Kazakhs earmark $21 billion to combat crisis

ASTANA (Reuters) - Kazakhstan plans to inject $21 billion into its economy to counter the impact of the global financial crisis and expects growth will be a lot slower next year, Prime Minister Karim Masimov said on Thursday.

Foreign investment and high oil prices transformed the ex-Soviet nation into Central Asia's biggest economy over the past years but the crisis has ended Kazakhstan's double-digit growth and dented confidence in its banks.

"This year the total amount we prepare to inject is about $21 billion," Masimov told Reuters in an interview.

The government had previously said it would pump $15 billion into its $100 billion economy, including $10 billion from the $26 billion oil wealth fund and $5 billion in central bank injections.

Masimov said the government had also decided to allocate $5 billion from national pension funds to boost liquidity but did not elaborate. Kazakhstan's 14 pension funds, all but one of them private, have total assets of $11.5 billion.

A fund worth $1 billion has also been established to purchase troubled assets from banks.

Despite these policies, Masimov said the economy was still likely to show signs of weakness due to the falling price of oil.

"We are now making some adjustments. Our (oil price) forecast for next year is $50. Economic growth next year will be three percent," Masimov said.

A fall the price of oil to less than half its July peak has raised concerns about Kazakhstan's highly leveraged economy. Oil accounts for 60 percent of its exports.

Falling prices for oil and metals, also a key export, have in turn sparked fears of the tenge currency's potential depreciation.

Kazakhstan's gross domestic product is expected to grow five percent in 2008 -- already a sharp decline from an average 10 percent growth recorded since the beginning of the decade.

"I think Kazakhstan does have enough financial resources to go through 2009," Masimov said.

"At this stage we have no intention to ask international financial institutions for additional help. I think we can manage it with our own resources."

He reassured investors that a state capital injection programme would not trigger bank nationalizations, adding that the government would not buy more than a quarter of banks' equity to boost their capital.

But smaller banks may have to merge to weather the storm, he said.

"We offered this help to all the banks. For the smaller banks, we prefer mergers and acquisitions but if it is needed we are ready to think about capital injection."

He added inflation was likely to stay within the government forecast of 10 percent this year and next, he said.

(Additional reporting by Michael Stott & Raushan Nurshayeva; Editing by Jan Dahinten)