National Foundation as «an airbag» helped much during the crisis – Head of National Bank of Kazakhstan Gr. Marchenko


National Foundation as «an airbag» helped much during the crisis - Head of National Bank of Kazakhstan Gr. MarchenkoWhy Kazakh economy is growing faster than the Russian, if there is a future for the single currency in the post-Soviet space, and how to save via the Internet tells the Chairman of the National Bank of Kazakhstan Grigory Marchenko to the columnist of “Kommersant Money” Evgeniy Segal («№ 12 (920), 01/04/2013, with heading “Talk of the week”).

– How did Kazakhstan relatively painless go through the crisis avoiding recession and restoring the annual economic growth of 5-6%?

– There are several moments. First, Kazakhstan ahead of other countries in late 2000 created the National Fund. In the world market they say that the Norwegian model of stabilization fund and savings as well is considered the best one. With the Minister of Finance I went to Norway and saw it, and then President Nazarbayev made a decision. Many of us were saying, Why save, let’s spend it. But we created a fund, and it played a key role during the crisis: to support the crisis measures the National Fund spent $ 10 billion and from the budget $ 9 billion, “Airbag” had been huge support in the crisis time.

-Secondly, the crisis in Kazakhstan in a way started earlier. In Russia, the real crisis erupted in the fall of 2008, and we have previously had problems in the banking sector and the real estate sector, which is largely credited by banks. In 2006-2007, up to half of the GDP growth has been given by the financial and construction sectors. Growth pattern was wrong while financial sector debt reached $ 47 billion, or almost 50% of GDP at the time. Out of banks’ liabilities 53% of them were foreign ones. And, while commodity prices remain high and the export sector had increased rapidly, our banks lowered their activity as well as real estate and construction.

Since the problems started earlier, and the response followed them. Now the debt of the banking sector makes $ 10.5 billion, and the outer part of the bank’s obligation is less than 15%. If you look from the year 2000, the average annual growth in Kazakhstan a half times higher than in Russia. And inflation is a third lower.

– But still quite high. Isn’t it discouraging retaining growth?

– If you look at inflation over a longer period, its annual average is about 7%, and the average annual GDP growth over the same period makes about 8.5%. One can not call inflation at 6-7% to be acceptable, but it’s not galloping inflation of the 1990s. In the world there are examples of this level of inflation being consistent with growth rates. At the same time opposite examples should be remembered. Bank of Canada in the 1990s suppressed inflation, and the economic activity as well. Then it had been found out that by those measures two percentage points of GDP growth were lost in the year.

The whole question is the type of inflation: if monetary, it’s bad. But Kazakhstan monetary factors do not affect inflation level: we do not print money, nominal GDP grows faster than the monetary aggregates. And if inflation is not monetary, but structural, then the efforts of the Central Bank do not solve the problem, as it is limited in its activities. It is necessary to carry out the structural reforms of the economy.

If you look at longer periods, one-fifth of the increase in inflation makes the price of fruits and vegetables. Despite the warm climate in Kazakhstan they are higher than in Western Europe. But in Uzbekistan and Tajikistan, fruits and vegetables are three to five times cheaper than at the Almaty market. If it were not for the problems at the borders, not problems on the roads caused by the police, not the problems of the market generated by bazaar committee, which determine prices, then the annual inflation rate would have been an average of 1.5 percentage points.

As for clothes, many brands like Benetton, Zara and others cost a half times more expensive than in the U.S. and Europe. But rapidly developing is Internet commerce: customers come to the stores, they try on, record and book articles via the network. It takes few days longer, but by 30-40% cheaper.

– Now in Kazakhstan there is a process of consolidating retirement savings into a single pension fund. Why is this done?

– First, pension funds have been working hard at attracting investors: we have more than 8.5 million people having such accounts, and in 1999 there were only 2 million of them. They are often simply stealing depositors from each other. In Russia they are discussing legislation according to which one can change National Pension Fund no more than once in five years. In Kazakhstan there was a rule: no more than twice a year. Unfair competition began, the frequent transitions from one fund to another, pension funds were invested, withdrawn, reinvested and shifted. In the long term for investors it is not profitable, they lose. Therefore, it was decided to merge the funds and transfer to the management of the National Bank. Private funds can be transformed into control of the company and be mandated by investing a single pension fund.

– How do you plan to manage pension money?

