VZCZCXRO9952
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHTA #0448/01 0720949
ZNR UUUUU ZZH
O 130949Z MAR 09 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4900
INFO RUCNCIS/CIS COLLECTIVE 1362
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0741
RUEHKO/AMEMBASSY TOKYO 1444
RUEHUL/AMEMBASSY SEOUL 0428
RUCNDT/USMISSION USUN NEW YORK 2207
RUEHNO/USMISSION USNATO 2537
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0924
RUEKJCS/SECDEF WASHDC 0837
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1310

UNCLAS SECTION 01 OF 02 ASTANA 000448 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/ACE, F 
STATE PLEASE PASS TO USAID 
 
E.O. 12958: N/A 
TAGS: PGOV PREL EAID SOCI KZ
SUBJECT:  KAZAKHSTAN: DONORS SEEK TO IMPROVE COORDINATION 
 
ASTANA 00000448  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY:  On February 27, several bilateral and 
multilateral donors met in Astana to discuss ways to improve 
coordination of assistance and resolve common issues and obstacles. 
Participants discussed information sharing; exemptions for Value 
Added Tax (VAT) on goods and services received under grants; the 
economic crisis and its impact on Kazakhstan and the broader Central 
Asian region; and facilitating focused, thematic discussions in 
future coordination meetings.  END SUMMARY. 
 
THE FITS AND STARTS OF DONOR COORDINATION 
 
¶2. (SBU) Donor coordination in Kazakhstan has waned in recent years 
with donors split between the business and cultural center of the 
country, Almaty, and the capital 800 miles to the north, Astana. 
However, the need for coordination remains since, despite rapid 
growth (which has recently stagnated as a result of the global 
financial crisis), Kazakhstan still faces serious development 
challenges in health, education, economic development, as well as in 
the democracy sector.  Early last year, USAID initiated the 
resumption of donor coordination meetings, an effort welcomed by the 
donor community of Kazakhstan. 
 
¶3. (SBU) This third Donor Coordination meeting, the first held in 
Astana, was organized by the Organization for Security and 
Cooperation in Europe (OSCE) and chaired by OSCE Ambassador 
Alexandre Keltchewsky.  Other participants, in addition to USAID and 
the OSCE, included the European Union, the United Nations 
Development Program (UNDP), UNICEF, the UN Office of Drug Control 
(UNODC), the Turkish International Development Agency (TICO), the 
Japanese International Development Organization (JICO), and the 
World Bank.  Bilateral participants included representatives from 
Great Britain, Canada, Poland, and the Czech Republic. 
 
SOMETHING MORE THAN JUST TALK? 
 
¶4. (SBU) The meeting on February 27 was designed to focus on several 
broader topics of general interest for the entire gathering.  The 
first topic discussed was the expected outcome of donor coordination 
meetings.  The UNDP representative pushed for the creation of an 
information portal on a web site that each donor could contribute to 
and update.  This database could include information on the programs 
and activities that each donor is working on in Kazakhstan as well 
as in the broader region.  However, USAID representatives stated 
that such websites or databases are difficult to maintain and often 
become outdated and serve little usefulness.  Moreover, when the 
Regional USAID Mission organized the first such donor coordination 
meeting in early 2008 (after a several-year interruption), the 
expressed purpose was to create a forum for discussion of common 
challenges where donors could come together and, when necessary, 
speak with one common voice with the Government of Kazakhstan.  No 
final agreement on information sharing was concluded, other than a 
commitment to continued close cooperation among donors at the 
working level on all such activities.  Further, it was agreed that 
future coordination meetings can focus on one thematic discussion at 
a time. 
 
BABY CAMEL TAKES FIRST STEPS 
 
¶5. (SBU) A short presentation by the World Bank representative 
followed on the activities of the Bota Foundation, established and 
supported through $84 million of Kazakhstani funds frozen in Swiss 
bank accounts.  The previous U.S. Ambassador to Kazakhstan sits on 
the Board of Directors of Bota along with several other 
distinguished international and Kazakhstani representatives.  It was 
reported that after a competitive process, the International 
Research and Exchanges Board (IREX) had been selected as the program 
manager for the activities to be implemented by the Foundation.  The 
activities will focus on providing financial support to Kazakhstan's 
most vulnerable families and on funding educational opportunities 
for under-privileged children.  Project implementation is expected 
to commence this summer. 
 
 
ASTANA 00000448  002.2 OF 002 
 
 
TAX RELIEF ANYONE? 
 
¶6. (SBU) The USAID Regional Legal Advisor Office for Central Asia 
advised donors regarding the tax treatment of grants under the new 
Kazakhstani tax code.  The recent revisions to Kazakhstan's tax code 
provide a mechanism by which organizations can receive Value Added 
Tax (VAT) refunds for purchases made with grant funds, but also 
restrict the meaning of "grants" such that USAID implementing 
organizations are not eligible.  Many donors directly implement 
projects and receive tax exemptions through mechanisms other than 
local law or do not object to paying VAT.  U.S. law mandates that 
U.S. assistance programs do not pay certain taxes imposed by foreign 
governments.  Discussions with the Government of Kazakhstan on 
implementing the bilateral framework agreement of 1992 regarding 
humanitarian and technical assistance continue. 
 
LET'S STAY OUT OF INTERNAL POLITICS 
 
¶7. (SBU) The OSCE Ambassador raised concerns about the sensitive 
issue of working with and cooperating with individual political 
parties.  He stated that he is often invited to events of one 
particular political party and he was concerned about the appearance 
that such participation may have.  The UNDP Resident Representative, 
Haoliang Xu, stated that he did not believe it is appropriate to 
accept invitations to events organized by one political party. 
Diplomatic participation in events involving political parties 
should include parties from across the political spectrum.  He 
maintained that while the issue needs to be dealt with delicately, 
an invitation from an event organized solely for the benefit of one 
political party should be declined. 
 
WORLD BANK ON FINANCIAL CRISIS 
 
¶8. (SBU) The World Bank Country Manager for Kazakhstan, Sergei 
Shatalov, then provided a short presentation on the financial crisis 
facing the country and the region.  Kazakhstan is the regional 
country most integrated into international financial markets and has 
heavy financial-sector leveraging.  It was the first regional 
country to experience economic shocks back in 2007.  After 
experiencing double-digit growth, the Kazakhstani economy became 
"overheated," with the initial greatest impacts in the construction 
and financial sector.  Shatalov praised the recent management of the 
crisis by the Government of Kazakhstan, including the devaluation of 
the tenge and the financial support provided to several Kazakhstani 
banks.  However, the fall of world oil prices will continue to 
seriously hamper recovery in Kazakhstan.  While in the month of 
August 2007, Kazakhstan received $5 billion in revenue from its oil 
and gas sector, those revenues will only amount to $1 billion in 
February 2009. 
 
¶9. (SBU) The meeting ended after three hours with an agreement to 
meet again in late May.  The UNODC will organize and lead this next 
meeting which will include a thematic discussion on drug trafficking 
and control. 
 
¶10. (SBU) COMMENT: In addition to coordination at the project and 
activity level, there are benefits to more general meetings on 
broader, strategic issues, as well as facilitating agreement on 
sensitive topics (such as working with political parties).  There 
are challenges to achieving benefits from donor coordination 
meetings in Kazakhstan, including the division of donors between the 
two main cities of the country.  However, USAID will seek to use 
such meetings to facilitate meaningful discussions on concrete 
issues that will promote the most effective implementation of donor 
assistance in Kazakhstan.  END COMMENT. 
 
HOAGLAND