II. Economic Schools and the Role of the Government in the Economy

d. Case Study: Role of the Government in a Transition Economy

After the end of the Soviet regime, the newly appointed Kazakhstan government formulated policies that revamped the economic structures. It disassembled the command economy and cultivated a modern market model, which was cohesive with the global commercial trends. According to Brada and King (1992), under the leadership of President Nursultan Nazarbayev, the Kazakh governance implemented a reform program that entailed the exchange rate strategies, stabilization approaches, and systemic alterations. In their study, The Long Run Growth Rate of Kazakhstan's Economy, Amin and Ainekova (2012) postulated that the economic restructurings resulted in the ‘shock therapy’ that had conquered the post-Soviet era. In the change period, the government spearheaded the developments to liberalize and privatize the economy.  As shown in Figure 1.0 the following is a discussion that highlights the sequence and comprehensiveness of the role of government in the transition times.

Figure 1.0: Sequence and Comprehensiveness of the Role of Government in the Transition Times

Source: Larsson (2010, p.16).

        i.            Trade and Exchange Rate Plan

Exchange Rate

To support the institution of a modern market economy, the Kazakh government introduced the floating exchange rates, which ensured that its national transactions are convertible and unrestricted.  The implementation of the new exchange system dismantled all the restrictions on foreign trade in repatriation or conversion of earnings. Even after independence, the country did not have self-determining exchange rate policies since it relied on the ones provided by the Union. According to Anderson (2007), this situation limited the efforts of the Kazakhstani people as it became impossible for the FDIs to convert their resources into other global currencies freely. The government recognized this challenge and introduced the advanced exchange rate system that treated foreign investors as Kazakh residents, demanding that they conduct all transactions using tenge.  Although FDI accused the policies of de-dollarizing the economy, the NBK insisted that the strategies sustained its objectives and did not increase businesses operational costs.

Trade Policies

            The new leadership altered the economic practices through adopting global trading systems that had different trade patterns and production techniques from that used in the Soviet era. For that reason, the government ratified bilateral talks with the Commonwealth of Independent States (CIS) (Amin & Ainekova, 2012) even though the system was vulnerable as it relied on funds provided by Russia (Kuzmina, 2018). The agreement permitted the country to implement regulation tariffs on products and services from non-FSU countries. Kazakhstan deregulated imports than exports through the abolishment of taxes and the removal of quantitative restrictions. However, the intervention of the International Monetary Fund (IMF) resulted in the government creating a 10% charge on all imports. The government concentrated on dismantling the command economy by reaching trade agreements with foreign trading bloc such as the EU to enhance trade relations. The promotion of export techniques enabled the government to alter its economic practices and beliefs.  

      ii.            Stabilization Strategy

The inherited budget deficit affected the transition to a growing economy, forcing Kazakhstan to implement price liberalization. As a result, the government reduced public spending; for example, it terminated end-user price subsidies and reduced military expenditure. Under the Soviet regime, prices were inconsistent. The liberalization of rates resulted in effects of inflation, making the government introduce tenge. According to Cheasty and Davis (1996), the stabilization approaches were launched by the National Bank of Kazakhstan (NBK) in 1994 to strengthen the monetary rules. The state realized success and failure in the attainment of fiscal adjustment and financial aggregate prospects. According to Hanks (2009), this situation prompted it to implement different policies aimed at managing the level of inflation and creating a steady exchange rate. These objectives helped the Kazakh...