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U.S. DEPARTMENT OF STATE
KAZAKHSTAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                            KAZAKHSTAN

                    Key Economic Indicators 1/
                   (1992 in millions of rubles)
   (1993-94 in millions of U.S. dollars unless otherwise noted)


                                       1992    1993    1994 2/

Income, Production and Employment:

Real GDP (1985 prices)                  N/A     N/A     N/A
Real GDP Growth (pct.)                -14.0   -15.6   -26.9
GDP (at current prices)           1,213,616 3,924.7    97.5
By Sector:
  Agriculture                       159,688   988.1     N/A
  Energy/Water                          N/A     N/A     N/A
  Manufacturing                     771,568 1,994.9     N/A
  Construction                       75,531   442.5     N/A
  Transport/Communication            80,716   321.6     N/A
  Housing                            14,899     N/A     N/A
  Financial Services                  9,032     N/A     N/A
  Trade/Other Branches              150,607   226.1     N/A
  Other Services                     25,177     N/A     N/A
  Government/Health/Education        53,575     N/A     N/A
  Net Exports of Goods & Services     1,399     3.4     0.1
Per Capita GDP                       71,541   231.0     5.8
Labor Force (000s)                    7,356   7,561   7,597
Unemployment Rate (pct.)               0.46    0.50    0.66

Money and Prices:  (annual percentage growth)

Money Supply (M2) 3/                  5,438 1,333.9   671.5
Base Interest Rate 4/                   N/A     240     300
Personal Savings Rate                   N/A     N/A     N/A
Retail Inflation                      938.6 1,296.8     N/A
Wholesale Inflation 5/
  Agricultural Products               1,032     776   1,817
  Industrial Products                 2,469   1,442   2,985
  Consumer Goods                      1,344   1,386   2,716
Consumer Price Index 6/               3,061   2,265     534
Exchange Rate (USD/tenge)
  Official                              N/A     5.7    49.5
  Parallel                              N/A     7.5    56.0

Balance of Payments and Trade:  (USD millions)

Total Exports (FOB)                 1,398.4 1,270.6   440.6
  Exports to U.S.                      94.0   135.5    37.1
Total Imports (CIF)                   468.8   358.3   242.5
  Imports from U.S.                     6.0    24.2    15.6
Aid from U.S. 7/                       49.1    42.4   144.2
Aid from Other Countries                N/A   115.5    12.5
External Public Debt 8/                 N/A     N/A   2,055
Debt Service Payments (paid)            N/A     N/A     N/A
Gold and Foreign Exch. Reserves         N/A   722.9   1,004
Trade Balance                         929.6   912.3   198.1
  Trade Balance with U.S.              88.0   111.3    21.5


N/A--Not available.

1/ Source:  Kazakhstan State Committee for Statistics
(GOSKOMSTAT), unless otherwise indicated.  Actual when
available, otherwise estimates.  Due to limited amount of 1992
information available (exchange rate), figures are in millions
of rubles.  1993 and 1994 figures are converted from tenge at
the official exchange rates as indicated above.
2/ First six months of 1994 only, unless otherwise indicated.
3/ Source:  International Monetary Fund (IMF) and GOSKOMSTAT. 
1994 money supply is for nine months.
4/ Average weighted interest rate for six-month National Bank
of Kazakhstan credits.  Figures represent rates for December
1993 and June 1994.
5/ In percent to corresponding period of previous year.  1994
agricultural wholesale inflation for first three months only.
6/ December of previous year=100.
7/ Source:  U.S. Agency for International Development (U.S.
AID) and U.S. interagency estimates.  1994 figure represents
all U.S. government and private aid as of June 30, 1994.
8/ October 1994 estimate from the Ministry of Finance.



