January 23, 2013 / 12:10 PM / 5 years ago

UPDATE 2-Kazakhstan mobilises pension fund assets to spur growth

* President wants pension fund assets to prop up growth

* Pension reform mastermind hails decision

* Slams local pension funds as corrupt and inefficient

* Nazarbayev says premature to unseal “oil fund” (Adds analyst, Nazarbayev, updates pension fund assets)

By Raushan Nurshayeva and Mariya Gordeyeva

ASTANA/ALMATY, Jan 23 (Reuters) - Kazakhstan’s president has ordered the government to merge the country’s private pension funds and deploy billions of dollars of their assets to sustain rapid growth rates, without raiding the strategic oil fund.

The planned financial injection in the oil-rich economy - Central Asia’s largest - may outstrip the $10 billion financial aid allotted from the National Fund, which collects windfall oil export revenues, after the global financial crisis hit Kazakhstan in 2007.

The $10-billion package was channelled over several years to support five local banks that were severely hit by the crisis.

Kazakhstan’s economic growth slowed to 5.0 percent in 2012 from 7.5 percent a year earlier as the general instability of the global economy pulled it down, Prime Minister Serik Akhmetov said on Wednesday.

Combined pension savings accumulated by 10 private and 1 state-run Kazakh pension funds totalled 3.177 trillion tenge ($20.7 billion) as of Dec. 1, 2012, central bank data show. The state-run pension fund, GNPF, accounted for 19.3 percent of the sum.

“Some of these (pension fund) assets ... must be used to credit the real economy ... through banks, to assist industrialisation, and help develop entrepreneurship. So, let’s decide how to do it,” Nursultan Nazarbayev told the government during a meeting broadcast live on Wednesday.

“Such consolidation, run by the National Bank, will allow us to more efficiently and safely use the (pension) assets accumulated by our citizens,” he said.

He gave no further detail, telling the government and central bank to prepare within one month proposals on how to implement the merger of private pension fund assets, “taking into account the interests of all parties concerned”.

Kazakhstan launched its pension reform in 1998 by allowing its citizens to accumulate savings for their future pensions in funds of their choice.

Several private pension funds, contacted by Reuters, were not immediately available for comments due to a late hour.

INEFFICIENT?

Oraz Zhandosov, who headed Kazakhstan’s central bank in the 1990s and was one of the authors of pension reform, hailed the decision to merge private funds’ assets into one fund.

“That’s the right approach, because our pension funds have demonstrated nothing positive,” he told Reuters.

“What they have really demonstrated is hackneyed thinking regarding asset management, high level of corruption and shameless spending of our citizens’ pension savings on their salary schemes.”

“I myself created this system and, to my regret, made many mistakes,” Zhandosov said.

Zhandosov said one of the main challenges for the authorities was now to clearly formulate the terms of investing private pension fund assets and to create an efficient mechanism of asset management.

“I would imagine that for some part of the portfolio, foreign asset managers would probably be attracted ... A certain part of the portfolio would be placed on the internal market.”

Deputy Prime Minister Kairat Kelimbetov told Nazarbayev: “It (the funds’ merger) will give us such a powerful pool of cash, which could be used to develop infrastructure,” said Deputy Prime Minister Kairat Kelimbetov.

Nazarbayev, a 72-year-old former steelworker who has ruled for more than two decades, also said it was premature to use the reserves of the National Fund, which is replenished by windfall oil export revenues, to help sustain economic growth.

The National Fund’s reserves from oil revenues stood at $57.8 billion as of Dec. 31, 2012.

“It is quite easy to beg for and spend the reserves of the National Fund,” Nazarbayev said. “But the (National Fund‘s) money - those $10 billion - allotted during the past crisis has never been seen again, it disappeared and was not repaid.”

“The National Fund’s cash must be saved for a rainy day to support social stability and not to allow an economic decline.” (Reporting by Raushan Nurshayeva; Writing by Dmitry Solovyov; Editing by Ron Askew.)

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