The devaluation of Kazakhstan's tenge comes close on the heels of the devaluation of another major regional currency, the ruble. Is there a connection? RFE/RL correspondent Charles Recknagel spoke with Alex Nice, a Central Asia expert at the London-based Economist Intelligence Unit.
RFE/RL: Kazakhstan is the second economy in the former Soviet space to see its currency devalue in recent weeks. In January, the Russian ruble devalued by 10 percent against the dollar. On February 11, the Kazakh tenge fell by 19 percent against the dollar. Did the fall of the ruble put additional pressure on the tenge, which already was suffering from other factors that have weakened many emerging markets currencies in recent months?
Alex Nice: What we have seen since January is a sharp fall in the value of a number of emerging-market currencies against the dollar, including the ruble, which is perhaps the most significant [factor] for most Kazakhs. But there were also a number of [other] factors that were pushing down on the currency since earlier in the year, including a fall in the value of oil prices, weak exports, and a rapid growth in imports....
In general the tenge tends to follow movements in the ruble. The last major devaluation in 2009 likewise followed a sharp fall in the value of the ruble. And the reason for that is partly that they have very similar economies, they are both major oil exporters, but also Russia is one of the main trade partners for Kazakhstan and one of the main consumers of [Kazakh] nonoil exports. Now, if the ruble falls, then the relative price of Kazakh goods in Russia rises, so there is this pressure to lower the value of the tenge in order to maintain some sort of price competitiveness.
RFE/RL: Qairat Kelimbetov, the chairman of the National Bank of Kazakhstan, has said that the government considers the new value of 185 tenges to the dollar to be the proper exchange rate for the currency. Can we expect the Kazakh central bank to hold the rate of the tenge at this level?
Nice: It is very hard to [predict] currency markets but they may have actually devalued [the tenge] slightly too far. It is interesting that the tenge lost 20 percent of its value [to the dollar] compared to, say, the ruble, which has lost 10 percent since January, and they have lower inflation in Kazakhstan. So, I wonder if they have given themselves some leeway perhaps for the currency even to strengthen slightly. But it depends on a number of factors. If the oil price were to weaken significantly over the year, then that would reduce the value of their exports and they may again find it hard to defend the tenge at that level.
RFE/RL: Is the devaluation of the tenge likely to stoke inflation in the Kazakh economy?
Nice: Consumer goods are to a large extent imported from abroad and the prices for all of those are going to shoot up markedly, which is going to push up inflation. Now, in the longer term, as Kazakhstan tries to diversify its economy, a weaker tenge will help domestic producers and perhaps encourage consumers in some areas to buy local produce. But that is a long-term project and in the short term we are going to see a spike in inflation and this is a real problem and I think it is going to cause quite a lot of anger amongst average Kazakh consumers.
RFE/RL: Other Central Asian countries are also closely tied to Russia, either as a trading partner or through remittances. Are we likely to see currency devaluations follow in Kyrgyzstan and Tajikistan, both of whose economies are heavily dependent upon rubles sent back by migrant laborers working in Russia?
Nice: If we look at Kyrgyzstan and Tajikistan, they are countries with very large current account deficits; that is, they import a great deal more than they export, and they also are very much dependent upon remittances from Russia. Now, the fall in the value of the ruble means that the value of those remittances has gone down in dollar terms and as a result there is going to be downward pressure on the Kyrgyz and Tajik currencies.
RFE/RL: How about Uzbekistan. Any signs the som is also on the way to devaluation?
Nice: In the case of Uzbekistan, of course, you have got the official exchange rate and then the unofficial exchange rate, which is about 30 percent weaker already than the official rate. We have seen the Uzbek som weaken throughout the last year, and I think that is going to accelerate over the course of this year and the black-market rate likewise will weaken. Whether there will be this rapid devaluation [as in Kazakhstan] is hard to tell because in some ways [the government's] currency and exchange-rate policy in Uzbekistan is very opaque.
RFE/RL: And what about Turkmenistan?
Nice: Turkmenistan, I imagine, will face some of the similar issues simply because, more generally, if we are talking about why emerging-market currencies are weakening, well, the end of quantitative easing in the United States, the U.S. Fed taper, and the fall in confidence in emerging markets, is having an impact on all these countries and I imagine also in Turkmenistan.
