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A romantic story of Mr.Nur and oil
Warren Buffet and Nursultan Nazarbayev have one thing in common. They’ve accepted that they’re nitwits when it comes to oil dynamics. Thankfully (for Buffet), there’s nothing more in common. For a man who has ‘ruled’ Kazakhstan since its independence in 1991 as its President, Nursultan has not only been accused of suppressing freedom of speech and forcibly subduing opposition parties, but also of rampant corruption. As is common with petro nations, this has not deterred Nur (for short) from having a long term dalliance with oil to earn his petro-billion-dollars, eh.
And today, Mr. Nur’s Kazakhstan is quite severely affected with falling crude oil prices and insolvency of their leading banks. Oil, which peaked at $147 a barrel in 2008, has now tumbled to around at $40 per barrel. The global meltdown accumulated the misery with the Kazakh currency, tenge, falling by 18%. Their Central Bank is now trying to set a new target for tenge at 150 per dollar with a fluctuation of 3%. This move was preceded by the government acquiring the two leading banks and taking over 25% stake in two other NBFCs. There are fears among analysts that within the next year, tenge will further devaluate to $186.315.
Critically, their credit default swap is rising with higher risk of debt default. In the London Stock Exchange, the stocks of Kazakhstan’s mining firms plummeted with devaluation of its currency. As a consequence of plunging oil prices, the government is readjusting its fiscal assumptions on revenue earned from oil at $40 per barrel for 2009, and $50 per barrel for 2010 and 2011. To his credit, Kazakhstan’s fiscal and monetary reserve lies at a huge 42% of GDP, and is quite handsome compared to neighbouring countries. But with public debt at 9% of GDP, and the banking sector on the brink of a gargantuan collapse (despite the government’s $4 billion injection into the system), it must be with a lot of pain Mr.Nur must be realising that the oil mistress has almost but run away. If reports go right, then Nur may soon have to approach the IMF for a bailout package. Ah, with the IMF would come the loaded baggage of the US, and with the US, capitalism and democracy (yes, we’re laughing).
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