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Оn a new spiral of growth

KASE: HISTORY IN PERSONS

Before the introduction of the national currency in 1993, having received an invitation, I came to work in the National Bank as deputy director of the Department of Economic Research and Forecast. Soon the Center for Advanced Studies, which I headed, was organized in the National Bank.

The center had to monitor how monetary policy instruments work in our economy. In theory, it was clear why they existed. But it was not clear how they work in a country where there is no market economy yet. Surprisingly, research has shown that in the conditions of high hyperinflation, the tools of the Monetary Policy worked quite clearly.

Prior to the introduction of the national currency, not the Treasury, namely the National Bank served the cash execution of the budget. And it was an atypical function for a financial regulator in a market economy. But the structure of the National Bank changed very quickly: he acquired functions characteristic of the market structure and got rid of atypical ones. For example, in the beginning, there was a department for capital construction in the National Bank of the Republic of Kazakhstan, and all budget expenditures for capital construction went through the National Bank.

I remember that the employees of this department often blamed us: say, research inflationary processes, but in the yard inflation - thousands per cent a year, what's the use of you? But then it turned out that the construction department did not fit into the structure of the central bank of the country with a market economy, and the budget servicing was first transferred to a specially created budget bank, and then the Treasury of the Ministry of Finance was created.

This was the time when the structure of the financial market was formed, its key institutions. Without this, probably, the stock market could not fully develop. The National Bank was very active as a financial consultant to the government. For example, the idea of a funded pension system came from the National Bank. And, in my opinion, the combination of the accumulative component with the solidarity was the best solution in our situation.

Pension reform was associated, first of all, with large arrears in pensions in the first half of the 90s. Practice shows that any solidary system leads to equalization of pension payments due to various economic situations and the actions of the government to resolve them. And only the funded system can provide an advantage to those who accumulate more and, accordingly, will be able to receive a larger pension.

There is also an explanation of why the initiative to create a funded pension system went from the National Bank: apart from addressing social issues, it was the intention to ensure the development of institutional investors for the stock market. This decision gave a strong impetus to the development of our stock market in 1998.

The concept of pension reform was adopted in spring of 1997. And the part that concerned the funded pension system was developed with the participation of the first leaders and specialists of the National Bank and the National Commission on Securities. I, being a member of the working group on the preparation of the pension reform, I well remember all those who proposed then key innovations in the concept.

As a result, the accumulative pension funds contributed to the active development of the stock market in the late 90's and early 2000's. Nevertheless, the emergence of such a new institutional investor, as the NPF, did not justify all the hopes in terms of their impact on the development of the stock market.

Although the NPS contributed to the development of the stock market, but it had to enter into maturity. And it takes at least 20-25 years to ensure that incoming cash flows in the form of pension contributions are balanced with outflows in the form of pension payments. Otherwise, the pension system begins to play the role of a vacuum cleaner in the stock market: investors will be up to maturity to hold the securities and adversely affect liquidity in the stock market. This became especially evident after the liquidation of several private NPFs and the creation of the Unified Accumulative Pension Fund. The creation of the UAPF exacerbated another problem - the never-created "deep" and liquid market of government treasury bonds.

In 2002, the Ministry of Finance increased the issue of treasury bonds twice. Since 2005, state treasury bonds have been placed by the Ministry of Finance on the Kazakhstan Stock Exchange. Nevertheless, the parameters of the Treasury bond market did not allow the National Bank to fully conduct open market operations for the purposes of monetary policy. That is, to carry out transactions through which the money supply in the economy would be regulated. The National Bank, issuing its own government securities, in fact, made up for this shortcoming of treasury bonds on the secondary market for the purposes of monetary policy. To date, the National Bank has been actively issuing notes for the same purposes.

