The yuan’s devaluation and the subsequent fall of the tenge have been rippling through the global economy. Central Asian governments are now considering devaluing their own currencies to keep pace with the Kazakh tenge and Chinese RMB, primarily due to how exchange rates affect balance of trade. Export dependent countries like Kazakhstan with its oil and petrochemicals will see the amount it can keep on its exports, particularly to a large customer like China, fall. Subsequently, the tenge is devalued. Importers of goods will face much higher prices in the short term if they do not devalue. This creates a situation where Central Banks scramble to devalue before their peers, a situation known as “beggar-thy-neighbor.”

How is this situation affecting individual countries? Kyrgyzstan has left its policy interest rate unchanged at 8% despite the likely increase in inflation given that the som has fallen in value against the dollar by 10.3%, meaning that inflation is likely going to exceed the benchmark set by the CB for the year. However, officials of the Uzbek Central Bank have declared that the tenge’s devaluation will not affect the exchange rate of the Uzbek soum, a contention that is unlikely to remain true in the future. The Uzbek CB manages its exchange rate weekly, in what is known as a managed, or “dirty” floating exchange rate.

Other countries like Turkmenistan have already devalued its currency, the manat, in January of this year. Azerbaijan as well faces a situation that might demand a modest decrease in its valuation against the dollar to reflect the rapidly shifting landscape.

Follow us on Twitter: @SteppeDispatch

News Briefs:

• Uzbekistan has started to construct three new solar power plants, worth the equivalent of $700 million, financed by the Asian Development Bank and Uzbek Fund for Reconstruction and Development. Each station will have the equivalent, according to the press releases, of 100 megawatts, and will save expenditures of up to 51 billion tons of oil in the coming years. There has been no word on who the engineering firm will be in charge of plant construction.

• Tajik President Emmomali Rahmon and Turkmen President Gurbanguly Berdimuhamedow met earlier in the week to discuss security issues, seeing as both countries rest on Afghanistan’s northern border and the spillover of violence has been a long anticipated issue. As a result, both Presidents signed 5 documents aimed at establishing a framework for border and security cooperation that will allow them to achieve a “common position towards the struggle against terrorism, extremism and creates a base for developing economic ties [sic].”

• Pakistani PM Nawaz Sharif is paying a two-day visit to the Kazakh capital of Astana this week, where he will meet with top officials and the President, Nursultan Nazarbayev. A number of agreements and MoU’s are expected to be signed during the visit and the purposes of the visit is likely another continuation of Kazakhstan’s “multi-vector” foreign policy whereby it seeks to establish good political relationships with its neighbors and create goodwill that can be used for economic and diplomatic benefit.

• Erlan Idrissov, the Foreign Minister of Kazakhstan, has a piece in today’s Financial Times, where he praises the formation of the International Atomic Energy Agency’s Bank of Low Enriched Uranium (LEU) in Kazakhstan, which possesses one of the world’s largest natural deposits of uranium. The LEU Bank will serve, according to Idrissov as an assurance of a “supply mechanism of last resort in case of disruption in the overall market.” Uranium prices have been extremely low since the Fukushima nuclear disaster in Japan in 2011, and the LEU Bank’s purpose is to provide states to allow countries pursuing civilian nuclear programmes to have a reliable, price-stable source of uranium that allows the smooth implementation of projects.

• The Diplomat has an interesting article on the Central Asian automotive industry, specifically looking at the major producers like Uzbekistan and Kazakhstan and noting that the current currency crisis is causing pricing shifts that have affected consumer capital spending in these markets. Kazakhstan is still going to be home to a new Toyota plant, but is already a large customer of Russian car exports. Additionally Uzbekistan’s car producer Uzavtosanoat has a joint venture with GM where it possesses a virtual monopoly on the car market.

• US fast-food chain McDonald’s announced that it will expand its presence in Russia by 20 new restaurants. The move indicates that McDonald’s has overcome the initial obstacles presented by food sanctions and a safety crackdown on the chain which led to the temporary closure of more than 200 stores in the country. McDonald’s employs more than 20,000 in Russia.

• The Wall Street Journal’s Frontiers division has an interesting article on the much-heralded return of global finance to Iran. The new piece centers on the resurgence of interest in Iran following the signing of the nuclear deal. One Tehran-based investment bank, the Kardan Investment Bank, indicated that they have gone from virtually zero interest in the sector to having “too much” interest in the sense that they no longer have time to meet with all the interested parties. Iran is planning $40 billion in new infrastructure development as sanctions ease.