De-dollarization in Kazakhstan can take up to six years, expert says

Business Materials 29 January 2015 20:18 (UTC +04:00)
The process of de-dollarization of thinking in Kazakhstan could take up to five or six years, in the best case – from one to two years

Astana, Kazakhstan, Jan. 29

By Daniar Mukhtarov - Trend:

The process of de-dollarization of thinking in Kazakhstan could take up to five or six years, in the best case - from one to two years, said the Director of the Center for Macroeconomic Research Olzhas Khudaibergenov.

"The de-dollarization of thinking would be gradual," Khudaibergenov told Trend in an interview.

Khudaibergenov noted that for such a measure to take place, it is necessary to introduce safeguards in national currency (the tenge) on deposits, and carry out all deals in tenge.

"If, for example, all the deals on cars and real estate are carried out in the country using non-cash payments in tenge, it will be a tough barrier against the population using dollars," he said.

He also noted that if such measures were put in place, the process of de-dollarization in Kazakhstan might take up to five or six years.

"But the de-dollarization of thinking could take place in a shorter time. Let's suppose that the elite, which has large currency savings, needs a written guarantee from the state on the exchange rate difference. And as soon as the "elite" switches to the tenge, the holders of average amount of savings will do the same. This is an effective mechanism to ensure that everyone switched to the tenge. If this happens, only a year or two will be needed for the de-dollarization of thinking in Kazakhstan," said the expert.

He recalled that the dollarization of thinking emerged in 2000-2007, when Kazakhstan's banks were actively attracting foreign loans, as well as the currency coming from oil sales.

"Banks didn't want to take risks at that time and obtained loans in foreign currency, issued loans in foreign currency," said Khudaibergenov.

The expert recalled that before the devaluation in February 2009, the share of foreign currency loans in the republic amounted to 52 percent, while loans in tenge were 48 percent.

"But they were formally pegged to the dollar," he said. "In February 2011, issuing loans pegged to the dollar was banned, and their share dropped to 30-35 percent, but this was also the highest rate. Normally, foreign currency loans should amount to 10-15 percent."

Khudaibergenov said that if the Kazakh banks expect devaluation in February 2016 like everyone else, they will lay the devaluation in the rates of new issued loans.

He noted that with the approach of February, the main issue in Kazakhstan is whether there will be a regular devaluation or not.

He said that in this regard, different alternatives are being considered and there are several scenarios. The first scenario is that one should keep the tenge exchange rate at the current level. The second scenario, which is a radical one, suggests that one Russian ruble will amount to 5 KZT, i.e. it provides 100 percent devaluation. However, this devaluation will affect Kazakhstan even more than it did Russia, according to the expert.

"The share of loans in foreign currency in the country is around 30-35 percent, while in Russia the figure is 10-15 percent," said Khudaibergenov. "The share of import of consumer goods is 70 percent in Kazakhstan, in Russia - 50 percent, so we have worse indexes, and we cannot afford devaluation."

Edited by CN