1.  General Policy Framework

    Kazakhstan continues to suffer through a severe economic
crisis.  Momentum for economic reform, however, is
accelerating.  Throughout 1993 and the first half of 1994,
industrial output declined, gross domestic product (GDP)
dropped, agricultural production decreased, and inflation
increased rapidly.  Cost of living increases outpaced the
salary rise of the average Kazakhstani worker during 1993 and
the first half of 1994.  In addition, the government's
financial crisis has resulted in cutbacks to many public and
social services.  To stabilize and reverse the economic
situation, the government has taken a number of steps,
including tightening monetary and fiscal policy after an
inflationary surge in early 1994.

    On October 11, 1994, President Nazarbayev accepted the
resignation of the entire Kazakhstan Cabinet of Ministers. 
Many of the older and more conservative ministers were replaced
by younger, reform-minded individuals.  In general, the
government shake-up is viewed as a positive step towards
accelerating the pace and scope of economic reform in
Kazakhstan.  This action was preceded by the July 15 issuance
of a third (and largely inconsequential) anti-crisis program by
the government in the last two years, and by public statements
by Nazarbayev advocating the acceleration of market and
government reform and public acceptance of economic "shock
therapy."  It remains to be seen whether, especially in the
absence of further political reform, the new government can
implement economic reform quickly enough to meet public
expectations.

    Fiscal Policy:  The 1994 budget deficit was approximately 
4.6 percent of GDP in 1994.  The 1994 deficit was funded
primarily by foreign loans and National Bank of Kazakhstan 
(NBK) credit resources.  The proposed 1995 budget, released on
September 2, 1994, projects the deficit to be approximately
19.3 percent of GDP.  Only 12 percent of the projected 1995
budget deficit is planned to be financed through foreign loans
and NBK credit resources.  The remaining 88 percent currently
remains "without definite resources."  The International
Monetary Fund (IMF) is reportedly targeting the 1995 budget
deficit at 3.5 percent of GDP.

    The 1995 budget proposes a nominal 296.6 percent increase
in spending over 1994; revenues are projected to increase
nominally by 89.2 percent during 1995.  New legislation
addressing tax reform and relief are also planned.  If
approved, this new legislation would streamline the current tax
system and reduce overall tax rates.

    Monetary Policy:  During the first five months of 1994, the
money supply increased 270 percent; inflation increased during
the same period by 370 percent.  The NBK has attempted to
reduce inflation by regulating the distribution of direct
government credits, beginning in May 1994.  To date, the NBK
efforts appear to have been successful.  Monthly inflation
rates in August and September were 13.3 percent and 9.7,
respectively.  The inflation index for the first nine months of
1994 is 832 percent (December 1993 = 100).

    The sale of three-month and six-month government bonds
began on January 12, 1994.  As of October 31, 1994, over 45
auctions have been held by the NBK.


2.  Exchange Rate Policy

    When introduced in November 1993, the Kazakhstan national
currency, the tenge, was not initially traded and its exchange
rate against the dollar was artificially maintained by the
government.  However, upon advice from U.S. officials and
international observers, the government permitted the tenge to
be freely traded.

    On September 17 the governments of Kazakhstan and
Kyrgyzstan lifted restrictions on bilateral currency
transactions.  The agreement permits both currencies, the tenge
and the som, to be used as legal tender in investments
(securities) in either country and in interbank and trading
transactions.

    Currently, the government of Kazakhstan does not appear to
enforce any major foreign exchange controls, except that
enterprises earning foreign exchange are required to sell 50
percent of the total earnings on the local market.


3.  Structural Policies

    Pricing Policies:  Although the government continues to
exert price controls and provide subsidies for certain consumer
commodities, there appears to be little, if any, impact on U.S.
exports to Kazakhstan.  In general, consumer goods prices are
determined by market sources.

    Tax Policies:  According to the proposed 1995 budget,
government revenues will be derived primarily from corporate
income taxes, a value-added tax (VAT), and export duties.  At
the end of 1993 the government announced a series of tax
increases and enforcement upgrades with apparently little
visible success in either.  In February 1994 a tax decree
raised individual rates to 60 percent.  However, this was later
lowered to 40 percent.  The July 15 anti-crisis program calls
for the overhaul and simplification of the current tax system,
reduction of overall rates, and improved revenue collection. 
The government has indicated that the maximum tax rate for
individuals and "legal entities" will not exceed 40 percent and
35-40 percent, respectively.

