VZCZCXRO3518
PP RUEHIK
DE RUEHTA #2200/01 3570210
ZNR UUUUU ZZH
P 230210Z DEC 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7062
INFO RUCNCIS/CIS COLLECTIVE 2276
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1639
RUEHKO/AMEMBASSY TOKYO 2340
RUEHUL/AMEMBASSY SEOUL 1268
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1834
RUEKJCS/SECDEF WASHDC 1684
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/AMCONSUL ALMATY 2110

UNCLAS SECTION 01 OF 03 ASTANA 002200 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV ETRD EFIN KZ
SUBJECT:  KAZAKHSTAN:  PRIME MINISTER TELLS SCA A/S BLAKE ECONOMY 
RECOVERING 
 
REF:  A.  ASTANA 1762 
      ¶B.  ASTANA 2157 
 
ASTANA 00002200  001.3 OF 003 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  After briefly noting the government of 
Kazakhstan's obligatory talking points on the need for a 2010 OSCE 
summit and a bilateral meeting between Presidents Obama and 
Nazarbayev during the April Global Nuclear Security Summit, Prime 
Minister Karim Masimov told Assistant Secretary for South and 
Central Asian Affairs Robert Blake that 2009 economic growth will 
hover around zero, but will probably reach 2-3% in 2010.  He 
asserted that worldwide economic difficulties will cause oil prices 
to fall again in 2010 and continue to limit Kazakhstan's growth. 
Therefore, he is looking to 2011 for a full recovery and a return of 
international capital.  For long-term growth, he emphasized 
government investments in diversification, competitiveness, 
education, and health care.  In 2010, the Kazakhstani government 
also hopes to establish clear rules for its exit from the economy. 
Masimov also mentioned Kazakhstan's New University, which is slated 
to open in 2010.  END SUMMARY. 
 
¶3.  (SBU) Prime Minister Karim Masimov welcomed Assistant Secretary 
for South and Central Asian Affairs Robert Blake by reiterating his 
government's request for the United States to support a 2010 summit 
of the Organization for Security and Cooperation in Europe (OSCE) 
and a bilateral meeting between Presidents Obama and Nazarbayev in 
Washington during the April Global Nuclear Security Summit. 
 
CONSTRUCTION, FINANCIAL SECTOR PROBLEMS "MORE OR LESS MANAGED" 
 
¶4.  (SBU) Turning to his clear area of expertise, economics, Masimov 
told Blake that Kazakhstan's economy from 2000 to 2007 was 
"overheated," especially in the financial, banking, and construction 
sectors.  He asserted that problems in Kazakhstan's construction and 
financial sectors "are now more or less managed."  According to 
Masimov, the Kazakhstani government focused on completing more than 
300 buildings whose construction had stopped.  Connected to problems 
of financing, he said the government used internal resources to 
increase banks' liquidity.  By mid-2010, he claimed the resolution 
of construction sector problems will be "fully visible." 
 
¶5.  (SBU) The Kazakhstani government faced difficult decisions at 
the beginning of 2009, Masimov claimed, because some banks teetered 
on the verge of bankruptcy.  "We had to decide whether to do a 
Lehman Brothers or a Citibank or some other mechanism," he said. 
"So we hired a series of different international consultants," 
including JP Morgan, Credit Suisse, and Goldman Sachs.  According to 
Masimov, this program, which supported four major banks, is nearing 
completion.  He told Blake that two banks, in which the government 
invested 25% -- "like Bank of America, Citibank" -- are now 
negotiating to buy back these shares.  "Two others [i.e., Alliance 
and BTA Bank] are more difficult because of alleged massive fraud in 
the case of BTA.  Our 'Madoff case' [i.e., Mukhtar Ablyazov, former 
CEO of BTA] is in London.  We are suing each other.  He committed 
fraud, but is blaming politics.  We trust UK justice," Masimov 
asserted (ref A).  He confidently told Blake that Alliance bank 
would announce the conclusion of its restructuring that evening, and 
he expressed his opinion that BTA will finish by the end of March. 
"The full picture in April or May will show that we managed to 
stabilize the economy and that the financial and construction 
sectors will be in good shape," he said. 
 
SLIGHTLY POSITIVE GROWTH 
 
¶6. (SBU) Masimov predicted slightly positive growth in GDP for 2009. 
 "Some say that it will be a small minus, some a small plus, but 
that does not really matter since it is a less than 1% difference. 
The trend is more important," he argued.  In 2009, the Kazakhstani 
government invested in roads, schools, and hospitals, Masimov 
boasted, creating 400,000 new jobs and decreasing unemployment to 
 
ASTANA 00002200  002.3 OF 003 
 
 
6.3% from 7%.  Although growth in 2010 will reach 2-3%, he argued 
economic difficulties will continue worldwide and oil prices will 
again fall.  The government is thus budgeting for oil at $50 a 
barrel.  "Diversification, diversification, diversification is 
especially important.  There is much work to be done," he 
concluded. 
 