If we continue the topic of the pension system from the point of view of its influence on the stock market, then I think that the wrong decision was made to liquidate private pension funds. This decision immediately affected the stock market. Now there is an instruction of the head of state to ensure the transfer of pension savings to private management companies. It seems to me that this you need to do it sooner. In this case, there are questions about which scheme to do this. It may be necessary for management companies to have different management strategies. And there should be a choice between conservative and non-conservative portfolios.

It seems to me, there is no need to try to go back from the UAPF to private pension funds. Moreover, the positive of the UAPF is that it is a state institution responsible for the safety of pension savings. Therefore, the UAPF should determine the management companies, determine their mandate and transfer assets to them. But the fund remains responsible for the safety of assets, control over payments. Managing companies provide only profitability. But here, too, is the question of the guarantee of the state.

The test for the economy was in 2007, when limits on emerging markets were closed on international capital markets. For Kazakhstan, our financial system, the same year was the beginning of the crisis. Before that, the domestic financial system for a long time was a strong driver of our economy. But due to the fact that the building sector was the same driver at the time, our banks were also funded for real estate market transactions through the issue of mortgage bonds. This ensured the growth of operations in the stock market.

But the growth trajectory, which seemed very positive, and the trend was long-term, was already associated with the tendency at the very beginning of the formation of a bubble in the housing market. And in 2007, when the limits for emerging markets were closed on the international capital markets, this bubble burst overnight. It is no coincidence that the crisis of 2007-2009 brought about a collapse in the financial sector and the stock market. However, in any economy, the crisis is the beginning of a new growth, the beginning of the formation of new trends.

After a while, the economy, financial sector, and the stock market were able to overcome the negative and exit the "red zone". The Kazakhstan stock exchange, as the main institution of the stock market, showed itself already in the post-crisis period by the established institute. And I would call the current trends and growth qualitative. The current situation, in fact, demonstrates that the Kazakhstan Stock Exchange learned the lessons.

For our bank, the stock market is a source of loans, an important source of our funding. I would call it the main, classical source for the Development Bank of Kazakhstan. The budgetary funds that we receive are only a part of what is required. And their goal is only to reduce the price, and not to provide the basic amount of funding. Additional budgetary funding in our commitments is 17%, everything else is money from the market.

If it is a question of tenge - this is the placement of our instruments at KASE. But the collapse with liquidity that happened in our market in 2014-2016, very much influenced the market, where the cost of borrowing jumped. There was a situation in which it became not quite clear what the real market value of money is. And since the yield curve has not been formed in the market (at present it is more long-term loans), we, on our part, also tried to influence this process and entered the market of eurobonds in tenge. Foreign investors asked us why we followed the tenge on the international market. We replied, what the price is. They were surprised, since it is quite reasonable to consider that the price of tenge instruments should be formed in the domestic market

If we talk about the expectations of the bank, we hope that the stock market will become the main source of funding with time, when the value of money decreases, and the budget support for cheaper prices will decrease or disappear altogether. Therefore, it is very important for us that our stock market develops consistently. The task of activating the stock market is very urgent now, when it comes to strengthening lending to the economy. But often different "quick-fire approaches" are suggested, which, I believe, will not work, since the emphasis in the development of the stock market should be made on those incomplete systemic issues that are today.

At the same time, today, marking its quarter-century anniversary, KASE faces serious challenges. Since the establishment of the IFC in Astana is a very ambitious, very large state task, the implementation of which involves a qualitative change in the situation on our stock market. IFAC is a large-scale, public, but nevertheless a business project. His success is also not guaranteed. Therefore, for all market institutions - both the current Kazakhstan stock exchange and the new institutions being created within the framework of the IFAC - this is a kind of challenge.

The history of the development of our stock market is full of both very impressive positive successes and significant failures. We remember that the first attempt to create a financial center in Almaty, which coincided with the beginning of the financial crisis of 2007-2009, was unsuccessful. Therefore, it is very important for all institutions to build the right strategies and tactics so that this second attempt is marked by a common success for the entire stock market.

АО «Банк Развития Казахстана»
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