    On October 23, 1993 Kazakhstan signed a double taxation
treaty with the United States.  To date, the treaty remains
unratified by either the Kazakhstan Supreme Soviet or the U.S.
Senate.  However, the Kazakhstan government has indicated that
it will submit the treaty for parliamentary approval before the
end of 1994.

    Regulatory Policies:  Government regulation policies are
extensive and complex.  Implementation of these regulations
remains capricious (often varying between ministries) and a
major source of corruption.  U.S. and western business
representatives often complain about the lack of standard
licensing procedures.


4.  Debt Management Policies

    Kazakhstan has accepted liability for all Former Soviet
Union (FSU) debt.  Accordingly, Kazakhstan was assigned a 3.86
percent share of the FSU's total debt, or approximately $2.5
billion.  While acknowledging its formal obligations,
Kazakhstan negotiated a "zero option" agreement with the
Russian Federation.  Under this agreement, Russia accepted full
responsibility for FSU debt, in return for all foreign assets
of the FSU.  Kazakhstan has initially agreed, but since the
agreement must be accepted by all successor states, it has not
yet entered into force.

    To date, Kazakhstan has not paid-off its 1992, 1993, and
1994 debt obligations.  Kazakhstan has paid short-term
obligations, but commercial creditors have experienced some
repayment delays.  Currently, Kazakhstan has incurred over $1.5
billion in external debt, primarily to the Russian Federation
for gas and fuel payment arrears.  In the future, the $115
million Russian lease payment for Baykonur Cosmodrome is to be
applied directly to Kazakhstan's debt to Russia.  It appears
this arrangement will continue in 1995.  Barter also appears to
be growing as an alternative to hard currency payments.

    Excluding the United States, Kazakhstan has received
credits from a number of countries including Germany, Austria,
France, Japan, Hungary, and Turkey.  The U.S. Export-Import
Bank (EXIMBANK), the Overseas Private Investment Corporation
(OPIC), the Central Asian Enterprise Fund (CAEF), and the
Defense Enterprise Fund have indicated their willingness to
provide funding for U.S.-Kazakhstan commercial projects. 
Funding for defense conversion projects is provided separately
under the Nunn-Lugar legislation.  In addition, international
financial organizations such as the International Monetary Fund
(IMF), World Bank, and the European Bank for Reconstruction and
Development (EBRD) have also indicated a willingness to support
commercial projects in Kazakhstan.


5.  Significant Barriers to U.S. Exports

    There appear to be no significant legal barriers to U.S.
merchandise exports to Kazakhstan.  The government appears to
have adopted a strategy of relatively low import barriers to
encourage international exports to Kazakhstan.  U.S. exports to
Kazakhstan are limited more by the logistical capabilities of
private firms to service the Kazakhstan market and the
unavailability of credit.

    Structural barriers include a weak system of commercial
law, including the absence of effective bankruptcy procedures,
a shortage of domestic capital to pay for U.S. goods, the lack
of an effective judicial process for breach-of-contract
resolution, and huge government bureaucracy.

    Import Licenses:  As of October 1994, U.S. companies were
not required to obtain import licenses.  Despite indications in
late 1993 that the government would limit imports and introduce
an import licensing system, no such action has yet occurred. 
In addition, the government has also proposed restrictions on
the import of non-essential goods by means of protective
tariffs, duties, and quotas, beginning January 1994.  To date,
only duties for alcoholic beverages and cigarettes have been
increased under this policy.

    Service Barriers:  Certain restrictions on the import of
services exist.  In April 1993 the government banned foreign
insurance companies from providing foreign investment
insurance.  Excluding the single western reinsurance firm
designated by the government, no U.S. or western firms are
permitted to offer foreign investment insurance services in
Kazakhstan.  A number of U.S. firms offering accounting and
legal services, however, are currently operating in Kazakhstan,
and U.S. and foreign airlines are welcome.

