VZCZCXRO7916
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 #1744/01 2731039
ZNR UUUUU ZZH
O 301039Z SEP 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6479
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE 1990
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1359
RUEHKO/AMEMBASSY TOKYO 2058
RUEHUL/AMEMBASSY SEOUL 1010
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1545
RUEKJCS/SECDEF WASHDC 1421
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
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 2509
RUEHNO/USMISSION USNATO 2821

UNCLAS SECTION 01 OF 02 ASTANA 001744 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
PLEASE PASS USTDA, OPIC, EXIM 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN KZ
SUBJECT:  KAZAKHSTAN:  NATIONAL BANK CHAIRMAN FORESEES 2010 
TURNAROUND 
 
REF:  A.  ASTANA 1628 
  ¶B.  ASTANA 1626 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  At a meeting with the Ambassador on September 
28, Chairman of the National Bank Grigoriy Marchenko predicted 
economic recovery would begin early in 2010, following restructuring 
of BTA Bank.  He foresees 2-3% growth and a return to a normal 
external debt ratio under 20% of GDP.  As he considered the 
economy's next steps, Marchenko argued for foreign banks to remain a 
minority in Kazakhstan, because, in his view, they bring few 
benefits to an economy in good times and stop lending in bad times. 
END SUMMARY. 
 
POSITIVE ECONOMIC OUTLOOK 
 
¶3.  (SBU) On September 28, Governor of the National Bank Grigoriy 
Marchenko described to the Ambassador his cautiously positive 
outlook on Kazakhstan's economy.  Inflation has decreased to 6.2% 
from its high of over 20% one year ago.  He argued that, contrary to 
rumors, the exchange rate is stable and will be maintained at its 
current rate of about 150 tenge to the dollar.  Given commodity 
prices, he said, this position "is a no-brainer, that is 
defendable."  He termed bank liquidity increasingly healthy, having 
risen from $2 billion February to $8 billion now. 
 
¶4.  (SBU) On troubled banks, Marchenko expressed his optimism about 
a quick resolution at Alliance, because "it is smaller and 
restructuring negotiations are more advanced" (ref A).  According to 
Marchenko, "the only black dot on the overall economic picture is 
BTA Bank."  All parties must find a speedy resolution to BTA's 
restructuring (ref B), he argued, in order to return confidence to 
the market.  He expressed his hope that BTA and its creditor 
steering committee will sign an overall agreement on December 7 in 
light of the September 18 MOU.  Echoing a statement to ECA 
delegations, Marchenko argued the psychological importance of a 
conclusion to BTA restructuring.  Currently, banks are scared to 
lend, he stated, but BTA restructuring would signal that the worst 
is over.  Banks would more readily loan money, and individuals and 
companies would more willingly borrow it.  Such a credit growth, 
accompanied by a recovery in the real-estate market that would 
increase the value of collateral, would lead to overall economic 
improvement. 
 
¶5.  (SBU) Adding to his positive forecast, Marchenko predicted 2-3% 
growth in the coming year, if Kazakhstan attracts foreign 
investment.  Although he posited international capital markets might 
not lend until the fall of next year, Marchenko asked rhetorically, 
"Why borrow when we are overly liquid?"  Looking to the remainder of 
2009, Marchenko predicted, "KKB [Kazakhstan Kommerce Bank] will 
finish its repayment of $800 million before the end of the year, and 
then it will owe nothing.  BTA will only need to service its debt. 
I hope Alliance will be done, and BTA close.  Our $46 billion in 
[total external] debt [as of January 2008] is now $32 billion, not 
including BTA and Alliance restructuring.  In January, it might fall 
to $20-22 billion, which would return the debt to less than 20% GDP 
-- more or less normal -- in two and a half years.  Then, people 
will feel more confident.  The economy will improve." 
 
FOREIGN BANKS ARE NOT OUR SAVIORS 
 
¶6.  (SBU) Marchenko argued that the Sovereign Wealth Fund 
Samruk-Kazyna will not want to remain a controlling shareholder of 
BTA and Alliance following their restructuring.  Samruk-Kazyna must 
sell, he said, but "should they sell to foreigners?"  According to 
Marchenko, Kazakhstan's overall banking environment would change if 
foreign banks take control of BTA and Alliance, tipping the balance 
of foreign ownership to four of Kazakhstan's six biggest banks. 
 
ASTANA 00001744  002 OF 002 
 
 
 
¶7.  (SBU) When the Ambassador asked whether this would be a 
"positive or negative change," Marchenko pondered the question and 
concluded, "lateral."  "Foreign banks are not our saviors.  In their 
18 years of operations in Kazakhstan, they have not done anything 
[for us].  They have not brought in new technology.  They prefer to 
do what they know -- service large multi-national corporations," he 
lamented.  According to Marchenko, their "only value-added" comes 
through training programs.  "Increased competition, new technology 
-- these are just hype by Western media funded by Western banks 
themselves," Marchenko stated.  He argued that the recent Central 
European and Baltic experience has shown that too much foreign 
involvement is bad in a time of crisis.  Becoming obviously 
frustrated, he continued, "They stop lending.  Boards make decisions 
far away that benefit the banks' bottom lines, not the countries 
where they are operating.  They do not listen to local staff when 
they plead for a resumption of lending.  They don't give a shit 
about the countries!"  Finally, he concluded that foreign banks 
should not compose more than 40% of Kazakhstan's banking sector, and 
the government should re-impose a 50% maximum. 
 
¶8.  (SBU) COMMENT:  Although Marchenko, a trusted advisor to both 
President Nazarbayev and Prime Minister Massimov, clearly believes 
in the psychological nature of the current crisis, his positive 
economic outlook is not simply an effort to "cheerlead" the country 
out of the downturn.  Because he is widely known as hard-headed, 
pragmatic realist with a successful track record in both economic 
and political spheres, and is especially credited for his precise 
devaluation of the currency earlier this year, observers should 
consider his analysis seriously.  That said, successful BTA and 
Alliance restructuring, upon which his optimistic outlook depends, 
remains largely outside his control.  END COMMENT. 
 
HOAGLAND