The day before the National Bank of Kazakhstan announced devaluation of the national currency. It is supposed that new exchange rate was about 185 tenge for $1. Mass media reports that the neighboring country began to panic: long queues lined up in exchange offices and banks, food stuff and other specialty goods were sold out in supermarkets.
Rise in the dollar was registered in Bishkek exchange offices. The National Bank of the KR assures that if necessary interventions in cash and non-cash foreign exchange markets will be held in order to prevent public panic and even out violent fluctuations of som exchange rate. 24.kg news agency interviewed specialists how tenge devaluation threatens som.
Former Chairman of the Kyrgyz National Bank Maksat Ishenbaev:
- If the National Bank doesn't respond and doesn't remove the stir for a while, it can have profound negative consequences for som. The National Bank possesses more than $2 billion of gold exchange reserves, now it can easily make interventions in the market, i.e. to dump the currency if there is a demand. Psychological and economical factors can generate stir. Observing what is going on in Kazakhstan and how dollar increased from 49 up to 51 som from the year beginning, people can feel tension. The National Bank must act professionally, experience the market and conduct interventions. Interventions means sale of currency in the market of Kyrgyzstan. Slight share of the currency is enough to defuse tension and show people that the National Bank operates in the market.
Rosinbank Chairman of Board Ulan Sarbanov:
-I thing that situation will be settled down. Because certain events happen not only in Kazakhstan, but also in Russian financial market. Announcement on devaluation is not pleasant process but, from the point Kazakh economics support, there are reasonable actions. As for som, everything will depend on skills of our entrepreneurs working closely with tenge, but it will be harder for them.
Economic expert Akylbek Apaitov:
-First of all, we should say that the National Bank of Kazakhstan acts more fairly with their people than the National Bank of the KR does. The Bank frankly announced that it won't allocate funds from the state budget on artificial support of tenge exchange rate. Our Bank doesn't give any information about foreign exchange reserves status on weekly basis. In this situation we don't know exactly how much funds are spent to support exchange rate of som. Of course, the Government wants to support macroeconomic growth in the country. Remember that recently, first Vice Prime Minister of the KR Dzhoomart Otorbayev said about great economic growth. But in fact the national currency can't fall within good economics.
But what do we see now? If Kazakhstan with its petrodollars can't peg its national currency rate, then what to say about Kyrgyzstan? We have no opportunities to peg som, moreover, our currency is issued in London. That's why, most likely, exchange rate of som will change again. I can suppose that it will increase by 5-10 percent and will be about 55-56 soms per $1. So, I advice our citizens to buy dollars whilst they are cheap.
There is one sad fact that basic market participants, that is the National Bank and commercial banks of the country know about the current situation, but keep silent. Instead of it, commercial banks are purchasing dollars and then, when the exchange rate increases, they will be able to earn extra money during one week on 5 percent difference in the rate.
The Head of the Public Oversight Board of the Finance Ministry Azamat Akeleev:
- It won't influence much. We have basic turnover with China, and, mainly, food products are imported from Kazakhstan to our country. Products, probably, will be cheaper because tenge also fell in price. The only thing that there can be speculative risks but rather small because transactions are usually made in dollars. Similar situation happened before and there were no special consequences.
The expert Asylbek Chekirov:
-Of course, fluctuations of tenge exchange rate will affect financial system of Kyrgyzstan. Everything here depends on how we depend on export of Kazakh goods. If tenge rate grows, som will increase too. But not in direct ratio, but based on share of Kazakhstan import in the total imports of the country. However the similar situation development is unlikely.
Probably, tenge will start falling. In this case som exchange rate will also decrease. In terms of the fact that the National Bank of Kazakhstan predicts new level of exchange rate about 185 tenge per $1, we can suppose, that som exchange rate will comprise about 57-58 soms per $1. This situation is profitable for Kazakhstan. Their exchange rate of national currency is supported by export. But we don't have export, because import prevails, that is why we are very depend on our neighbors.
The journalist, expert Igor Shestakov:
Financial situation in Kazakhstan and panic among residents of the neighboring country will only accelerate the decline of som in relation to American and European currency. Kyrgyzstanis will also actively start buying dollars and surely will make bank deposits in this currency. But besides possible negative tendencies in financial market we should expect growth in prices, first of all, prices of food products which we import from Kazakhstan. There are meat products, seed oil, flour, macaroni foods, confectionary etc.
The main problem is that principles of bazaar economy prevails in Kyrgyzstan. It is based on reexport of Chinese goods and second hand foreign cars. However the main commodity flows from Dordoi and car markets moved to Kazakhstan. At present for obvious reasons, consumption of industrial goods, including automobiles, will sharply reduce in the neighboring country. Virtually we have nothing to supply in the terms of export, besides sewing products, which demand level can also fall. If the country launches production of foodstuff in large volumes, trade with Kazakhstan wouldn't fall. That is why the situation with tenge devaluation is one more reminder to Kyrgyzstan: stop living with "bazaar thinking", it is necessary to revive production of own commodities output and not depend on fluctuations of dollar or euro.
The President of the Association of Markets, Trade enterprises and Service industry Sergey Ponomarev:
I spoke with my friend from Kazakhstan. There is a panic. People move here in order to exchange tenge for soms and then for dollars. Of course, the market reacts on this situation. That is why we can definitely say that devaluation of tenge will affect the Kyrgyz financial market. The economy of our country is closely connected with economic indicators of the neighbour Kazakhstan, especially with Dzhambul and Almaty provinces. There are close trade relations. That is why change of tenge exchange rate will naturally influence the relation of som to dollar, euro and other currencies. Actually, it has already influenced: we can observe decline in the national currency rate for the last time.
It is difficult to predict behavior of som because of devaluation of tenge. But we can definitely say that depreciation of the exchange rate is expected. Actions of financial magnates can play its role here. After tenge devaluation they will start playing at speculative dollar price within two or three weeks at least. But then rate will decrease anyway. Moreover, most likely, season appreciation of som rate against dollar will be observed in summer. But on condition that the situation in the country will be stable and tourists will arrive. Much depends on surplus between import and export. There are a lot of elements which can affect som exchange rate, that is why it is difficult to predict behavior of the national currency in the nearest future.
The Head of the Macroeconomic Policy Department of the Kyrgyz Ministry of Economy Nasirdin Shamshiyev
-What is that to som? It is a consequence of increase in dollar rate. Tenge devaluation shouldn't affect our economy, because all operations between the countries are made in dollars or euro. Our banks operating at the expense of Kazakh capital also conduct all operations in foreign currencies. There is one question: how it will affect Kyrgyz migrants, who receive salaries in tenge? Their incomes will significantly depreciate that is why tenge buying rate went trough the floor up to 20 tyiyn.
The Head of one of Kyrgyz commercial banks Esen Kyiyazov:
It won't affect us and especially som. Unless that people are in panic again and start buying dollars. It was expected because appreciation of dollar had an impact on all currencies, the Turkish lira and the Russian rouble too. We won't have such sharp currency crash. The policy of the Kyrgyz National Bank is such that som rate has been falling from the year beginning. But Kazakhstan tries to support its currency for all this time and in an instant they decreased official tenge rate from 155 up to 185 dollars.
Though it will influence Dordoi market, because it actively uses tenge. It is possible that transactions will be suspended until stabilization of the currency in the neighboring country. It will affect turnover of goods sale, but I don't think that considerably. Tenge rate will stabilize in several days. Of course, it won't return to previous level, but is likely will to be set at the level of 0.27-0.28 soms per tenge.