Kazakhs Squeeze Exporters as Firms Rejoice After Devaluation

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Inside Kazakhstan Tenge's Plunge Against Dollar

As Kazakh exporters celebrated after the central bank gave in to their demands to devalue the tenge, President Nursultan Nazarbayev said he’s appealing to them to sell their foreign income to restore confidence.

Kazakhstan relinquished control of its exchange rate on Thursday and said it was switching to a free float, triggering a 22 percent slide in the tenge to a record low versus the dollar. Hours later, Kazakh authorities announced they’ll ask exporters to convert their foreign revenue inside the country instead of holding it abroad, mirroring actions taken by Russia last year at the height of its currency crisis.

The government is leaning on exporters after a surprise move to restore competitiveness that’s been damaged by currency declines from Russia to China. Companies such as KazMunaiGas Exploration Production JSC, a unit of the nation’s state oil company, and KAZ Minerals Plc surged in London trading after the decision, which Nazarbayev said was driven by struggling exporters and small businesses.

“The tenge devaluation for exporters is more compensation for previous losses than stimulus,” Damir Seisebayev, director of the analytical department at АО Private Asset Management in Almaty, said by phone. “Some importers may be driven out of business but this won’t strongly affect the economy as its main engine is exporters of oil and metals, not consumer spending.”

Exporter Sales

Nazarbayev said he’s instructing the government to ask exporters to sell their foreign income to take the pressure off the tenge.

“I’m not pushing, but I’m asking,” he said in televised comments from the capital, Astana.

Kazakhstan must safeguard its reserves, with the government only prepared to support “competitive” companies, he said. The central bank spent $28 billion this and last year to support the tenge, including $10 billion in 2015, according to Nazarbayev.

The tenge strengthened 5 percent to trade at 240.04 per dollar at 2:19 p.m. in Almaty, according to data compiled by Bloomberg.

The Asian Development Bank approved a $1 billion five-year loan to Kazakhstan on Friday to help “continue government programs to strengthen the economy in the face of recent challenges,” the lender said.

‘Fiscal Leeway’

The loan will give Kazakhstan “the fiscal leeway it needs to mitigate the unanticipated and significant negative impacts of the steep decline in world oil prices and the economic slowdown of the neighboring countries,” Lotte Schou-Zibell, principal economist at the bank’s central and west Asia department, said in a statement. “It will help the government modernize infrastructure and maintain spending programs for job creation, social services, support to low-income households, and private sector development, particularly for small businesses.”

Economic growth in the world’s top miner of uranium and the biggest energy exporter in central Asia has slowed amid a rout in commodities prices. Fitch Ratings has estimated that its expansion will slow to 1.8 percent in 2015 and 2.5 percent in 2016 from 6 percent in 2011-2014. The ratio of sovereign debt to economic output was at about 15 percent last year, according to the International Monetary Fund.

The nation’s $212 billion economy has suffered since Russia stopped managing its currency last November. In addition to the 55 percent slide in oil and the ruble’s 46 percent plunge in the past year, China’s move to weaken the yuan elevated pressure on the Kazakh currency.

‘Competitive Conditions’

The currency move gives companies “competitive conditions” in which to operate, Alexander Machkevitch, chairman of Eurasian Resources Group, said on Thursday. Adjusting the exchange rate or increasing subsidies were the only options left to put Kazakh producers on “equal” terms with their rivals, said Ivan Sauer, head of the nation’s meat and dairy union.

Not everyone is happy because the devaluation will also deal a blow to domestic demand. The depreciation “is likely to hurt all financial assets” in the country, said Alexander Morozov, chief economist for Russia and the Commonwealth of Independent States at HSBC Holdings Plc.

Nazarbayev asked the central bank to compensate some holders of tenge-denominated deposits who endured losses after the currency collapse.

“The devaluation is a huge shock for the public and businesses, which are likely to tame spending,” Oleg Kouzmin, an economist at Renaissance Capital in Moscow, said in an e-mailed report.

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