Economic crsis in Central Asia

EurasiaNet's report on the impact of the economic crisis on Central Asia.

Business & Economics:
CENTRAL ASIA FACES CURRENCY CRISIS
1/21/09

Central Asia's national currencies are plunging against the dollar and may sink still further as the global monetary crisis continues to shake the region's fiscal foundations, financial chiefs have warned. Kazakhstan, which boasts the region's largest economy, has vowed to hold the line at no more than a 10-percent devaluation of the tenge against the dollar. "It is necessary to ensure the equilibrium and sustainability of the financial system, as a sharp devaluation will exacerbate banks' problems in paying external debts," warned Kazakh Economy Minister Bakhyt Sultanov, Kazakhstan Today reported on January 19. Falling currencies make external debts more expensive and contribute to domestic inflation. Other countries expect to take more of a hit. According to the Kyrgyz news agency 24.kg, the chairman of the Kyrgyz stock exchange has forecast an exchange rate later this year of 45 soms per dollar. The dollar stood at 40.1 soms on January 21. However, bankers in Tajikistan have admitted that there is little they can do to stop the freefall of the somoni. "The National Bank of Tajikistan has limited opportunities to maintain the stability of the national currency rate," National Bank Chairman Sharif Rahimzoda said on January 10. Rahimzoda added that "about $235 million" per month needs to be injected into the domestic currency market to prop-up the somoni against the dollar, Avetsa news agency reported. However, the government does not have the resources to hold exchange rates steady, he said. "Unfortunately, we do not have such [an] opportunity. [T]he amount of the country's gold and foreign currency reserves have already decreased from $350 million to $198 million in the period from January 2008 to January 2009." Uzbekistan, too, faces a currency crisis and local media have speculated that if uncontained, popular discontent could grow. The official exchange rate stands at 1,396 soums to the dollar, but on the black market the rate climbs to 1,700 soums per dollar, the news site Uzmetronom.com claimed on January 16. The declining value of the soum coupled with inflationary pressures, growing unemployment, non-payment of salaries and a series of government tactics to control the economy are pushing many families to the brink of financial disaster, the report said. "The situation, as estimated by experts, will result in an additional and very painful leap in inflation, which would make a large proportion of the population of Uzbekistan insolvent," it added. Early last month, Uzbek President Islam Karimov maintained that the "Uzbek model" of economic development would steady the state against market fluctuations. However, on December 27 the International Monetary Fund cautioned that "increasing protectionist measures and implementing foreign exchange restrictions" would harm Uzbekistan's prospects for 2009.

Editor's Note: Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan