A List of Mistaken Economic Decisions

Recording mistakes is important because they show us what must never be done. I would like to dwell on several missteps that have, in one way or another, hurt our economy:

Subsidized-rate lending programs (car loans, cheap mortgages). The result was a rise in consumption with only limited growth in production, which pushed prices up. Using cheap loans to stimulate demand when supply is constrained drives up prices. This is an axiom.

The distribution of pension assets. It put a large amount of free money into the economy, which boosted consumption without any growth in production. Much of it was simply cashed out through various schemes, and property sellers received cash that went into consumption. All of this fed inflation in the country. Those with no savings suffered most, because inflation fell hardest on them.

Write-offs of loans to households. There have been many such programs, from the unsecured loans of 2019 to mortgage loans. After forgiveness and compensation, people were able to borrow again. The result was higher prices and, once again, the problem of over-indebtedness among part of the population. It also breeds a dependency mindset, and as a result conscientious borrowers pay for irresponsible ones through higher interest rates.

State lending programs for business that are not grounded in labor productivity growth and instead target quantitative indicators. The result is uncompetitive enterprises that, a few years later, lose out to imports and close down.

Construction of various non-productive assets that divert limited financial resources from real investment in production and infrastructure and give the country no added value, other than higher imports and pressure on the exchange rate. These include EXPO, the idle sports facilities left from the Asiad and the Universiade, assorted congress halls and palaces. Half of the buildings in Astana have no real value; add the LRT, the facilities in Turkestan, the useless regional airports, and the list could go on and on. All of this amounts to tens of billions of US dollars that could have gone into infrastructure: roads, railways, renewal of the railcar fleet, power grids, gas pipelines, combined heat and power plants, and so on. The result is higher prices driven by increased imports, unrealized potential in other sectors, and rising costs of maintaining all of these facilities.

Bank bailouts at the state's expense without a systemic approach. These were, first and foremost, BTA, Alliance, Temirbank, Kazkommertsbank, Tsesna and ATF. Tens of billions of US dollars that likewise could have been spent more rationally, as in the previous point. The result was a sharp reduction in competition in the banking sector, higher interest rates, and a shift by most banks toward consumer lending instead of lending to the corporate sector. This item deserves a separate post.

Expanding Samruk's role in the economy instead of reducing it. We have supposedly been talking about reducing Samruk's role for more than 10 years, yet in practice the national companies keep increasing their share of the economy. KMG, KTZ and Kazakhtelecom are examples. Implementation of national projects has also been handed to Samruk. Three mobile operators are under state control. The three main airlines are under state control. All this leads to systemic inefficiency, higher transaction costs and greater monopolization, and as a result to higher prices. What is needed here is genuine privatization and the state's withdrawal from the market. This is a very difficult issue, and it is not easy to resolve given the state of our investment climate and various phobias.

In fact, there are many more such distortions, and they can and should be discussed openly. Tell me in the comments what other ineffective decisions, in your opinion, have affected the country's economy and inflation.