The Effects of Devaluation of the Tenge Upon the Kazakhstan Economy

EILF Journal of Law & Economics, Vol. 1, p. 1, 2009

35 Pages Posted: 11 Aug 2009 Last revised: 18 Aug 2009

See all articles by John J. A. Burke

John J. A. Burke

RISEBA University

Xenija Okulova

Republic of Kazakhstan - Kazakhstan Institute of Management, Economics and Strategic Research (KIMEP)

Date Written: August 9, 2009

Abstract

This article examines the probable effect of the February 2009 devaluation of the Tenge on the Kazakhstan economy. Conventional wisdom holds that currency devaluation increases exports, protects domestic production, and preserves foreign exchange currency reserves. While the latter states the obvious, the causal relation between currency devaluation and increased export revenue and increased domestic production, though logically valid, requires the passage of time to measure. In the context of Kazakhstan, the question of devaluation and its effects also must be examined within the 'Dutch Disease' model, as Kazakhstan is an oil dependent country. History teaches that devaluing the Tenge is unrelated to restoring the economy to stable growth and reversing the consequences of recession. Devaluation, without implementation of deep structural economic reforms, is an ineffective panacea, as demonstrated by the 3000% decline in the value of the Tenge since its 1993 introduction. The current economic malaise is likely to be corrected, neither by a manipulation of the currency exchange rate, nor by an increase in the price of oil, but by diversification of the economy, regulation of the money supply by an independent central bank, and a re-organisation and recapitalisation of the banking sector, including renegotiation of domestic credit institution foreign debt. A second devaluation is inevitable, unless strategic reforms are implemented. The question of successive devaluations is not if but when and how much.

Keywords: Kazakhstan, devaluation, Tenge, currency, depreciation, dutch disease

JEL Classification: E4, E5, E6, G1, O53, P44

Suggested Citation

Burke, John J. A. and Okulova, Xenija, The Effects of Devaluation of the Tenge Upon the Kazakhstan Economy (August 9, 2009). EILF Journal of Law & Economics, Vol. 1, p. 1, 2009, Available at SSRN: https://ssrn.com/abstract=1446404

John J. A. Burke (Contact Author)

RISEBA University ( email )

Meza iela 3
Riga, New Jersey 050010
Latvia

HOME PAGE: http://www.riseba.lv

Xenija Okulova

Republic of Kazakhstan - Kazakhstan Institute of Management, Economics and Strategic Research (KIMEP) ( email )

4 Abai Avenue
Almaty, Almaty 480100
Kazakhstan

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