– If there is one fund there is no necessary network of agents, and the control system is simplified. The National Bank already manages foreign reserves and the National Fund. These assets are required by law to be invested abroad. Pension funds have another limitation: 40% abroad, 60% inside the country.

– In Russia, it is now the most critical discussion question: to spend or to save?

– I think that this question gets emotional very often. In fact, there is always a middle path. Stabilization funds have been set up with certain goals, and the money is for future generations. In Russia, the oil peak is somewhere not far, in another ten years Kazakhstan will increase oil production. And then we will have a peak and a plateau followed by a decline. Unlikely in the 2040-2050’s we will be producing more oil than now. And if you are currently under the slogans of money to spend, and then it will not come back, then lowering pensions, we are deceiving ourselves, and using up reserve funds we are deceiving future generations.

There are those who say that the infrastructure will solve everything. But let me not tell you what kind of projects in Russia were built and how many times the costs were in excess of the original estimate. And what for is to spend the money of future generations on such projects?

If you spend, get right on that. And it’s not just a question of return of specific projects, and the multiplier effect throughout the economy. We adhere to the policy of public-private partnership: the investor plays a major role, but also has major risks. Optimal situation: 51% of risk is taken by a strategic investor, to raise additional funds bonds are issued to be acquired by banks, investment and insurance companies. In this case, if the project is, of course, cost-effective, you can use part of retirement savings or a part of the National Fund for investment in the national economy.

– How do you assess the prospects for the Russian economy to accelerate growth?

– We are very interested in that. If we are going to grow faster, then we won’t pull Russia. But if Russia grows faster, it can pull us along.

– What about the plan to create a single currency area within the EurAsEC and the Customs Union?

– This is still theoretical talk, and it has been lasting for 12 years. My position since 2001 has not changed: we first need to determine with the macroeconomic parameters that we have to reach. The experience of the euro area, by the way, has demonstrated that the Maastricht parameters are not enough. Debt levels, inflation and the budget deficit are the important parameters, but there should be more of them. Consistent fiscal policy is necessary.

When the criteria are defined, we have at least five years to comply strictly with them, and in the more restrictive than in the euro zone format. Then to create institutions to prepare for the integration, then a supranational central bank. And only then it will be possible to issue a supranational currency. Even if we agree on the criteria for tomorrow, this work will take eight to ten years. And no serious step in this direction is being done.

Inflation in Belarus, for example, last year was 102%, this year it is expected to reach 20% to something. What kind of performance criteria can цу speak about in this case?

– Will the selected policy of quantitative easing by the euro area and the U.S. help them avoid a recession?

– With regard to the global side, we as the National Bank of Kazakhstan can not have effect on these processes. There is only a measure of responsibility for what may be influenced.

Obviously, excessive level of debt is a negative factor. And for that, sooner or later one has to pay. How these problems will be solved, there is no way to tell. There is systematic solution neither in the U.S. nor in Europe nor in Japan. The building was on fire, it was filled with water, but the sun comes out, the wallsget dry, and the house might catch fire again.

At the beginning of the crisis, many were saying about changing global financial architecture, but then stopped. Even by the Basel Committee (on Banking Supervision which includes the heads of the world’s biggest central ,anks. – “Money”) one can quite reasonable measures available, but then come politicians and banking lobby, and the process gets hindered. No structural changes have taken place.

– In recent weeks the rumors were going about that you were in the short list of candidates for the post of Head of the Russian Central Bank. Have you been consulted with?

– I heard the rumors too, but none of the officials talked to me. My contract in the National Bank of Kazakhstan expires in January 2015. I am not going to prolong it. We have the law, if one accumulates the required size of the funded pension, he (she) can retire at the age of 55. I’ll do it, and so as to demonstrate that the system works.

And with the Russian Central Bank we’re friends at the institutional level. We have good relations with Sergei Mikhailovich (Ignatieff, the outgoing head of the Central Bank. – “Money”), we are glad when he comes to visit us. With Gerashchenko I have been friends ever since. If it is Nabiullina, then we will work with her.

– Actually, without “if” this time. Vladimir Putin has put forward her candidacy.

– Paramonova has been proposed twice, and the Duma rejected both times. We are experienced people and have long been working: until the formal declaration of approval held, we will not hurry. And many guys were sending telegrams in August 1991 to the coup, and then it looked awkward. It is a pity that Kudrin has refused, but Nabiullina is also a worthy candidate.