    Standards, Testing, Labelling, and Certification: 
Government observance of old Soviet standards, testing,
labeling and certification requirements are extensive in some
areas, non-existent in others.  Such requirements constitute a
barrier when these requirements differ significantly from U.S.
and western standards.

    Investment Barriers:  One of the most significant
investment barriers to U.S. firms in Kazakhstan is the severe
lack of domestic capital to service loans and to meet equity
percentages in joint ventures.  In addition, U.S. firms cannot
currently purchase land in Kazakhstan since this sector has not
yet been privatized.  U.S. firms, however, can obtain lease
rights for 99 years through a domestic partner.  Further,
government and local authorities have, at times, insisted that
U.S. firms support and invest in social programs for local
communities.

    Finally, phased privatization of state industries may
initially limit the foreign investment "share" in such
industries.  However, complete privatization, should it occur,
will have no such barriers.

    Government Procurement Practices:  Government procurement
practices are not limited by formal "Buy Kazakhstan"
regulations.  Western goods, particularly U.S. goods, are
favored by the Kazakhstani consumer.

    Customs Procedures:  Currently, Kazakhstan has a customs
agreement with Russia, amounting to a de facto customs union. 
Kazakhstan still uses customs procedures from the old Soviet
Union, which can be cumbersome and frustrating.  Most imported
goods transit through other newly independent states, unless
they arrive by air or via China.  Foreign firms can import
items for their own use duty free.


6.  Export Subsidies Policy

    Rather than providing export subsidies to domestic
enterprises, the government currently levies an export tax. 
The precise amount of the export tax varies according to the
product and can range up to 30 percent.  Kazakhstan has
protested antidumping restrictions on its exports (mostly
metals) imposed by the United States and the European Union
(EU).  In 1992, the U.S. Department of Commerce reached a
consent decree with Kazakhstan limiting uranium exports and
imposing a 104 percent antidumping duty on ferrosilicon.  In
1994, the uranium agreement was modified to permit some sales
of uranium into the U.S. market.  The Commerce Department
investigated Kazakhstani exports of titanium sponge and found
no direct impact on the U.S. market.  Virtually all of
Kazakhstan's exports went to Russia.

    In 1993, the government moved to further increase controls
on exports.  Beginning January 1, 1994 domestic enterprises are
not permitted to export goods directly and are required to
channel exports of 18 critical products through approximately
10 state trading organizations controlled by the government. 
The critical products include oil and gas, coal and coke, ore
and concentrates, ferrous and non-ferrous metals, alumina,
precious metals and stones, organic and non-organic chemical
products, radioactive chemical elements, grain, cotton, and
caviar.  These goods are also subject to an export quota.  The
regulations include a 100 percent surrender requirement for
export proceeds, although this may be reduced to 50 percent.


7.  Protection of U.S. Intellectual Property

    In principle, Kazakhstan's civil code protects U.S.
intellectual property.  However, the absence of criminal
sanctions and lax enforcement have meant that U.S. and western
intellectual property rights are often unprotected.  In 1992
Kazakhstan acceded to the Geneva Convention on the Protection
of Intellectual Property and joined the World Intellectual
Property Organization.  In addition, the U.S.-Kazakhstan
Bilateral Trade Agreement, which came into force on January 12,
1994, requires Kazakhstan to protect U.S. intellectual property.

    Patents and Trademarks:  Current patent legislation
guarantees the right of inventors to the "name" of their
product, but financial rights of patent holders do not appear
to be protected.  A national patent department which registers
and regulates patents and trademarks was established in 1992. 
In addition, old Soviet patents are apparently being converted
to Kazakhstani patents.

    The registration or trademarks began in July 1992. 
Trademark violation is a crime and courts are empowered to
arbitrate trademark infringement cases.  However, enforcement
appears to be rare and arbitrary.

    Copyrights:  In 1992 Kazakhstan established a national
copyright agency with jurisdiction over copyrights in the arts,
music, science, and software.  In late 1993 the government
submitted to the Supreme Soviet a draft copyright law.  To
date, the copyright law has not been passed.  If passed, legal
sanctions against copyright violators could be implemented and
Kazakhstan would accede to the Berne Convention. 

