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WEEKLY NEWSLETTER
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Kazakstan
Index
Restructuring of the state-controlled banking and financial systems
that Kazakstan inherited in 1991 has been a long, slow process. As in the
Soviet era, the national bank continues to dominate the financial system,
including currency management. Other commercial institutions have been
established, but they play small roles in the country's financial life.
Banks
Kazakstan's banking industry was created on the basis of a subsequently
modified law enacted in April 1993. That law created a central
institution, the National Bank of Kazakstan (NBK), which has regulatory
authority over a system of state, private, joint-stock, and joint banks.
Licensed banks are authorized to perform all of the traditional banking
functions.
The introduction of a modern banking system has not progressed
smoothly. Scandals have involved swindles by bank employees, questionable
loans, and the maintenance of heavy portfolios of nonproductive loans.
Several bank failure scares also have occurred. Major modifications of
banking regulations have been introduced several times. In June 1994,
Kazakstan instituted a fifteen-month program of financial and economic
reform, tightening banking and credit laws, liberalizing price policies,
and ending the granting of credits to state-owned institutions. Another
short-term reform was introduced in March 1995, in part to tighten
regulation of capital requirements and to increase the professionalism of
the existing bank's operations. To that end, a system of partnership with
foreign banks was introduced, pairing domestic banks with experienced
foreign partners. Guidance for this bank reform is being provided by the
IMF, as well as by international auditing firms such as Ernst and Young
and Price Waterhouse.
In 1994 the national bank system included a State Export and Import
Bank and a State Bank for Development, both of which functioned under full
government control rather than as market institutions. Four large,
state-owned banks controlled 80 percent of financial assets. Of the 200
small commercial banks in operation in 1994, the majority were attached to
enterprises. About thirty private banks were licensed to deal in foreign
exchange.
The aim of the 1995 reform was to create a republic-wide banking
system, including ten to fifteen large banks with total capital of at
least US$10 million, headquartered in Almaty and with branches throughout
Kazakstan; foreign branch banks, most of which would have single
representative offices in Almaty; several dozen smaller banks, both in
Almaty and in the provinces, with capital in the range of US$2-US$3
million; and savings banks, some with specialized purposes such as the
Agricultural and Industrial Bank (Agroprombank).
In 1995 the NBK planned to release 80 percent of the credit funds it
granted to an auction market, departing from the previous policy of
rationing credit by directing it to designated enterprises. No stock
exchange or capital markets existed as of 1995, although a law on
securities and stock exchange had been adopted in 1991.
Fiscal Management
State revenue is derived primarily from various taxes, the introduction
of which has been somewhat problematic. A fundamental revision of the
national tax code in 1995 reduced the number of taxes from forty-five to
eleven and the volume of prospective revenue by 17 percent. Five national
corporate taxes remained after the reform, which reduced the corporate tax
rate to 30 percent. Prior to that revision, the largest contributions to
state income were business-profit taxes (15 percent); a uniform, 20
percent value-added tax (see Glossary), a personal income tax (ranging
from 12 to 40 percent and accounting for 16 percent of tax income); and
special-purpose revenue funds (17 percent). However, the system has
suffered from chronic undercollection. The primary long-term goal of the
1995 tax reform was to encourage fuller compliance with tax laws. The 1996
budget called for reducing the deficit to 3.3 percent of GDP.
Data as of March 1996
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