Tuesday, April 6, 1999 Published at 12:07 GMT 13:07 UK
Business: The Economy
Kazakhstan's currency tumbles
People are worried about a Russian-style collapse of the economy
Kazakhstan's central bank chief has urged the country's citizens not to rush out and buy dollars after the tenge currency lost 33% of its value in one day.
The fall followed the government's abrupt announcement late on Sunday that it would no longer intervene to support the tenge and allow it to float freely on foreign exchange markets.
The bank's chairman, Kazdyrzhan Damitov, said the tenge's fall from 88.30 to the dollar on Friday, to 100.02 on Monday and 150.00 on Tuesday was exaggerated by an "unnecessarily nervous mood" among traders.
The rouble's devaluation in neighbouring Russia last year made many Kazakh producers uncompetitive and triggered a flood of imports. After an eight-month rear-guard fight to defend the tenge, the Kazakh government was finally forced to act.
Prices in markets and shops in the commercial capital of Almaty have already begun to move up in reaction to the weakening tenge.
Some shop keepers doubled their prices on Tuesday morning, while others quoted prices only in dollar equivalents.
Mr Damitov said a new rule requiring enterprises to surrender half their hard currency export earnings to the official exchange market would take effect on Monday, easing the temporary dollar shortage.
Initial reaction to the radical policy change was mixed. Many people worried about their savings and fear a replay of the Russian economy's collapse last year.
But major companies in the key metal and oil sectors praised the decision, because it allows them to compete better with enterprises in neighbouring countries.
Paul Ross, the International Monetary Fund representative in Kazakhstan, said the IMF broadly supported the government's decision to float the currency, which should stimulate economic growth.
But he said the Fund had reservations on a number of points.
These included a decision to lower commercial banks' hard currency requirements to 5% from 10%, an order to sell 50% of export earnings and a pledge to keep down utility prices for the foreseeable future.
Mr Ross also questioned the cost of a scheme to allow savers to exchange their bank deposits at a rate of 88.30 tenge to the dollar on condition they did not withdraw them for nine months.
Mr Damitov defended the decision, saying that the social cost of the move to a free currency regime had not been forgotten.
Too dear to defend
Western economists said the government had had to abandon regular intervention as it was becoming too costly.
The central bank said gold and hard currency reserves had dropped by $164m during the last month, to $1.6bn.
The bank spent hundreds of millions of dollars defending the tenge in the wake of the Russian crisis in mid-1998, and had its war chest bolstered by a $217m IMF loan.
Mr Ross said that a mission was due to visit Kazakhstan at the end of the month to "discuss financial arrangements".
Officials have stressed that Kazakhstan will not default on its debts, which are small compared to those of Russia.
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