Nazarbayev Weighs New Run to Extend Longest Ex-Soviet Tenure

(Bloomberg – bloomberg.com – Nariman Gizitdinov and Torrey Clark – February 12, 2014) Kazakh President Nursultan Nazarbayev said he may extend the longest reign of any former Soviet leader by running for a fifth term in 2016.

“There definitely will be a transition of power — there’s nothing frozen, it will be changed,” Nazarbayev, 73, said in an interview last week in the presidential palace in the Kazakh capital, Astana. “I was elected until December 2016. The time will come when we’ll talk about it.”

Nazarbayev has harnessed Kazakhstan’s oil and mineral wealth to forge the second-largest economy among former Soviet republics during more than two decades of unchallenged rule. The interview preceded the Kazakh central bank’s announcement yesterday that it would devalue the tenge by the most since 2009 to help boost competitiveness.

Nazarbayev won his most recent five-year term in 2011 with 95.5 percent backing in the central Asian nation of 17 million people. The lack of a clear succession plan in a country whose leader looms so large has constrained Kazakhstan’s debt ratings for Standard & Poor’s and Fitch Ratings by exacerbating political risks.

Kairat Kelimbetov, the Kazakh central bank chairman, told reporters in Almaty yesterday that he learned of the decision to devalue the currency the previous night. The tenge will be allowed to trade at 185 per dollar, with a range of 3 tenge on either side, according to the regulator.

‘Financial Measure’

Nazarbayev, who didn’t indicate any such plans during the interview, said today the move is “purely a financial measure aimed at improving the economic state of our companies,” according to a transcript published on his website.

“Right now all the necessary steps must be taken to keep the national currency’s exchange rate at the announced level, working for the good of the economy,” he said at a meeting with Kelimbetov and Prime Minister Serik Akhmetov.

Powered by natural resources ranging from oil to copper, including the world’s largest proven zinc deposits, the economy has remained hamstrung by corruption and political controls. Kazakhstan ranked 140th out of the 177 countries surveyed worldwide in Berlin-based Transparency International’s 2013 Corruption Perceptions Index, alongside Laos and Uganda.

‘Unresolved’ Issue

“The stability of the political scene has allowed Kazakhstan to establish itself, develop its natural resources and grow richer, but governance is weak by international standards and the long-term succession issue is unresolved,” Charles Seville, director of Fitch’s sovereign group in London, said by e-mail. Fitch rates Kazakhstan BBB+, the third-lowest investment grade and one higher step than Russia.

The unexpected currency devaluation highlights the economy’s risky dependency on energy and commodity prices, according to Kate Mallinson, a partner at London-based political risk advisory firm GPW & Co. who studies central Asia, said by e-mail.

“A rising number of labor and social protests suggest that the social contract that once existed between the president and the population is slowly being eroded,” Mallinson said. “Nazarbayev has been very astute in balancing the various business elite groupings in Kazakhstan over the last two decades, and in the medium to long term, concerns exist over whether anyone can duplicate his governance skills.”

While Nazarbayev has championed the virtue of political stability during his tenure, the predominantly Muslim country has faced intermittent attacks by Islamic extremists.

Militants, Riots

In 2011, it suffered its worst violence in 20 years after a riot by oil workers in a region bordering the Caspian Sea left at least 14 people dead and more than 100 injured. The president moved to restore control, replacing top government officials and the head of state energy producer KazMunaiGaz National Co. and sending security forces to fight militants.

Efforts to staunch discontent have earned Kazakhstan a listing of “not free” in a 2013 report published by Freedom House. There was a lack of opposition candidates and political debate in the 2011 presidential ballot, according to a report by the Organization for Security and Cooperation in Europe, an election watchdog.

The president’s family is also playing a prominent role in the country, with his oldest daughter, Dariga, a member of parliament and her sister Aliya in charge of the Elitstroy construction company. Nazarbayev’s middle daughter, Dinara, is a billionaire and chairman of Kazakh-British Technical University in Almaty. Dinara shares control over London-traded Halyk Savings Bank, the country’s second-largest by assets, with her husband Timur Kulibayev.

