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DE RUEHTA #2547/01 3590743
ZNR UUUUU ZZH
O 240743Z DEC 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4210
INFO RUCNCIS/CIS COLLECTIVE 0973
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0374
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RUEATRS/DEPT OF TREASURY WASHDC
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RUEHAST/USOFFICE ALMATY 1043

UNCLAS SECTION 01 OF 02 ASTANA 002547 
 
DEPT FOR SCA/CEN, EUR/ACE, EEB 
PLEASE PASS TO USTDA DAN STEIN 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EFIN EIND ENRG EPET KTDB KZ
SUBJECT:  KAZAKHSTAN: GOVERNMMENT INTERESTED IN EXTENDING PROGRAM 
FOR ECONOMIC DECELOPMENT (PED) 
 
ASTANA 00002547  001.2 OF 002 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  The primary Kazakhstani government counterpart 
for the Program for Economic Development (PED), Deputy Minister of 
Economy Marat Kussainov, informally requested USAID to prepare a 
concept paper which would outline the parameters under which the PED 
could be extended.  In FY 2009, the last fiscal year under which the 
PED will receive funding, the Governments of Kazakhstan and the 
United States will each contribute $5 million to the program.  In 
principle, the Deputy Minister agreed that the Government of 
Kazakhstan would cover 80% of program costs if the program is 
extended.  Post supports this offer and requests preliminary 
commitment of funds required for an extension of the successful PED 
program.  END SUMMARY. 
 
KAZAKZHSTAN-U.S. PROGRAM FOR ECONOMIC DEVELOPMENT 
 
¶3.  (SBU) Originally envisioned as a Public Private Partnership 
under the Houston Initiative -- a joint program launched in October 
2002 following the summit with President Nazarbayev and President 
Bush -- the Kazakhstan-United States Program for Economic 
Development evolved into a four-year bilateral agreement to promote 
Kazakhstan's broad-based economic development and diversification. 
 
 
¶4.  (SBU) The four-year, $40 million PED is co-financed by the two 
governments, with the Government of Kazakhstan's contribution rising 
over a four year period from 25% in 2005 to 50% in 2009, the final 
year of the agreement.  PED was formally inaugurated on May 5, 2006, 
by then-Minister of Economy Masimov (now Prime Minister) and 
Ambassador Ordway and is implemented under the auspices of the U.S. 
Agency for International Development (USAID).  Each year, the PED 
Annual Work Plan is jointly developed and approved by both 
governments and the Kazakhstani government contribution is 
transferred to USAID.  The program is coordinated by the Ministry of 
Economy and Budget Planning (MEBP) on behalf of the Government of 
Kazakhstan, and by USAID on behalf of the U.S. Government. 
 
HIGH-PROFILE PROGRAM WITH DEMONSTRABLE IMPACT 
 
¶5.  (SBU) PED currently comprises a set of strategically important 
activities covering regional energy market development, Kazakhstan's 
accession to the WTO, customs reform, economic diversification 
through small and medium enterprise (SME) development, business 
environment improvement and corruption reduction, trade capacity 
building, and tax and budget reform.  PED activities provide 
critical support which is recognized at the highest levels of the 
Government of Kazakhstan.  PED activities have also achieved 
consistently positive coverage in private and public media including 
television interviews, magazine articles, specialized publications, 
and numerous websites. 
 
CAVEATS TO PHASE-OUT OF U.S. ECONOMIC GROWTH ASSISTANCE 
 
¶6.  (SBU) The August 30, 2007, Sub-PCC meeting concluded that there 
is no reason to obligate Freedom Support Act funds for economic 
assistance programs in Kazakhstan beyond FY 2009.  However, given 
the strategic importance of the energy sector, the Coordinator 
determined that funding, not to exceed $1 million per year, shall, 
if necessary, be budgeted beyond FY 2009 to support regional energy 
and electricity integration programs.  In addition, the United 
States should explore continued Kazakhstani funding of economic 
growth assistance building on the successful PED partnership 
agreement.  The Coordinator will continue to monitor the economic 
environment in Kazakhstan and reserves the right to re-start funding 
for economic growth programming at any later date if conditions 
warrant. 
 
NEED FOR CONTINUED ECONOMIC GROWTH SUPPORT 
 
¶7.  (SBU) Except for the area of energy, where $1 million has been 
requested in FY 2010, there is currently no USAID Economic Growth 
 
ASTANA 00002547  002.2 OF 002 
 
 
funding budgeted for Kazakhstan.  Under the current scenario, all 
economic growth activities, except for the Regional Electricity 
Market Assistance Project (REMAP), which would be implemented as a 
stand-alone contract, would be closed in FY 2010. 
 
¶8.  (SBU) Kazakhstan currently meets or exceeds only seven of the 16 
Monitoring Country Progress (MCP) indicators.  Large gaps still 
exist in the area of external debt as a percentage of GDP, trade and 
foreign exchange, and the share of employment in small- and 
medium-sized enterprises.  Poor indicators for trade and trade 
regulations reflect Kazakhstan's non-member status in the World 
Trade Organization and associated non-compliant legal policies and 
practices.  With the current financial crisis, fall in commodity 
prices, and slow-down in economic growth, it is likely that these 
indicators will further deteriorate over the next few years. 
 
PROPOSED APPROACH 
 
¶9.  (SBU) Building on the Sub-PCC recommendations outlined above, 
Post recommends that in addition to the current $1 million annual 
request for REMAP, an additional $1 million a year be made available 
for a three-year extension of PED through FY 2012.  With $6 million 
over the three-year period ($1.5 of which would be used for program 
support costs), USAID would be able to leverage an additional $18 
million from the Government of Kazakhstan and maintain the viability 
of a very significant instrument for policy reform. 
 
CONCURRENCE REQUESTED 
 
¶10.  (SBU) Post requests EUR/ACE support for an extension of the 
Program for Economic Development.  With the support of the 
Coordinator's office, the Embassy and USAID will work quickly to 
explore funding options.  The Kazakhstani budget cycle for 2010 
begins in January 2009 and it is important to be able to formally 
convey our ability to provide funding for a program extension early 
in their budget process.  Once we receive approval from the 
Coordinator, Embassy Astana and USAID will develop a concept paper 
and draft appropriate amendments to the PED MOU. 
 
¶11.  (SBU) COMMENT:  There is a clear and convincing need for 
continued external assistance in the area of economic policy reform. 
 The Government of Kazakhstan recognizes this need and is 
appreciative of U.S. Government assistance in this area. 
Kazakhstan, with its vast natural wealth, is nevertheless poor in 
human capacity.  The United States has a clear role to play in 
helping to ensure that this country's vast wealth is used in a 
manner that supports broad-based economic growth, human development 
and democracy.  END COMMENT. 
 
HOAGLAND