not to buy expensive hard currency now.

Comments on some of softening measures:

1. Protection of Tenge deposits. If legal entities had any deposits in Tenge as of April 4 '99 they get an opportunity to convert 30% of their deposit into US dollars at the exchange rate 88.3 T/US$ provided they do not withdraw their Tenge during 6 (six) months, i.e. until October 4 1999. Individuals get opportunity to convert 100% of their Tenge deposits, which they had as of April 4 1999, at the mentioned exchange rate given the funds are not withdrawn during 9 (nine) months, i.e. until January 5, 2000.

2. Pension Funds, if wish, may convert their portfolio of T-bills into five-year Dollar denominated government papers using exchange rate 88.3 T/$. Remuneration of 6% was also mentioned in mass media. This sort of papers is mentioned for the first time. So far there is no any definite information. 

3. Obligatory sale of 50% foreign currency receipt by the local exporters comes in force starting Monday (April 12 1999). The exporters are liable to sell half of their foreign currency receipt within 5 working days since receipt comes on their account. The measure is announced to be temporary. However duration of this temporary measure is not specified. 

4. Tariffs on services of natural monopolists will not grow until July 1 1999. Reason is that according to legislation, if a natural monopolist wants to increase its tariff, it has to apply to government (Committee on Regulation of Natural Monopolist and Competition Protection) to prove such an increase and get a permission. Application may be submitted 45 days before enforcement of the increased tariff. Besides, application might be done maximum 4 times per year, i.e. once a quarter. The Committee has rejected such applications made for the second quarter (April-June) by monopolists. Therefore government may assure a hold on tariff-increases until July. Exception is tariff on gas supplies made from Uzbekistan. These supplies are paid in US dollars and therefore will be increase, respectively. As some heating power stations use gas it may result in increase on some services (e.g. heating, hot water) already in April, thus driving inflation up.

5. The NBK has not released yet the measures on softening requirements (prudential and provision norms) for the banks. Charter capital of banks denominated in Tenge has lost its current value significantly.

 
04/07/99