Hot spots: Kazakhstan.(international)

After spending large amounts from shrinking official foreign exchange reserves, the government decided last February to devalue the tenge. Contrary to the rumors that preceded this decision, it opted for a straight, one-shot debasement instead of copying the Russian policy of letting the ruble depreciate gradually. What it found, however, was that money continued to seep out of the country through the unofficial foreign exchange market and this is why the authorities have been talking about plans to reintroduce a law, withdrawn in December 2005, that gives the National Bank of Kazakhstan the right and the ability to control exchange rates at kiosks when there is "heightened demand" for hard currency. Kiosk trading constitutes a sort of unofficial FX market that operates outside the banking system. Restrictions on this market would not be able to stop a full-fledged run on the currency, but they would make it easier for the government to keep the tenge within a corridor of about 3% above and below 150 per USD 1, as it has promised to do.

Other controls may be added. Kazakhstan's Lower House of parliament, the Majilis, has already twice given preliminary approval to legislation that would let President Nursultan Nazarbayev impose "a special exchange rate regimen" under which residents and companies would be compelled to sell foreign exchange to the government and which would impose restrictions on the use of foreign banks. But these more stringent controls, if they are employed, will be introduced, most likely, in piecemeal fashion and, according to the Central Bank, "depending on the nature of destabilization risks and the situation on the currency market." This plan includes a clause that requires the special regimen to be ended and the country returned to the status quo ante within a year.

For now, the authorities are still more concerned with the ripples running through the country's financial sector. Of the two banks in which the government took controlling stakes earlier this year, BTA Bank, in which the National Wellbeing Fund Samruk-Kazyna now holds a 75% share, reported a loss of 261.5 billion tenge in this year's first quarter and prosecutors say they have seized 825 apartments in an unfinished residential complex, as well as eight offices and 25 cars belonging to suspects accused of embezzlement. The Prosecutor General's office also filed 19 lawsuits in Almaty courts seeking to recover more than 100 billion tenge (roughly USD 660 million) lost by BTA and property provided as collateral for loans from the bank (including airplanes and land in the Moscow region).

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The other institution, Alliance Bank, stopped paying creditors after it discovered in mid-March USD 1.1 billion in liabilities that previously had not been shown on its balance sheet. The bank said earlier this month that it would not make payments "for at least three months" while the investigation is going on. The statement means that the bank is actually in default. The government in February ousted its management team and installed the head of the country's distressed asset fund as CEO. Of the nation's five largest banks, Kazkommerzbank was the only one to report a profit for January-March, prompting the government to toughen rules for lending in an effort to avert anything resembling a systemic crisis. The authorities want banks to limit lending to 150% of deposits ...