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DE RUEHTA #2070/01 2901350
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O 161350Z OCT 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3589
INFO RUCNCIS/CIS COLLECTIVE 0688
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UNCLAS SECTION 01 OF 02 ASTANA 002070 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
 
E.O. 12958: N/A 
TAGS: PGOV PINR ECON EFIN KZ
SUBJECT:  KAZAKHSTAN:  NAZARBAYEV ANNOUNCES MAJOR STEPS TO DEAL WITH 
GLOBAL FINANCIAL CRISIS 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2. (SBU) SUMMARY:  President Nazarbayev announced on October 13 
major steps the government will take to deal with the global 
financial crisis.  The Samruk state assets holding company and 
Kazyna Sustainable Development Fund will be merged, with additional 
state enterprises folded into the new Samruk-Kazyna, which will 
receive $5 billion in capitalization from the National (Oil) Fund. 
An additional $5 billion from the National Fund will be made 
available for other anti-crisis measures.  World Bank Resident 
Representative Sergei Shatalov expressed skepticism to us about the 
Samruk-Kazyna merger.  Respected Kazakhstani economist Oraz 
Zhandosov criticized the move in a press interview.  END SUMMARY. 
 
MAJOR STEPS TO DEAL WITH FINANCIAL CRISIS 
 
¶3. (U) President Nazarbayev outlined at a government meeting on 
October 13 several major steps that Kazakhstan will undertake to 
deal with the global financial crisis.   He said that the Samruk 
state assets holding company (which owns, among other enterprises, 
KazMunaiGas) and the Kazyna Sustainable Development Fund will be 
merged into the Samruk-Kazyna National Welfare Fund.   Within 30 
days, the government will transfer its shares in several additional 
companies -- including Kazakhstan Mortgage Company, Kazakhstan 
Mortgage Insurance Fund, Housing and Construction Savings Bank, 
KazAtomProm, Eurasian Natural Resources Corporation, and KazakhMys 
-- to Samruk-Kazyna. 
Kazakhstan's seven "social entrepreneurial corporations," which each 
manage state-owned assets within two of Kazakhstan's 14 oblasts, 
will also be folded into Samruk-Kazyna.  Samruk-Kazyna will receive 
$5 billion in capitalization from the National (Oil) Fund.  An 
additional $5 billion from the National Fund -- the total assets of 
which are $27.6 billion -- will be made available for other 
government measures to address the financial crisis.  Presidential 
Administration Chief Kairat Kelimbetov, who once headed Kazyna, has 
been named to head the new Samruk-Kazyna.  Majilis Speaker Aslan 
Musin was appointed to replace Kelimbetov at the Presidential 
Administration. 
 
¶4.  (SBU) At the October 13 government meeting, Nazarbayev labeled 
the global financial crisis the "worst since the Great Depression." 
He stressed, however, that that this was also an opportunity for 
Kazakhstan to "learn how to extract benefits for the country's 
economy even during a crisis period."  He added that "to overcome 
the crisis is a task of all companies in the country," including 
foreign companies, and that "companies should demonstrate support 
for the concrete measures undertaken by the government." 
 
PURPOSE OF SAMRUK AND KAZYNA 
 
¶5.  (SBU) Both Samruk and the Kazyna Sustainable Development Fund 
were established to improve corporate management and the 
profitability of government-owned enterprises.  Samruk is by far the 
largest of the Kazakhstani state assets holding companies, with a 
roster of over 340 companies under its management, including 
KazMunaiGas, Kazakhstan Temir Zholi (Kazakhstan Railways), 
KazakhTelecom, KazPost, KazMorTransFlot, and numerous regional power 
stations.  Kazyna was established to serve as an infrastructure 
development institution, which counted among its primary missions 
the diversification of the Kazakhstani economy outside of the 
extractive sector.  Its assets include the Kazakhstan Development 
Bank, the Kazakhstan Innovation Asset Fund, the Corporation for the 
Development and Promotion of Exports, the Entrepreneurship 
Development Fund, and Kazakhstani Capital Management.  The National 
(Oil) Fund, which is also known as the Fund for Future Generations, 
is fed directly by revenues from the extractive sector and is meant 
for use during times of extreme economic need, as well as to provide 
a cushion against potential crashes in world commodity prices and to 
prevent "Dutch disease." 
 