RFE/RL: Kazakhstan is the second economy in the former Soviet space to see its currency devalue in recent weeks. In January, the Russian ruble devalued by 10 percent against the dollar. On February 11, the Kazakh tenge fell by 19 percent against the dollar. Did the fall of the ruble put additional pressure on the tenge, which already was suffering from other factors that have weakened many emerging markets currencies in recent months?
RELATED: Kazakh Central Bank Devalues Currency
Alex Nice: What we have seen since January is a sharp fall in the value of a number of emerging-market currencies against the dollar, including the ruble, which is perhaps the most significant [factor] for most Kazakhs. But there were also a number of [other] factors that were pushing down on the currency since earlier in the year, including a fall in the value of oil prices, weak exports, and a rapid growth in imports....
In general the tenge tends to follow movements in the ruble. The last major devaluation in 2009 likewise followed a sharp fall in the value of the ruble. And the reason for that is partly that they have very similar economies, they are both major oil exporters, but also Russia is one of the main trade partners for Kazakhstan and one of the main consumers of [Kazakh] nonoil exports. Now, if the ruble falls, then the relative price of Kazakh goods in Russia rises, so there is this pressure to lower the value of the tenge in order to maintain some sort of price competitiveness.
Alex Nice
RFE/RL: Qairat Kelimbetov, the chairman of the National Bank of Kazakhstan, has said that the government considers the new value of 185 tenges to the dollar to be the proper exchange rate for the currency. Can we expect the Kazakh central bank to hold the rate of the tenge at this level?
Nice: It is very hard to [predict] currency markets but they may have actually devalued [the tenge] slightly too far. It is interesting that the tenge lost 20 percent of its value [to the dollar] compared to, say, the ruble, which has lost 10 percent since January, and they have lower inflation in Kazakhstan. So, I wonder if they have given themselves some leeway perhaps for the currency even to strengthen slightly. But it depends on a number of factors. If the oil price were to weaken significantly over the year, then that would reduce the value of their exports and they may again find it hard to defend the tenge at that level.
RFE/RL: Is the devaluation of the tenge likely to stoke inflation in the Kazakh economy?
Nice: Consumer goods are to a large extent imported from abroad and the prices for all of those are going to shoot up markedly, which is going to push up inflation. Now, in the longer term, as Kazakhstan tries to diversify its economy, a weaker tenge will help domestic producers and perhaps encourage consumers in some areas to buy local produce. But that is a long-term project and in the short term we are going to see a spike in inflation and this is a real problem and I think it is going to cause quite a lot of anger amongst average Kazakh consumers.
RFE/RL: Other Central Asian countries are also closely tied to Russia, either as a trading partner or through remittances. Are we likely to see currency devaluations follow in Kyrgyzstan and Tajikistan, both of whose economies are heavily dependent upon rubles sent back by migrant laborers working in Russia?
Nice: If we look at Kyrgyzstan and Tajikistan, they are countries with very large current account deficits; that is, they import a great deal more than they export, and they also are very much dependent upon remittances from Russia. Now, the fall in the value of the ruble means that the value of those remittances has gone down in dollar terms and as a result there is going to be downward pressure on the Kyrgyz and Tajik currencies.
RFE/RL: How about Uzbekistan. Any signs the som is also on the way to devaluation?
Nice: In the case of Uzbekistan, of course, you have got the official exchange rate and then the unofficial exchange rate, which is about 30 percent weaker already than the official rate. We have seen the Uzbek som weaken throughout the last year, and I think that is going to accelerate over the course of this year and the black-market rate likewise will weaken. Whether there will be this rapid devaluation [as in Kazakhstan] is hard to tell because in some ways [the government's] currency and exchange-rate policy in Uzbekistan is very opaque.
RFE/RL: And what about Turkmenistan?
Nice: Turkmenistan, I imagine, will face some of the similar issues simply because, more generally, if we are talking about why emerging-market currencies are weakening, well, the end of quantitative easing in the United States, the U.S. Fed taper, and the fall in confidence in emerging markets, is having an impact on all these countries and I imagine also in Turkmenistan.