The thorny path of the new Prime Minister
It is difficult to assess the ambitions of Karim Masimov so far; however, he is very energetic. His first actions in the role conform with the forecasts that suggested his tasks won’t include the creation of new economic ideas. He is only required to speed up the implementation of the adopted socio-economic programs. The fact that he is present at the main meetings of all the important ministries also complies with this understanding. The following aphorism is appropriate in this situation: often a decisive step forward is a result of a push in the back. This is what is happening now. Most of the ministers kept their positions; however, this may have negative consequences for them, as they will be held responsible for the poor job at the times of Danial Akhmetov and possible mistakes in the future.
Notice how often Karim Masimov mentions “personal responsibility” during his meetings with the ministers. Of course, this might be interpreted as if he is just turning over a new leaf. However, it seems that Karim Masimov wants to divide the responsibilities of implementing the socio-economic program evenly among the ministries within the framework of administrative reform, thus diverting criticism for the possible failures away from himself. It is unlikely that other members of the government, most of whom imitate high levels of activity, would like this policy. This also applies to the directors of the development institutes, who have also faced a lot of criticism from the new Prime Minister, whose experience in the countries of South-East Asia enables him to understand the requirements for these highly paid managers.
However, the interesting part would be the suggested mechanism of dividing the responsibilities among the ministries, rather than the statements about the continuation of the industrial-innovation program implementation. Because the President’s words — that the bureaucratic apparatus should follow large corporations by introducing corporate management — can be accepted by Masimov literally. However, there is a need to do something about the work of the bureaucratic apparatus. Because, although according to the “Heritage Foundation” and the “Wall Street Journal”, Kazakhstan was ranked 75th in economic freedom (which is favourable compared to neighboring Russia, ranked 120th), the drawbacks of the Kazakhstani economy are also impressive, including high levels of corruption and a lack of security of private property. Although the economic achievements look good against the backdrop of its post-Soviet neighbors, the problem is that the Republic lacks these essential ingredients of a market economy. In addition, nobody knows whether the economy will continue developing during the government of Karim Masimov.
The presentation of the new governmental program for 2007-2009 went well and smoothly, as did the approval of Karim Masimov for the post of Prime Minister. This is not surprising if we take into account the fact that the Prime Minister met the President before the presentation and he gave the go-ahead sign for the implementation. The main slogan of this program is “Control, control and once again control!”
Analyzing the points of the program we see that the Prime Minister forecasts the appearance of many illnesses in different spheres. For example, the statements about “the economy overheating” are another criticism towards the bankers, who are accused of promoting the growth of foreign borrowing, which created inflationary pressure and threatens the financial stability of the country. This is a standard accusation emerging from the times of Danial Akhmetov, which hardly adds to the new Prime Minister’s popularity among the financial elite. It seems that the government wants to assign the role of scapegoat to the banking sector, by the hands of AFS (Agency of Financial Supervision). To all appearances, new conflicts may emerge on this front, damaging the image of Kazakhstan.
In addition, the new government intends to improve the administration of legislation protecting competitiveness, and to discover the hidden affiliated connections. The latter is interesting because monopolies were traditionally connected with the political elite; it was this way before Masimov and will be after him. Any attempt to fight it will bring him a lot of trouble.
Foreign investors will also get their share of pressure. The Prime Minister thinks that the risk premium that the country pays to the investors in the oil industry, who entered Kazakhstan at the beginning of the transition period, are too high. At that time, the government provided foreign investors with favorable taxes and guaranteed invariability of contract conditions. The Prime Minister has pointed out that the fulfillment of the contractual conditions by the extractors of the oil in general is unsatisfactory. First of all, he refers to the prolonged exploration periods, delays in the commencement of commercial operation and overstated costs. It obviously relates to the activities of large foreign oil and gas companies on the Karachaganak, Kashagan and Tengiz fields. For example, the statements of the international consortium, which operates the Karachaganak gas field, about the growth of the costs of implementing the project are against Kazakhstan’s interests. According to the contracts covering Kashagan and Karachaganak, the government of Kazakhstan starts to receive its share of revenue only after the investors have covered their expenses on the development of the fields. And this development is being delayed too much.
Therefore, starting from 2007, the government of Kazakhstan plans to tighten control over the export-import activities of the largest extractors of mineral resources in the country. From the 1st of March, the companies will undergo selective tax inspections. According to some experts, this means that the government of Kazakhstan is preparing for a serious campaign regarding the investors. The Ministry of Energy and Mineral Resources together with the Ministry of Economy and Budget Planning and the special department of the ministry should arrange an effective mechanism of monitoring compliance with contractual liabilities starting from this year. To all appearances, this tightening of control implies the gathering of information before beginning negotiations. During the negotiations, the government will try to convince the producers that the one-time reconsideration of the contract terms is a better option than increased and hostile government scrutiny towards the activities of the operators. By the way, Kazakhstan has already adopted the amendment to the oil industry regulating law that prohibits the transfer of rights for the exploitation of the field within 2 years from the signing of the contract. The government has explained the amendment in terms of national security interests, and by the fact that the previous legislation didn’t provide enough control over national energy resources. It seems that during 2007 foreign investors will face the expansion of the government’s claims, suits and legal proceedings.
In general, judging by the scale of the tasks, Karim Masimov is reminiscent of Heracles, in that he has decided to clean the Augean stables of Kazakhstan’s economy. As we know, although this job is possible, if done seriously, it is unpleasant, dangerous and thankless. On the other hand, knowing the specific character of Kazakhstan, it would be foolish to over-estimate the abilities of the new Prime Minister, who may face a confrontation with the bureaucratic apparatus, which has an allergy for any dynamics and responsibility. Thus, the Prime Minister is still to test his strength.
Note that the parliament elections and the preparation for them will take place between 2007 and 2009, which will increase the criticism of the government, even from the pro-presidential parties, because they also have to earn pre-election credits. On the other hand, one might expect that the elections will make the government comment on their actions with statements about the social support to the population, as did the government of Danial Akhmetov during the presidential and parliamentary elections.