 
ASTANA 00002070  002 OF 002 
 
 
SKEPTICISM FROM THE WORLD BANK... 
 
¶6.  (SBU) In an October 15 meeting with the Ambassador, World Bank 
Country Manager for Kazakhtan Sergei Shatalov noted past World Bank 
reluctance to directly engage the Kazakhstani state assets holding 
companies because of their lack of transparency and inefficient 
corporate structures, and the perception that they serve primarily 
as a means for high executive compensation for the elite.  He 
described the new Samruk-Kazyna as a "super monster" that may prove 
to be even less transparent than its predecessors.  Shatalov termed 
Samruk-Kazyna as the inefficient brainchild of Kelimbetov, who 
according to Shatalov may now have his last chance to prove the 
value of such holding companies.  At the same time, Shatalov praised 
Prime Minister Masimov for privately soliciting advice from 
international financial institutions on handling the financial 
crisis. 
 
... AND FROM ZHANDOSOV 
 
¶7.  (SBU) Respected Kazakhstani economist Oraz Zhandosov, who was 
formerly a leader of the Azat opposition party, praised the 
government's acknowledgement of the severity of the financial crisis 
in an interview with the KazTAG wire service, but said it is 
inappropriate to consider the merger of Samruk and Kazyna as vital 
for the government's anti-crisis program.  Calling the merger a 
"mistake," Zhandosov noted that overcoming the financial crisis is a 
short-term goal, while the merger reflects longer-term governmental 
aspirations with little connection to the immediate financial 
turmoil. 
 
¶8. (SBU) BIO NOTES:  Newly-appointed Samruk-Kazyna head Kairat 
Kelimbetov was born in Almaty in 1969.  He received an undergraduate 
degree from Moscow State University and did post-graduate studies at 
the Kazakh State Academy of Management.  Kelimbetov participated in 
a U.S.-government sponsored Citizen Exchange Program in 1997 and 
studied at Georgetown University in 1999 as a Pew Economic Freedom 
Fellow.  In the late 1990's, he worked in various government 
positions involving economic planning and analysis.  Kelimbetov was 
appointed First Vice Minister of Finance in June 2001 -- but was 
dismissed from that post in November 2001 when he briefly joined the 
opposition Democratic Choice of Kazakhstan movement.  In January 
2002, he was reappointed First Vice Minister of Finance.  From 
August 2002 until April 2006, he served as Minister of Economy and 
Budget Planning.  From April 2006 to January 2008, he was head of 
the Kazyna Sustainable Development Fund.  In January 2008, he was 
appointed head of the Presidential Administration, replacing Adylbek 
Dzhaksybekov.  END BIO NOTES. 
 
¶9.  (SBU) COMMENT:  This is the first time that Kazakhstan is taking 
money out of the National (Oil) Fund.  While the creation of 
Samruk-Kazyna may have some economic logic, it is also plausible 
that the government is taking advantage of the financial crisis to 
initiate an asset consolidation to the benefit of certain elite 
groups.  The move puts the lion's share of Kazakhstan's state-owned 
enterprises under the direct control of Kairat Kelimbetov.  The 
government previously announced in September -- before the 
announcement of the U.S. government's financial bailout package -- 
that it was creating a multi-billion dollar "distressed assets fund" 
to buy up non-performing loans, including mortgages, from 
Kazakhstani banks, with the aim of reselling them in several years, 
ideally at a profit.  END COMMENT. 
 
HOAGLAND