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Kazakstan-Prices, Wages, and Currency

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Kazakstan Index

The freeing of government price controls, followed by introduction of the tenge as Kazakstan's independent currency unit, set off hyperinflation, which badly eroded real wages, pensions, and savings (see table 10, Appendix). Introduced in November 1993 at approximately five to the United States dollar, the tenge fell to about fifty-six per dollar by late November 1994. Subsequently, the currency remained relatively stable, falling only to sixty-four per US$1 at the beginning of 1996. The tenge's stabilization was due in part to the government's determination to control the state budget, in part to the availability of an IMF stabilization fund, and in part to the backing of government reserves of US$1.02 billion in hard currency and gold. By 1995 inflation had decreased substantially from the levels of 1993 and 1994, when the rate was 1,880 percent, although the annualized rate for 1995 was estimated at midyear at 190 percent, well above the prime minister's target figure of 40 percent.

Inflation has strongly affected wages and family budgets. In July 1994, for example, nominal wages in the republic increased by an average of twenty times, but the costs of food, services, and goods increased by more than thirty-two times in the same month. As a result of such conditions, real wages in the republic declined by about one-third in the first half of 1994. The overall average monthly wage in the republic in February 1995 was 3,650 tenge, or about US$61 at the exchange rate of the time. In mid-1995, the overall average wage was 4,613 tenge, but the disparity between industrial and agricultural wages was growing steadily: the industrial average was 7,452 tenge, the agricultural average 2,309 tenge. Wages in service occupations such as education and health are quite low, and government employees in those occupations often are not paid on time. Chronic nonpayment of wages has caused strikes in industrial enterprises and coal mines.

Many enterprises have made wage payments in merchandise rather than money; this practice has led to a large volume of merchandise resale at bazaars, either by workers or by private wholesalers. The actual level of consumer welfare is unknown because prices and the availability of goods change rapidly. Because Kazakstan lacks a strong consumer-goods industry, imports have begun to replace CIS products, notably clothing, housewares, and electronics. In 1995 wage increases continued to lag behind the rising cost of living, causing spending power to decline by 2 to 3 percent per month. The greatest losses in real wages have been suffered in industrial (and mostly Russian) northern Kazakstan. One consequence of declining purchasing power is that families now devote as much as 10 percent of their budgets to the purchase of foreign currency, presumably as a hedge against inflation. In 1995 the purchase of food became the largest family expenditure, exceeding 50 percent of average budgets. Even so, purchases of all categories of foodstuffs have declined in the republic, while purchases of nonfoodstuffs have dropped 40 percent or more.

Data as of March 1996

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