How the Kazakhstan fit into the Golden Straitjacket.

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"To fit into the Golden Straitjacket a country must either adopt, or be seen as moving toward, the following golden rules making the private sector the primary engine of its economic growth, maintaining a low rate of inflation and price stability, shrinking the size of its state bureaucracy, maintaining as close to balanced budget as possible, if not a surplus, eliminating and lowering tariffs on imported goods, removing restrictions on foreign investment, getting rid of quotas and domestic monopolies, increasing exports, privatizing state-owned industries and utilities, deregulating capital markets, making its currency convertible, opening its industries, stock and bond markets to direct foreign ownership and investment, deregulating its economy to promote as much domestic competition as possible, eliminating government corruption, subsidies and kickbacks as much as possible, opening its banking and telecommunications systems to private ownership and competition and allowing its citizen to choose from array of competing pension options and foreign-run pension and mutual funds. When you stitch to all of these pieces together you have the Golden Straitjacket."(Thomas Friedman, The Lexus and the Olive tree)

Now, when we know the definition of the Golden Straitjacket, let's try to understand how the Kazakhstan implements this approach to its new economic policies. Kazakhstan is the ninth largest country in the world and has rich reserves of coal, oil and natural gas as well as gold, copper and chromium. Its location makes it key to the geopolitics of Central Asia. Kazakhstan continues to enjoy a special mutual relationship with the United States because of its nuclear disarmament, U.S. investment, and environmental initiatives. It is the largest recipient of U.S. assistance in Central Asia. Kazakhstans leadership remains authoritarian, but has demonstrated commitment to an open economy, financial and health reforms and environmental policy. While civil society and local activism are beginning to influence the government, social inequities and corruption are prevalent. Like the others Central Asian neighbors, Kazakhstan is a nation in transition. Part of the former Soviet Union a decade ago, it is still cracking the heritage of more than half a century of state economic controls to make way for the free enterprise that is expected to raise living standards for its 17 million people.

As Thomas Friedman pointed out in his book, cold war era had a huge variety of the suits that countries were wearing, The Mao suit, The Nehru jacket, The Russian fur. The problem with Kazakhstan is that during an almost centuries this country did not have their own specific suits. Kazakhstan was wearing the Russian fur, even that wasn't fitting very nice. Other difficulties which Kazakhstan was facing after the collapse of the Soviet Union is that for the past 70 years, this republic did not had any working government structures. It is true that every republic in former Soviet Union had their own governments in place, but all of them was reported to Moscow, and did not made any strategic decisions. So when all walls fall down and Kazakhstan gets its long time awaiting independence, they were facing the two major problems they did not have an experience government to run the country, and they did not have any strategic plan where to go in their development.

As stated above, when Kazakhstan became a sovereign nation there was no model of how to nation-build. As well as, there was no model of how to transform the state from a centrally planned to an independent open market, nor the role of the state in this process. In this process the state had to develop a whole new structure. The primary goal was that of a new government, one needed to create a new form of organization between the regions and the oblasts with a new capital, as well as a constitution. The economic transition took a secondary position. Pre-independence, they maximized the economic potential of the region for the USSR and post-independence, they had to develop an independent economy for the new country. That is, where prior to independence there had been a centrally planned economy, this now had to transform into a practical independent economy. And, while this change was rapid, it was also chaotic. The new government was created with such speed that development of a new economic structure lagged behind, in addition to which both inevitably suffered from defects.

It seems that the standard models of economic transition fail and are inefficient for the Kazakhstan, primarily because they appear to have led to the inappropriate ordering of priorities given the unique historical circumstances. As an article in the New York Times pointed out, establishing priorities for the Former Soviet Union republics has been particularly difficult. "The decision to replace bureaucrats with markets meant that these countries had to liberalize prices by lifting government controls. They had to stabilize their economies by controlling inflation and by keeping government spending in line with tax revenues. Finally, they had to privatize their industries by transferring ownership to ordinary citizens. But in what order should these policies occur, and at what speed? Should these three pillars of reform start before or after a country have adopted commercial codes that protect private property and enforce contracts?" Certainly, generally economists have focused on the economic policy issues and ignored the transformation of the state almost entirely. The journalist, cited above, continues and states, the answers to these questions of priority were not known then and are still not known. This may be because they are not looking in the right place for the answers. As mentioned earlier, they do not take into account that democracy and the creation of the nation came prior to economic transformation and, according to Western models, it should be the different. Standard theories notice that a certain level of economic development ripens the situation for democracy as a lack of economic resource may hinder the democracy In addition; they do not take into account the time factor. The creation of the Former Soviet Union sovereign states came almost one hundred years after the rest of Europe and the economic transformation was presumed to be automatic if you follow a model of the West. Finally, they do not take into consideration the difference between the various regions that had broken out of the Soviet structure. Prior to the Soviet system break-up some regions already had developed liberal commercial market-based economies, while others not even a glimmer.

This economic switchover has come at a price that is being paid by the low-income population, which is now left without the safety cushions of the socialist era. The biggest axe has fallen on the government's education budget, which has been slashed to more than one-third of what it was before Kazakhstan's independence in 11.

Alexis deToqueville remarked that a country needs a middle class to protect itself from anarchy. This commentary made over 00 years ago and in reference to the United States' independence, is extremely relevant to Kazakhstan at the present. Without a cultural understanding of a middle-class, anarchy becomes the only alternative option to sustainable economic growth. And in this instance there can be no winners.

The country has a great deal of potential, large territory, natural resources, small and highly educated population. Kazakhstan, unlike other petrol rich regions, such a Saudi Arabia, one would think, has the possibility to develop strong secondary industries. Whereas some of the Latin American countries were doomed to dependent development, Kazakhstan should not be.

Over 0% of property in Kazakhstan used to be sate-owned. The transaction of state property on the basis of privatization has been a key component of radical reform. It has been extremely complex process with many difficulties. One effective method of rehabilitating insolvent state-owned enterprises and improving their management has been to turn them over to the foreign management trough management contracts.

Unfortunately macroeconomic stabilization in Kazakhstan has not been fully achieved; because the government's strict financial, budgetary, monetary and credit policies were not accompanied by restrictions on incomes in the non-government sector.

Kazakhstans leadership has made demonstrable commitment to economic reform, even so some of the problem is still exist. According to USAID report Kazakhstan continues to cope with endemic corruption, limited access to modern business information and lack of a thriving business sector that can compete both domestically and internationally. The government allows certain freedoms but not others. There have been considerable gains in the growth of civil society and in citizens participation in their communities and in the legislative process.

As we can see since 11 Kazakhstan was trying very hard to fit into the Golden Straitjacket. A lot of good reform was implementing, a lot of hard work is in the future. As in any learning and development process some mistakes and miscalculation was made, some of them was fixed some of them wasn't. But the most important thing is that Kazakhstan is going in the right direction to be fully accepted and to become a equal player in the new global world.

ARTICLES AND REPORTS

1. "The Ragged March to Markets, the world has learned some important lessons about reform", The New York Times, November 11, 1.

. "Human Rights Reports for 000 Kazakhstan", US State Department, 001.

. "World Development Report 16", Washington, The World Bank, 16

4. "Economic development of Kazakhstan problems and perspectives" Dresdner Bank report 001

5. "Kazakhstan. Development Challenge" US Agency for International Development 001

6. "Democracy in America" Alexis de Tocqueville

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