The Effects of Devaluation of the Tenge Upon the Kazakhstan Economy

Abstract:     
This article examines the probable effect of the February 2009 devaluation of the Tenge on the Kazakhstan economy. Conventional wisdom holds that currency devaluation increases exports, protects domestic production, and preserves foreign exchange currency reserves. While the latter states the obvious, the causal relation between currency devaluation and increased export revenue and increased domestic production, though logically valid, requires the passage of time to measure. In the context of Kazakhstan, the question of devaluation and its effects also must be examined within the 'Dutch Disease' model, as Kazakhstan is an oil dependent country. History teaches that devaluing the Tenge is unrelated to restoring the economy to stable growth and reversing the consequences of recession. Devaluation, without implementation of deep structural economic reforms, is an ineffective panacea, as demonstrated by the 3000% decline in the value of the Tenge since its 1993 introduction. The current economic malaise is likely to be corrected, neither by a manipulation of the currency exchange rate, nor by an increase in the price of oil, but by diversification of the economy, regulation of the money supply by an independent central bank, and a re-organisation and recapitalisation of the banking sector, including renegotiation of domestic credit institution foreign debt. A second devaluation is inevitable, unless strategic reforms are implemented. The question of successive devaluations is not if but when and how much.

Number of Pages in PDF File: 35

Keywords: Kazakhstan, devaluation, Tenge, currency, depreciation, dutch disease

JEL Classification: E4, E5, E6, G1, O53, P44

Accepted Paper Series