Reforms in the field of foreign economic policy are aimed at the effective insertion of the republic into the international system and the formation of adequate trade relations with foreign countries. In June 1996 Kazakhstan applied to enter the World Trade Organisation.

Some increase in real wages and pensions resulted from the industry stabilisation and reduction of the components of unearned expenses.

The average monthly rate of inflation decreased from four per cent in 1995 to 2.1 per cent in 1996.

In November 1993 when the country introduced its own currency (tenge) it was faced with a serious economic crisis, but since that time the economic situation has greatly improved.

The relative currency stability was achieved in 1996 and the interest rate on bank credits was substantially reduced.

However, the main destabilising factors are the following: the low level of financial discipline in enterprises, ineffective management, absence of real proprietors in many enterprises and insufficient tax controls. As a result these have led to the accumulation of non-payments in the economy and to budget deficits.

The problems of developing small and middle business and reorganising town maintenance enterprises remain as important as before.

The main aim of the social and economic policy in 1997 is the reduction of income differentials of social groups, ensuring a stable economic growth rate.

The Government and the national bank will conduct an economic and financial policy aimed at strengthening the positive tendencies in the economy and will further increase industrial production in the export-oriented branches and favour a revival of import-substituting production. One of the main aims is the establishment of a favourable investment climate in the country.

The main efforts in achieving these aims would be directed at the following areas:

• ensuring social stability in the country;
• achievement of a stable macroeconomic position;
• further reduction in the inflation rate;
• provision of a stable currency exchange rate;
• improvement in tax and customs regimes, and other mechanisms of investment stimulation;
• support for home commodity producers;
• improvement in the banking sector;
• reform of enterprises, including the range of measures on the reorganisation, transformation of the objects of the social sphere on the balance of local authorities, technical modernisation, improvement in the process of production, trade and management, bankruptcy of non-viable segments;
• creation of conditions to stimulate more active and dynamic development of the securities market and other institutes of a market infrastructure;
• development of an insurance and reinsurance system of juridical and physical persons;
• ordered improvement of price regulation and controls on the goods of monopoly enterprises;
• deadline control for maintenance of legislation in the economic sphere;
• increase in the effectiveness of the work of law enforcement agencies, and a court system.

In the sphere of macroeconomics we expect a GDP increase of two per cent in comparison with 1996, industrial production up by three per cent; agricultural production by three per cent; investments in the economy by ten per cent state; budget deficit - by 3.2 per cent to GDP; rise in inflation - not more than 18 per cent by December 1996.

Inflation for the first quarter of 1997 was predicted at the level of 105.5 per cent against December 1996.

The average rate of the republic's regulated price growth during 1997 for are estimated at the following level (as a percentage of the previous year):

	1Q	2Q	3Q	4Q	December 1997 to
					to December 1996
Gas	10.20	102.2	101.9	108.0	108.0
Electricity	110.0	105.1	105.0	105.0	127.5
Transportation of cargo by rail	107.0	107.0	106.0	106.0	127.4
Communication services	101.0	101.0	101.0	101.0	104.1

Monetary policy will be aimed at a consistent reduction of inflation rate and corresponding reduction in interest rates, favouring the development of economic activity. The exchange rate policy will take into account the target parameters of inflation, on the one hand, and the interests of exports, on the other.

These aims will be achieved by an improvement in methods and instruments of monetary regulation and further development of financial markets. Strengthening of banking supervision will be carried out through an improvement of the system and principles of banking regulation; the capitalisation of second-level banks; completion of the reform of accounting and statistics within the banking system; strengthening bank management; development of a payment system and improvement in the legislative base of a bank's operations and non-banking financial institutions.

The policy of public expenditure will be directed towards further optimisation of it structure. The enlargement of capital expenses is one of the directions of budget policy and will be achieved by attracting special financing on specific investment projects in the sphere of production infrastructure and the social sphere.

Domestic borrowing through NBK direct credits will be reduced from 0.5 per cent in 1996 to 0.1 per cent of GDP in 1997. At the same time the measures for developing and expanding the government securities market will be launched, so that clear borrowing will increase almost double with a reduction of the debt maintenance. The formation of domestic and external debt management systems, including the improvement in the order of foreign credit agreement registration and issuing of state guarantees, will continue.

For 1997 an increase in real average wages up to 2.5 per cent against 1996 is forecast. It is estimated the unemployment figures in an average annual calculation will reach almost 280,000 people, or 3.7 per cent of the economically active population.

State investment policy will be aimed at the improvement of the investment climate in the country, promotion of financial activity, and the creation of effective stimuli for attracting domestic and foreign capital into the country's economy.

All these measures should provide an influx of investment into the country's economy, as estimated with a rise of ten per cent against the level in 1996, including domestic - by 10.3 per cent and foreign - 9.4 per cent.

Main guidelines of monetary policy of the National Bank of Kazakhstan for 1997

Results in 1996

NBK's policy on bank liquidity management was generally aimed at the use of indirect mechanisms affecting financial markets and limited use of refinancing credits. In 1996 NBK continued to maintain the real rates at a positive level.

In financial year 1996 the secondary government securities market underwent further development. The REPO and reverse REPO operations were the main part of the NBK's operations on this market at the end of the year.

Last year also registered a fall in the exchange market and the rise in the volume of out-of-country forex operations on the national currency market. Tenge devaluation rate to US$ was 114.6 per cent from the beginning of the year (at the official rate); in comparison the appropriate index from the last year was 117.9 per cent.

IN 1996 NBK carried out a range of measures for strengthening the banking system. New policy and procedures for effective prudential supervision and regulation of bank activity have been drafted and have now been introduced.

Guidelines on 1997

To achieve the above mentioned aims the NBK will use the classic monetary instruments (direct and indirect influence) more effectively: presentation of refund credits to the second level of banks to maintaining their short liquidity, establishment of a refinancing rate; regulation of standard emergency funds; conducting operations with government securities (treasury notes and NBK notes) including REPO and reversed REPO operations. To the end of 1997 operations with public securities on the secondary market should become the main instrument of monetary policy.

As far as the republic's banking system is concerned, it is still not stable. The monetary prognosis for 1997 is based on the assumption that the speed of money circulation will gradually fall to around eight to ten per cent in the course of a year. And the money multiplier is estimated to remain on a level of 1.8. Going by this, the rise in the money base in 1997 will total no more than 30 per cent.

In order to maintain a reasonable volume of money, the liquidity of regulating banks and the protection of clients' interests, fulfilment of reserve requirements with the mechanisms of payment for bank reserves, prudent requirements will be drafted. Also, during the year a reduction in reserve requirements of between 12 and ten per cent seems possible.

The full transition of banks to a new charter account to international standards of accounting will be fulfilled. External audits for second-level banks will become obligatory and new regulations on prudential norms, on minimal reserve requirements and on loan portfolio classification will be ratified.