Kazakhstan's Economy since Independence: Does the Oil Boom Offer a Second Chance for Sustainable Development?

Abstract

KAZAKHSTAN HAS HUGE OIL AND NATURAL GAS RESERVES, rich unmined veins of copper, chrome and aluminium, and substantial gold deposits, as well as enough developed farm and pasture land to feed itself. Yet these resources were poorly utilised during the first decade after the country became independent in late 1991. The inheritance of a weak state with a precarious ethnic balance between Kazakhs and Russians created substantial economic uncertainty. Mass migration during the first half of the 1990s contributed to economic decline, and disappointing inflows of foreign capital held up development of the oil and mineral sectors. In the initial years following independence Kazakhstan's leadership was preoccupied with nation building in the context of real prospects of secession or internal conflict. Economic policy in 1992-94 was driven in large measure by President Nazarbaev's attempts to maintain close economic ties with Russia. Kazakhstan was the last Soviet republic to formally declare its independence in 1991 and its leader was the most assiduous in trying to construct a viable successor organisation to the USSR. Kazakhstan followed Russia's radical reforms, notably the price liberalisation of January 1992 and early privatisation measures, but macroeconomic stability was not pursued, and even if it had been desired was hamstrung by retention of the ruble until November 1993 (Pomfret, 1995). In 1994 pluralism briefly flourished, before the process of political repression began to take shape and Kazakhstan became noticeably less democratic than Russia. Despite statements to the contrary, economic reform was put largely on hold for the remainder of the decade.1 In the mid-1990s Kazakhstan's privatisation process took a similar turn to Russia's as a voucher scheme was displaced by asset sales. Between September 1995 and the end of 1996 many of the most valuable state enterprises were sold. During this period the government's attention also began to focus more narrowly on oil sector development, and became associated with wealth accumulation by the elite. Externally, Kazakhstan became seen less as one of the reformist CIS countries and more as an example of a corrupt Soviet successor state. The economy was hit by several negative exogenous shocks in the late 1990s, notably low oil prices and the August 1998 Russian crisis. Following a large currency devaluation in 1999 and an