Kazakhstan: Pension Funds Lost in Azerbaijan Venture

Freed of Currency Peg, Kazakhstan Disavows Stealth Ruble Tie

Kazakhstan’s beleaguered state pensions fund has found itself the target of a fresh bout of public indignation after losing hundreds of millions in a doomed Azerbaijani investment, EurasiaNet.org reported.

Privately run broadcaster KTK reported this week that managers at the Single Accumulated Savings Fund, or ENPF in its Russian initials, sunk around 70 billion tenge ($224 million) into the International Bank of Azerbaijan. This lender has recently cited liquidity issues as grounds for failing to respect its international liabilities and filed for bankruptcy.

Members of parliament are livid and have accused pension fund managers of incompetence, particularly since there had previously been warnings that the Azerbaijani bank was in trouble.

As economist Rahim Oshakbayev explained, the ENPF acquired bonds issued by the International Bank of Azerbaijan in October 2014, a full five months after an international ratings agency had downgraded the papers to Ba3, a high-risk speculative category. Oshakbayev said that even at the time analysts were warning against the investment, deeming the bonds essentially junk. The bank was downgraded even further, to B1, in February, a move that presaged its inevitable default. All the same, the ENPF stuck to its guns.

The former chairman of the Association of Pension Funds, Aidar Alibayev, told KTK that the likelihood is high that the money invested by ENPF will be lost for good as the whole process has gone too far down the road.

Oshakbayev was coruscating about the ENPF, arguing that the fund’s managers appear to have trouble just holding onto financial assets, let alone expanding them. He estimates that around 20 percent of the ENPF’s capital has been waylaid into junk investments.

The ENPF is bumbling from one scandal to another.

Several members of the fund’s previous top management team were arrested in December. The Almaty city court said the executives were accused of embezzlement and misuse of the fund’s assets.