Photo: AFP
Photo: AFP

Central Asia and Caucasus markets with close ties were whipsawed by currency and securities selloffs in Russia and Turkey over the past month, with the effects on the former less severe and mainly due to heightened Western sanctions odds rather than economic-policy miscues.

Azerbaijan, Kazakhstan and Georgia, with internationally traded bonds and stocks, suffered damage from the respective lira and ruble declines of around 40% and 15% against the US dollar this year. Ankara has no formal grouping like the Moscow-led Eurasian Economic Union with a common external tariff, but has established a Baku-Tbilisi-Kars rail connection and spearheaded a trade and investment campaign with the “Stans,” including recently opened Uzbekistan after longtime ruler Islam Karimov’s death.

Turkey’s central bank, against President Recep Tayyip Erdogan’s wishes, raised benchmark interest rates by 6 percentage points to stem collapse, while Russia, with budget and current-account surpluses and US$450 billion in foreign reserves, has not been as concerned about the biggest depreciation since 2016.

Russian stocks lost 5% through August compared with Turkey’s 55%, but Russia’s local and external bonds were walloped by reports that the US Treasury Department might consider stricter asset-manager bans under new congressional legislation. Sovereign wealth funds in Azerbaijan and Kazakhstan likely have them in their portfolios as well, but the cross-border fallout was more far-reaching and mixed with existing banking-system, commodity and competitive pressures.


Kazakhstan’s MSCI Frontier Markets Index component was down only 3% against the composite 15% drop through August, but its currency plunged to 380 to the dollar into September, around the record low since previous devaluation and flotation. The 15% tenge slide so far this year is in line with the ruble’s, but local speculators, with their own “carry trade” into high-yield bank deposits, and opposition political parties warning of a crash were also blamed.

Analysts argue that the tenge has long been overvalued and should be in the 420 range, and that hydrocarbon and mining export seasonality will bring final-quarter appreciation. First-half growth in gross domestic product was 4% on rising oil prices despite construction and services weakness, with inflation at 6% and the current account in slight deficit. International reserves were $90 billion, with $50 billion in the stabilization fund that can be tapped for exchange-rate intervention.

Before the latest tenge scare, the capital Astana celebrated its 20th anniversary and President Nursultan Nazarbayev’s birthday in July with a grand party, where provincial officials offered an estimated $20 million in gifts.

Around the same time, the state telecommunications operator took over the Nordic- and Turkish-owned mobile-phone leader, a transaction giving it a two-thirds industry share and spooking foreign investors. Critics claim it will hurt competition and new technology and alienate potential buyers, as big government companies are to sell partial stakes on the stock exchange in the coming months.

The International Monetary Fund, in turn, in its September Article IV report called attention to remaining major bank “challenges and risks,” despite billions of dollars in support including for a merger of the top two lenders. Tsesnabank disclosed a 30% liquid asset decrease, as officials agreed to purchase a €1 billion ($1.16 billion) agricultural credit portfolio while the central bank injected another €350 million. Its management was reshuffled with the chief executive ousted, and rival Eurasian Bank with almost $3 billion in assets likewise announced a liquidity squeeze.

Private-sector credit growth has tentatively resumed at a 10% pace, in part driven by Nazarbayev’s discount mortgage program unveiled in March, but these rescues reflect IMF views that bad-debt resolution and business-model overhaul are still lacking.


Azerbaijan’s thinly traded sovereign debt was unnerved by dual Turkish and Russian economy exposure, and Pasha Bank has an Istanbul subsidiary that issued $25 million in its own bonds this June.

GDP growth and consumer inflation are running at 1.5% and 3% respectively, and a strong current-account surplus and foreign-direct-investment inflows continue to back the new dollar-exchange-rate peg. However, the central bank is carefully monitoring local savers’ dollarization preference, with the deposit ratio currently at 70%, as well as frequent private-sector hard-currency borrowing.

The state oil company has $20 billion in investments in Turkey ravaged by the lira’s meltdown, which could hurt the bottom line as well as bleed into external bond prices.

Gary Kleiman

Pioneer and recognized expert in the field of global emerging economies and financial markets. Founder of first consulting firm dedicated to providing independent analysis and advice to public and private sector clients in 1987, and research coverage and firsthand experience covers 75 countries in all developing regions. Advisor on financial vulnerability issues, risk management, portfolio allocation, and financial sector and capital markets strategy and development.