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UPDATE 1-Kazakh central banker sees many emerging market devaluations in 2014
February 5, 2014 / 11:46 PM / in 4 years

UPDATE 1-Kazakh central banker sees many emerging market devaluations in 2014

By Tom Miles

GENEVA, Feb 5 (Reuters) - Kazakhstan’s central bank governor Kairat Kelimbetov expects to see a lot of emerging market currency devaluations this year, with the Russian rouble likely to be “close to collapse again,” he said in Geneva on Wednesday.

“I think it’s kind of a beginning,” he said of a recent emerging markets sell-off. “It’s not only a Russian economy problem but a problem for all the emerging markets and I think we will see a lot of devaluation this year. And the situation with the rouble will be, let’s say, close to collapse again.”

For Kazakhstan, the two big potential shocks were the oil price and the sharp change in the rouble, but he said Kazakhstan had opportunities to adjust its exchange rate and would do so if necessary.

Addressing an audience of academics and diplomats at Geneva’s Graduate Institute, Kelimbetov said Kazakhstan had had to devalue its currency several times in the past because of oil price declines, but it suffered many speculative attacks as people tried to anticipate the next big move.

Its current “managed float” exchange rate regime enabled it to cope with interest rate shocks and to avoid speculative attack, but Kelimbetov said the central bank was studying a move to an “inflation-targeting” system, and said Britain’s Bank of England was one model being considered.

Transition to inflation targeting would take three to five years, said Kelimbetov, who plans to meet international bank regulators in Basel on Thursday.

He said his biggest challenge was getting the Central Asian country’s banks to write off their non-performing loans, which he said were the highest in the world at 35 percent of assets, as well as the need to improve risk management.

Oil rich Kazakhstan is salting energy profits away in a sovereign wealth fund, which Kelimbetov said had saved more than $100 billion and hoped to reach $200 billion in the next 10 years.

The country plans to increase the oil sector’s focus on China, partly by developing oil refining and petrochemicals in the city of Atyrau, which Kelimbetov said had good railway links and would be commercially viable.

“Without recovering the new ‘silk road’ it will be very difficult to compete in the future,” he said, adding that oil exports to China were now more promising than the delayed Kashagan pipeline project.

Kashagan, the world’s biggest oil find in decades and the most expensive standalone oil project, took an estimated $50 billion and 13 years to start output last September, but was shut down in October due to pipeline leaks.

Kelimbetov said the oil would soon be flowing.

“The members of the consortium promised to the government that this year we will start commercial production,” he told Reuters. He said the project would not be nationalised but he declined to say what would happen if the delays continued.

“We understand that we have to do it together. We strongly believe that we will fix it this year,” he said.

Asked about transparency in the oil sector, he said Kazakhstan was very open to show all its oil revenues, but sometimes western companies operating in the country were not ready to open up their accounts to scrutiny.

Kazakhstan also plans to turn the port of Aktau into an oil services hub along the lines of Stavanger in Norway or Aberdeen in Scotland, and has begun signing joint ventures with large foreign companies to ensure there would be technology transfer and skills would remain in Kazakhstan even after the oil had gone.

“The whole idea is not only to produce oil and sell it and get the taxes but to get the real skills for the people of Kazakhstan,” Kelimbetov said.

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