INTERNATIONAL FINANCING NOT TO RETURN SOON 
 
¶7.  (SBU) In response to Blake's query about the role of financial 
restructuring, Masimov said that the international financial sector 
will not regain "its appetite for emerging markets until maybe the 
end of 2010.  We are not counting on it, but it may help."  To 
emphasize his expertise in this area, he mentioned his weekly 
contact with the major international investment banks. 
 
INFRASTRUCTURE FOR THE SHORT TERM, EDUCATION FOR THE LONG TERM 
 
¶8.  (SBU) Because Kazakhstan is not fully industrialized, Masimov 
insisted it needs investment.  Specifically citing the World 
Bank/EBRD-financed highway from China through Kazakhstan to Russia 
and Europe, he asserted investment creates new opportunities for 
employment and provision of goods and services by small- and 
medium-sized enterprises.  For the long term, Masimov highlighted 
the necessity to invest in competitiveness, education, and health 
care.  Because he believes that outsourcing for education and health 
care will increase in the next ten years, Kazakhstani President 
Nazarbayev will outline a strategy for Kazakhstan to position itself 
to provide these services in his February address to the nation. 
 
GOVERNMENT ENTRANCE IN ECONOMY TEMPORARY 
 
¶9.  (SBU) A/S Blake highlighted Kazakhstani entrepreneurs' 
complaints about the concentration of wealth in a small number of 
holding companies, which crowds out private investment and limits 
the energy of entrepreneurs (ref B).  Masimov responded that the 
government provided assistance in light of the economic crisis. 
Masimov emphasized the government's "temporary entrance into the 
economy," and as part of the government's 2010 program, said it must 
establish clear rules for its exit from the economy.  He further 
elaborated the effect of the crisis on his personal philosophy, 
"Before 2007, I was too conservative.  I asked why the government 
should interfere in private-sector dealings.  At the end of the day, 
we now see that the government is always involved.  From 1980 to 
2008, we had Reagonomics.  From 2010, there will be more social 
responsibility and control.  Maybe in 20 years time, the trend will 
again reverse itself." 
 
FUTURE U.S. INVESTMENT -- PROBABLY NO INTEREST IN 2010 
 
¶10.  (SBU) When A/S Blake offered to organize a business delegation 
to accompany Secretary Clinton when she has the opportunity to 
travel to Kazakhstan, Masimov highlighted his "pragmatic" opinion 
about the difficulty to attract U.S. companies in 2010.  "2010 will 
be about building good infrastructure to attract U.S. companies and 
investment in the future.  Strong political will will bring results 
in two to three years," he asserted.  According to Masimov, 
Kazakhstan's English-language New University, slated to open this 
summer, is included in these plans.  Masimov pointed to ongoing 
consultations with U.S. universities (including Duke and the 
University of Pittsburgh) as bolstering the effort to create a 
"first-class regional center."  He said he would provide more 
information about the university to the Embassy. 
 
¶11.  (SBU) Deputy Chairman Timur Kulibayev of Samryk-Kazyna 
(Kazakhstan's largest holding company), who joined Blake's December 
15 meeting with Foreign Minister Kanat Saudabayev, said Kazakhstan 
would welcome diverse U.S. investment, specifically in 
machine-building, petroleum processing petrochemicals, and 
agriculture.  The government is drafting a strategy for broad 
industrialization by 2020, Kulibayev asserted.  The Kazakhstani 
 
ASTANA 00002200  003.3 OF 003 
 
 
government and U.S. Export-Import bank could co-finance U.S. 
pilot-investment projects, he opined.  In response to Kulibayev's 
suggestion of regular meetings between U.S. and Kazakhstani business 
leaders, Blake noted that a private-business component could be 
added to the Annual Bilateral Consultations.  Foreign Minister 
Saudabayev said Kazakhstan's Ambassador to the United States, Erlan 
Idrissov, will pursue the suggestion. 
 
¶12.  (SBU) COMMENT:  Masimov's strong grasp of the big picture and 
smallest detail, as well as his ability to adapt to changing 
circumstances, always impresses, and might explain Kazakhstan's 
relative success in navigating the global economic crisis.  As long 
as Masimov, or someone of his vision and quality, maintains a 
relatively free hand in economic matters, we believe that the 
government will extricate itself from the economy.  For a country in 
which a free market arrived less than 20 years ago, this experience 
of temporary government intervention should strengthen Kazakhstanis' 
faith in the future of the private sector.  END COMMENT. 
 
¶13.  (U) A/S Blake has cleared this cable. 
 
HOAGLAND