Kazakh President Nursultan Nazarbayev at The Hague on March 24. (Evert-Jan Daniels - Pool/Getty Images)
Summary
Kazakh President Nursultan Nazarbayev has reshuffled his government again, reinstating Karim Massimov as prime minister. Nazarbayev is looking for a strong leader to implement tough economic and financial restructuring and to bring in large foreign investment. Massimov's return could raise tensions with Russia if the reinstated premier courts large non-Russian foreign investment, especially from China and the West. His return also will shake up the balance of power among the political circles vying to succeed Nazarbayev.
Analysis
Nazarbayev named Massimov to the premiership April 3, the day after the Cabinet -- including former Prime Mister Serik Akhmetov -- resigned. Pressure had been mounting on Akhmetov's government in recent months as a number of financial and economic issues combined into a potential crisis for Kazakhstan. Neighboring Russia's economic position has weakened during the recent standoff with the West over Ukraine, causing the Russian ruble to depreciate 11 percent since the start of the year. Since Kazakhstan is in the Customs Union with Russia, Astana has sought to keep the Kazakh currency, the tenge, closely pegged to the ruble. After the Kazakh government spent $2.2 billion in January to keep the tenge stable, the government decided to allow a mass depreciation of the currency by 19 percent in one day. This rippled through the country, leading to bank runs and price increases of 50-75 percent for basic goods.
Adding to the financial pressure in Kazakhstan, the government is reorganizing the country's banking sector, and three of the country's largest banks are close to default. The country's overall banking portfolio for nonperforming loans is 38 percent -- a level comparable to countries such as China during the 1998 economic crisis. Kazakh banks' portfolio of nonperforming loans rose by 197 percent in the past year. This stems from a large increase in the number of Kazakh firms that are not paying back their debt to Kazakh banks.
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The increased financial pressure in Kazakhstan has aggravated tensions in the country. Astana knows that previous economic problems have led to isolated social backlash. For example, in 2011 demonstrations against low wages in the western region of Zhanaozen turned into mass riots. Considering that the current economic stress is countrywide, the government is attempting to pacify the people with wage increases in the industrial sector and among government workers and is capping prices on many goods across the country.
But Nazarbayev has made it clear in recent months that the government needs a cohesive long-term plan to respond to the financial and economic issues -- one that involves large-scale foreign investment. In February, Nazarbayev told members of the now-ousted government that he would dismiss them if they could not come up with such a plan.
Nazarbayev has brought Massimov back as prime minister in order to design and implement these tough plans. Massimov is one of Kazakhstan's top economists, with deep knowledge of the banking and foreign investment sectors. He previously served as the minister of economy and budget planning and has held top posts within many of the banks. Massimov was prime minister from 2007-2012 and was responsible for attracting Western investment in new sectors and for creating a new tax and custom regime that has enticed foreign firms.
He was removed from the premiership for several possible reasons. First, Massimov was partly blamed for the 2011 riots in Zhanaozen. Second, many in the region see Massimov as having close ties with China. He attended a Chinese university, and in the 1990s he worked as a senior specialist in the Kazakh Ministry of Foreign Economic Relations' China office and then in the Kazakh Trading House in Hong Kong. At the time of his removal, Kazakhstan and Russia were growing closer, especially via the Customs Union, and Stratfor sources report that Russia was not comfortable with Massimov's relationships with China and pushed for his removal.
Lastly, tensions within the powerful circles vying for position in Kazakhstan most likely caused Massimov to be sidelined. A concrete succession plan for a post-Nazarbayev government has yet to be revealed. In the early 2000s, Massimov had close ties with Nazarbayev's son-in-law Timur Kulibayev, one of the most powerful men in Kazakhstan, who oversees many parts of the energy sector and oil-revenue funds. Once Massimov became premier, his own power base and popularity among the people rose. There are unconfirmed reports that Kulibayev orchestrated Massimov's removal in order to bring him into line.
Massimov's return shows that the government is focused on the country's current economic crisis and intends to use foreign investment to help stabilize the country. This focus could shift the constellation of power circles and the succession plan yet again.
Kazakhstan is expected to begin courting China and the West for investments, particularly in the energy, mining, transportation and possibly banking sectors. The question remains whether Russia is comfortable with Massimov's inviting more non-Russian foreign investment into Kazakhstan, especially as the Customs Union evolves into the upcoming Eurasia Union and begins taking on new members. Massimov's relationship to Kulibayev -- who has strong ties to Moscow and sits on Russian natural gas firm Gazprom's board -- reportedly has been repaired. This could mean that Russia has approved of Massimov's reappointment.
With Massimov's return to a dominant position in the government, the other question is whether his political base will rally again and allow him to be a possible successor to Nazarbayev. Massimov is still popular among the Kazakh people, but it would be difficult for him to be president because of his Uighur ethnicity. Moreover, unless he leaves office suddenly, Nazarbayev would have to support any successor. Massimov's return and subsequent attempt to address Kazakhstan's economic difficulties will shake up the balance of power among the many players who seek control, whether Massimov is a contender for the presidency or not.
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