Lifetime Role

In 2007, Nazarbayev signed into law a bill exempting his presidency from a constitutional two-term limit. Three years later, parliament voted unanimously to declare him “leader of the nation” for life and granted him powers to manage the country after his resignation. Nazarbayev’s ruling Nur Otan party won more than 80 percent of the vote in a 2012 parliamentary election to maintain its dominant role.

“There’s a constitution that stipulates everything,” Nazarbayev said. “Elections are held every five years. The person who’s elected by the people will lead.”

As the first secretary of Kazakhstan’s Communist Party since 1989, Nazarbayev was the de-facto head of state when the U.S.S.R collapsed in 1991. The son of a shepherd who worked as a steel worker in Karaganda, he scaled the ranks of the Soviet elite to become a member of the Politburo and a candidate for the premiership of the 15-republic Union before its breakup.

Uncontested Election

Kazakhstan, the world’s largest landlocked country and the biggest uranium producer, was the last of the Soviet republics to declare its independence. Nazarbayev won an uncontested presidential election with 98.8 percent of the vote.

“We found ourselves in unique conditions: a single body of the Soviet economy burst open and we ended up like a shard of a broken plate,” he said.

In 1993, he unveiled the Kazakh currency, the tenge, after Russia’s introduction of its own ruble sparked hyperinflation in the former republics still using the old Soviet tender.

As the newly independent nation looked for guidance, it heeded the historical experiences of figures like Lee Kuan Yew, the first prime minister of Singapore, former U.K. Prime Minister Margaret Thatcher and French leader Charles de Gaulle, Nazarbayev said.

“We couldn’t repeat 100 percent the experience of any one country, particularly as Kazakhstan has its own unique history,” Nazarbayev said.

Survival Mode

While the Kazakh economy shrank by almost a third through the end of the 1990s, Nazarbayev spent the rest of the decade consolidating power and forging ahead with state asset sales modeled after Russia. Kazakhstan’s capital was moved from Almaty near China to Astana in the northern steppe in 1997.

“We tumbled about and worked to ensure survival” until about 1998, Nazarbayev said. Contrary to most expectations at the time, “we became a state,” he said.

Since then, crude oil production and prices have more than doubled, helping fuel an eight-fold jump in economic output. The nation has drawn $200 billion of direct foreign investment as a result of “quick” asset sales and attracting capital, Nazarbayev said.

“We have no intention to abandon this now,” he said. “I announced the next phase of privatization. The Soviet mentality of keeping everything in the state’s hands — that’s not our way.”

‘Small’ Stakes

The government’s current policy of having “small, 10 to 15 percent stakes” in companies raises confidence in businesses, he said. “When a company establishes itself, becomes profitable, then there’s an interest in it and we buy into it,” he said. “But it’s not a trend, just a good way to invest free money.”

The Kazakh government has increased holdings in oil and gas projects and metals producers, while divesting stakes in banks and some infrastructure companies.

The sovereign wealth fund, Samruk-Kazyna, has agreed to sell shares in BTA Bank, Alliance Bank and Temirbank, which it bailed out and took over following global market turmoil in 2008 and in 2009. The three banks have since restructured $20 billion of debt.

The government may also sell a stake in Eurasian Natural Resources Corp., Nazarbayev said. ENRC delisted its stock in London at less than half of the initial public offering price after the U.K.’s Serious Fraud Office started an investigation into allegations of fraud, bribery and corruption at operations in Kazakhstan and Africa.

Less State

“We are part of the world economy, we aren’t going anywhere, we aren’t taking anything away, we aren’t closing ourselves off,” Nazarbayev said. “Our policy is there will be less of the state in the economy.”

Speaking in an annual address to the nation on Jan. 17, Nazarbayev set an economic growth target of 6 percent to 7 percent for this year, after gross domestic product expanded 6 percent in 2013, and said the nation has an opportunity to make a “sweeping breakthrough” in development during the next 15 to 17 years.

“Right now our challenge is to sustain the pace of economic growth,” he said in the interview. “Every year it will get harder.”

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