    New Technologies:  Pirated U.S. and western movies
routinely appear on every television station in Kazakhstan, but
are not apparently mass produced in Kazakhstan.  Sales of
pirated counterfeit goods including video and audio recordings
and clothing result in some loss to U.S. industry, but are
relatively insignificant.  Pirated computer software is
available but use is not yet widespread.  However, the use of
pirated desktop software, i.e., MicroSoft Windows, WordPerfect,
etc., does appear to be widespread and increasing rapidly. 
Illegal software development and manufacture does not occur in
Kazakhstan due to limited local availability of advanced
products.  This appears to apply to other advanced technologies
as well.

    In addition, pirated satellite broadcasts are common and
availability and use appears to be generally widespread.  Many
television stations routinely broadcast U.S. and western
programs and news reports pirated via satellite dish. 

    Despite lax enforcement of current laws and delays in
approving new legislation, overall intellectual property losses
to U.S. firms currently appear to be small.  However,
counterfeiting and pirating of U.S. and western goods is
increasing.  Without more rigorous enforcement of intellectual
property laws and new legislation, future losses to U.S.
industry could be significant and potential export and
investment opportunities could be lost.


8.  Worker Rights

    a.  The Right of Association

    The new labor code, along with the Kazakhstan constitution,
guarantees basic workers' rights, including the right to
organize and the right to strike.  The law does not, however,
provide mechanisms to protect workers who join independent
unions from threats and harassment from enterprise management
or from the state-run unions.  Kazakhstan joined the 
International Labor Organization (ILO) in 1993, but the Supreme
Soviet has not yet ratified the ILO conventions.

    b.  The Right to Organize and Bargain Collectively

    There are significant limits on the right to organize and
bargain collectively.  Most industry remained state-owned in
1994 and was subject to the state's production orders. 
Although collective bargaining rights are not spelled out in
the law, in some instances unions have successfully negotiated
agreements with management.  If a union's demands are not
acceptable to management, they may be presented to an
arbitration commission comprised of management, union
officials, and independent technical experts.  There is no
legal protection against anti-union discrimination.

    c.  Prohibition of Forced or Compulsory Labor

    Forced labor is prohibited by law.  In some places,
however, compulsory labor is used.  Some persons were required
to provide labor or the use of privately owned equipment with
no, or very low, compensation to help gather the annual grain
harvest. 

    d.  Minimum Age of Employment of Children

    The minimum age for employment is 16.  A child under age 16
may work only with the permission of the local administration
and the trade union in the enterprise at which the child would
work.  Such permission is rarely granted.  Abuse of child labor
is generally not a problem, except that child labor is
reportedly used during the harvest, especially the cotton
harvest in the south.

    e.  Acceptable Conditions of Work

    As of October 1, 1994 the official minimum wage is 200
tenge (slightly less than four dollars) per month.  The legal
maximum work week is 48 hours, although most enterprises
maintain a 40-hour work week with at least a 24-hour rest
period.  Worker and safety conditions in Kazakhstan's
industries are substandard.  Safety consciousness is low.  The
regulations concerning occupational health and safety,
enforceable by the Ministry of Labor and the state-sponsored
unions, are largely ignored by management.

    f.  Rights in Sectors with U.S. Investment

    Rights and conditions in sectors with U.S. investment do
not differ substantially from other sectors.  However,
workplaces or enterprises with U.S. investment have
significantly improved working conditions.




  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                             (1)
Total Manufacturing                                     0
  Food & Kindred Products                   0
  Chemicals and Allied Products             0
  Metals, Primary & Fabricated              0
  Machinery, except Electrical              0
  Electric & Electronic Equipment           0
  Transportation Equipment                  0
  Other Manufacturing                       0
Wholesale Trade                                         0
Banking                                               (1)
Finance/Insurance/Real Estate                           0
Services                                                0
Other Industries                                        0
TOTAL ALL INDUSTRIES                                  (1)      

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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