VZCZCXRO2379
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHTA #1509/01 2531028
ZNR UUUUU ZZH
O 101028Z SEP 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6201
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE 1917
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1287
RUEHKO/AMEMBASSY TOKYO 1985
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1474
RUEKJCS/SECDEF WASHDC 1359
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 2470
RUEHNO/USMISSION USNATO 2785

UNCLAS SECTION 01 OF 02 ASTANA 001509 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS USTDA AND OPIC 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN KZ
SUBJECT:  KAZAKHSTAN:  FINANCE MINISTER LAUDS COOPERATION - 
CONFIDENT IN DOMESTIC MARKET STABILITY 
 
REFTEL:  ASTANA  1508 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  During a September 5 meeting, Minister of 
Finance Bolat Zhamishev discussed with the Ambassador stability in 
the financial sector and U.S. technical assistance provided under 
the Cooperative Threat Agreement (CTR) program.  Zhamishev conveyed 
his satisfaction with collaborative efforts to date, including the 
recently ratified anti-money laundering law [reftel], which will 
come into force in six months.  Zhamishev expressed confidence in 
the long-term prospects for the financial sector and firmly defended 
government anti-crisis measures.  He argued that export credit 
agencies and commercial creditors alike should be treated equally 
during BTA and Alliance Bank debt restructuring negotiations.  END 
SUMMARY. 
 
ZHAMISHEV SATISFIED WITH COOPERATION ON AML 
 
¶3.  (SBU) Zhamishev expressed his satisfaction with the 
collaborative efforts that had brought about the ratification of the 
anti-money laundering law, which according to him had passed through 
Parliament with "some difficulty," and would come into force in six 
months.  The actual implementation of the law, he added, would have 
its own challenges and require significant technical and 
organizational effort, particularly as the government closely 
analyzes the "efficiency of its systems" in order to meet 
international standards.  He noted this next phase as a potential 
area for future cooperation. 
 
RATIFICATION OF ASSISTANCE TAX EXEMPTION IMMINENT 
 
¶4.  (SBU) Zhamishev reported that he expected the tax exemption 
proposal for equipment received as part of the Cooperative Threat 
Reduction (CTR) and Second Line of Defense programs to be approved 
by a final vote in the Prime Minister's cabinet on September 7. 
Following the vote, the measure would then require the Prime 
Minister's signature to come into force.  (NOTE:  Sources within the 
Prime Minister's Office report that the decree was approved on 
September 7, and in accordance with internal procedure, should be 
registered and come into force on September 10.  END NOTE.) 
According Zhamishev, the government is now rapidly working on a list 
of contractors and subcontractors that qualify for tax-exempt 
status, in an attempt to finalize the list before the decree comes 
into force.  Zhamishev reiterated his gratitude for previous and 
current technical assistance. 
 
EDB ROAD SHOW COMING TO NEW YORK 
 
¶5.  (SBU) Zhamishev announced that he would be in New York City on 
September 21 as part of a Eurasian Development Bank (EDB) road show 
and hoped to meet with possible investors.  According to Zhamishev, 
the Government of Kazakhstan is considering whether to solicit 
sovereign loans in 2010, including the likely issuance of sovereign 
Euro bonds.  (NOTE:  Kazakhstan has only successfully issued 
sovereign Eurobonds once, in 1998.  END NOTE.)  He said that 
Ambassador Idrissov and his staff in Washington are developing the 
schedule, and welcomed the Ambassador's offer to inform the 
Departments of Commerce and Treasury of his impending visit. 
 
NO SUPPORT FOR SPECIAL TREATMENT OF ECA TRADE FINANCE 
 
¶6.  (SBU) The Ambassador then solicited Zhamishev's opinion on 
recent international export credit agencies (ECA) efforts to obtain 
preferential conditions as part of ongoing debt restructuring 
negotiations with BTA and Alliance banks.  (NOTE:  An international 
collective of ECAs sent a letter dated July 1, 2009 to President 
Nazarbayev urging the government of Kazakhstan to recapitalize its 
largest banks and guarantee full repayment of its trade finance 
obligations.  The government has not officially responded, and press 
releases indicate its unwillingness to add more liquidity to the 
 
ASTANA 00001509  002 OF 002 
 
 
ailing banks, or to advocate for preferential treatment for the 
ECAs.  END NOTE.)  Zhamishev responded that the Government of 
Kazakhstan understood that the ECAs had predominantly funded real 
estate development with largely Russian-held assets in its dealings 
with the commercial BTA and Alliance banks.  Most of these assets, 
he added, were valued at rates determined when real estate had 
reached its speculator-driven historic high several years ago. 
Mildly agitated by the line of questioning, Zhamishev said that the 
lending risks were "extremely high" during this time period.  He 
appeared personally taken aback when addressing the ECA suggestion 
that the government of Kazakhstan now guarantee these 
privately-negotiated trade finance debts.  "We think all these 
liabilities should be restructured for all parties.  Otherwise, it 
would not be fair to all the creditors," he emphasized. 
 
SBERBANK A LOGICAL CHOICE FOR BTA 
 
¶7.  (SBU) Zhamishev reiterated the official government position that 
it not become entrenched in the banking sector, and that 
Samruk-Kazyna's participation in BTA is seen as temporary.  "As I'm 
sure you are aware, we would ultimately like to successfully 
reconstruct the bank [BTA] and sell it to Sberbank."  The Russian 
Savings Bank "Sberbank," he argued, was a logical choice, because 
BTA was very active in Russia and Sberbank may be better positioned 
to recover assets.  "Also," he added, "Russia has long wanted to 
become active in Kazakhstan's financial sector." 
 
ZHAMISHEV DEFENDS GOVERNMENT ACTIONS - REMAINS HOPEFUL 
 
¶8.  (SBU) Zhamishev admitted that negative perceptions of the 
market, complicated by recent accusations of massive fraud on the 
part of top management of Alliance and BTA banks, do not help 
overall confidence in the Kazakhstani financial sector.  However, he 
expressed a cautious optimism, saying that Kazakhstan needs "time 
and some positive events to refresh views."  He defended the 
government's actions to date, saying that in his opinion, things 
will look much better once the restructuring of the struggling banks 
is completed.  "The fact that the government chose to save the banks 
at all shows that we have a responsible approach towards the 
creditors.  [Former BTA Chairman] Ablyazov came to us the day before 
and said 'the default starts tomorrow!'  And as for Alliance, they 
didn't sell it to us for 100 tenge (NOTE:  Less than $1. END NOTE.) 
because they were generous!  For us, it would have been very simple 
to have liquidated the banks.  We could have said to the creditors, 
'Excuse us,' knowing that no bank would have meant no liabilities." 
Zhamishev explained that he and his colleagues in the government 
understood that there otherwise would have been a significant 
reaction in the international markets, questioning the lack of 
action.  "And so we acted.  We decided to assume responsibility and 
save the bank."  In conclusion, he noted that "the return of trust 
is a long and difficult process, but judging by the actual 
situation, we believe objective analysis will eventually decide in 
our favor." 
 
¶9.  (SBU) COMMENT:  Kazakhstani officials likely will continue to 
bristle at suggestions that they should guarantee certain debts 
incurred by their largest banks during the boom years of easy credit 
from the West.  This is particularly true for BTA and Alliance 
banks' obligations engineered by former management now wanted in 
Kazakhstan on charges of massive fraud.  Kazakhstani officials 
remain convinced that time will heal all wounds, confidence will 
return to the markets, and the world will judge them favorably in 
the end for the measures justifiably taken to maintain financial 
sector stability and their image amongst international creditors. 
END COMMENT. 
 
HOAGLAND