Shrinkage in the tenge?
The Kazakhstani tenge, or KZT, the currency of Kazakhstan, is affectionately known by London traders as the ‘Borat’, according to Macro Man, a local punter. Wednesday, the Kazakh central bank decided to allow the tenge to drop by roughly one-fifth, in a devaluation it alleged was triggered by falling world oil prices (which are some 60% of Kazakhstan’s foreign exchange income) and the sharp depreciation of the Russian ruble which decreased the competitiveness of its Kazakh produced goods. Hitherto, the bank had used approximately $6bn of its foreign exchange reserves since October defending the tenge, including $2.7bn in January alone, according to the Financial Times. The situation can be contrasted with that of the ruble, which has fallen by one-third against the dollar since last …

Fitch Ratings downgraded the sovereign ratings of Hungary (to BBB from BBB-plus), Bulgaria, Kazakhstan (by one notch to BBB-, the lowest investment-grade level) and Romania (by two notches to BB-plus from BBB) on Monday while warning that the ratings of South Korea, South Africa, Russia and Mexico are also in jeopardy.  European Union members Hungary, Romania, Bulgaria and the Baltic states “may not be able to handle their large foreign debt burdens, which could spark financial crises,” Fitch said, adding that problems in advanced economies “triggered extreme volatility in emerging market asset prices” and prompted “liquidity strains”.

It lowered its outlook on South Korea, Mexico, Russia and South Africa to negative from stable, while that of Chile and Malaysia were cut to stable from positive.

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The following paragraphs come from the latest newsletter by Nouriel Roubini’s RGE Monitor. The article provides an insightful look at the economic and other challenges facing the US’s 44th President.

The 2008 US Presidential election was historic itself owing to the candidates’ profile. But the timing of the elections as the US and global economy are in the midst of the worst financial crisis and recession in decades reminds us of the Great Depression era and the 1980s recession when incoming Presidents Roosevelt and Reagan faced immense challenges to cure the economy’s woes.

By the time Obama takes his oath in

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Traders of credit-default swaps last month ranked Kazakhstan’s banks as the most prone to default in emerging markets, based on the cost of contracts on BTA Bank and AO Kazkommertsbank, the central Asian nation’s biggest lenders.  However, today the cost to protect against a default by Kazakhstan fell by a record after the government said it will buy stakes in the nation’s biggest lenders to boost liquidity in the banking system.  Credit-default swaps based on Kazakhstan dropped to 5.1 percent of the debt insured from 7 percent. Last month, RBC Capital Markets analysts had grouped Kazakhstan with Latvia as the most at risk among developing countries worldwide from the credit crisis, as a reliance on short-term foreign borrowing made it a “canary in the coal mine.”  But that prognostication may have always been suspect given the country’s vast oil ...

Kazakhstan's government has announced that it may well buy stock valued at around $5 billion in the nation's four biggest banks to boost capitalization and liquidity amid the global financial turmoil. The state expects to buy 25 percent of voting stock in the four biggest banks - BTA Bank, Kazkommertsbank, Halyk Savings Bank and Alliance Bank sell new shares, according to a statement from the prime minister's office today. The measures are designed ``to keep the volumes of lending for the domestic economy, and increase financing of small and medium enterprises,'' the statement said. Kazakhstan also passed laws last week aimed at preventing defaults at ailing banks as the global financial crisis deepens. Kazakh banks posted a 61 percent drop in profit in the first nine months as they set aside cash to cover bad loans as the economic growth ...

During the years 2000-2007 the Kazakhstan economy enjoyed an extended period of very rapid growth, with real GDP growth averaging 10 percent annually. The expansion was underpinned by the development of the oil sector, prudent macroeconomic policies, structural reforms, and increased access to global financial markets. As a result, real per capita incomes have doubled since 2000 and social indicators have generally improved. • The global financial turmoil that began last summer had a significant impact on the Kazakhstan economy. Market perceptions of risk on Kazakhstan's assets rose sharply last September and remain relatively elevated. • Economic growth is expected to drop back significantly in the wake of the financial shock, but is still likely to sustain significant growth. The IMF are forecasting GDP growth of 5 percent in 2008 and a modest recovery to 6.25 percent in 2009. • Consumer ...

Kazakh President Nursultan Nazarbayev called last week for the creation of a "stressed assets fund" as assets provided to banks as collateral for loans lose value, threatening the country's banking sector. The diminishing value of assets put up as collateral ``doesn't allow banks to recoup their expenses,'' Nazarbayev told lawmakers in the capital Astana. Kazakhstan's 36 banks increased their collective loan portfolio to 8.96 trillion tenge ($74.9 billion), an increase of 0.98 percent from the beginning of the year, the Agency for Financial Supervision said on Aug. 20, adding that the portfolio quality ``deteriorated, as expected,'' as the share of ``bad loans'' increased from 1.5 percent to 2.8 percent.

Kazakh inflation accelerated to 20.1 percent in August, the fastest pace since March 2000, led by electricity prices. The inflation rate rose from 20 percent a month earlier, according to the latest data from the Astana-based State Statistics Agency. Consumer prices rose 0.8 percent in the month. Prices for communal services rose 2.5 percent in August, led by a 7.6 percent jump in the cost of electricity. Service-industry prices advanced a monthly 2.2 percent. Air transportation grew 1.4 percent, and the price of railway services increased 0.5 percent. Food prices remained stable in August from a month earlier. Rice rose 3.4 percent, sugar 2.1 percent and flour 1.1 percent, while fresh vegetables dropped 4.7 percent and fruits 3.8 percent. Non-food prices rose 0.7 percent ...

Banks dominate the financial system in Kazakhstan, accounting for 80 percent of total assets. They are mostly locally and privately owned, although foreign participation has increased recently. The system is highly concentrated, with the largest five banks accounting for 78 percent of market share. Banks are very reliant on external financing, with external liabilities making up about 45 percent of the aggregate balance sheet. Easy access to external funding fueled very rapid domestic credit growth, which expanded at an annual average rate of 70 percent from end-2004 to August 2007, bringing bank credit to around 75 percent of GDP by end-2007. Lending was mainly to the household, trade, and construction sectors (the oil sector is not reliant on domestic banks for its financing).

From 2000-2007, the Kazakhstan economy enjoyed an extended period of very rapid growth, with real GDP growth averaging 10 percent annually. The expansion was underpinned by the development of the oil sector, prudent macroeconomic policies, structural reforms, and increased access to global financial markets. As a result, real per capita incomes have doubled since 2000 and social indicators have improved. More recently, the global financial turmoil that began last summer had a significant impact on the Kazakhstan economy. Market perceptions of risk on Kazakhstan's assets rose sharply last September and remain relatively elevated. As commercial bank access to external funding was reduced, domestic liquidity conditions tightened considerably, and banks sharply curtailed lending. Real GDP growth has slowed and, after several years of rapid gains, property prices are declining. ...