The decision to bring Kazakhstan’s national currency tenge into a free-floating regime comes per Central Asian country’s business sphere’s request, Kazakh president Nursultan Nazarbayev told news agency TASS.
“The decision that has been taken by the government and the National Bank, is taken based on the exporters’ request, as well that of Kazakhstan’s national entrepreneurs’ association Atameken Union, and the small-medium sized business of the country,” Nazarbayev, whose son-in-law is the head of Atamekene Union, said. “By restoring the country’s competitiveness we will be able to save jobs at country’s enterprises.”
Kazakhstan’s president noted the state enterprises are already losing their competitiveness.
“We are witnessing a drop in the employment rate and the wages; the state budget is not getting enough resources,” Nazarbayev said.
The president of Kazakhstan expressed hope that the country’s new economic direction will allow to improve the status quo in the country. “We are expecting a bettering of the situation. This will allow us to survive the crisis,” he stated to TASS. “With the gradual improvement of the situation we will be able to save the 1 mln jobs that are provided by the different enterprises in the country. This should also reflect on their future wages.”
We had Three Choices
According to president Nazarbayev, adopting the free-floating currency regime was the best policy that the country could address.
“We had three choices. After taking into the consideration all of them, we decided that the best decision would be to adopt the free-floating tenge regime, or switching to inflation targeting,” Nazarbayev said.
In his words, the other choices included not taking any action, holding the exchange currency at the same rate and expecting the situation to improve. “However, the price of such politics would be shortening of the country’s national production, losing jobs, and burning the currency reserves of the National Fund,” Nazarbayev said.
“The second choice would be continuing the National Bank’s old policy – that is, gradual weakening of tenge within a special range. But in such circumstances, having a bad external market, also means burning a lot of gold reserves,” he added.
The process of the strengthening of global currencies against the dollar has been on-going since 2014m Nazarbayev said. The majority of countries have addressed the procedure of weakening the national currency, including many of the country’s main trade partners, according to him.
“Our partners in the Eurasian Economic Union have also devaluated their national currencies. The Russian ruble has fallen almost twice, the Belorussian by 56%, the Armenian dram by 17%,” Nazarbayev said.
According to him, the devaluation of trading partners’ currencies has weakened Kazakhstan’s production’s competitiveness.
“Kazakhstan’s export has fallen by 73% in the first half of 2015, according to the National Bank data. The import continues to grow and the trade balance of our country is lowering. That is why we are facing a tricky economic situation.”
Adopting Free-Floating Tenge
It was announced on Thursday that Kazakhstan would switch to a realization of a new monetary policy, based on the free-floating currency of tenge.
According to the Prime Minister of the country, Karim Masimov, the government’s and the National Bank’s measures will prevent Kazakhstan from defaulting, as well as experiencing a sharp hike in the prices.
“A country’s economic policy is the key. If the government and the National Bank hadn’t done anything and adopted a laid-back relaxed position, the current problems would be solved by burning the country’s reserves and its gradual default.”