Freedom House, 15 August 2001

INTRODUCTION

While maintaining the rhetoric of democratization, Nazarbaev has backtracked from an initial commitment to political reforms and a transition to democracy. Since 1995, the Nazarbaev regime has acquired extensive control over most strategic resources and distribution networks. The president's unlimited powers have been enhanced by a de facto concentration of political power in a circle that consists of the president himself, close family, and other trusted kin. The takeover in 1996 of the state-owned news agency Khabar by Dariga Nazarbaeva, the president's eldest daughter, has led to the closure of almost all independent media and unrelenting intimidation of all opposition. The appointment of Nazarbaeva's powerful son-in-law Rakhat Aliev as the chief of the Almaty City National Security Council suggests an effort to elevate him as the president's successor. The effective clampdown on independent political activity and the concentration of political and economic resources within the first family have paved the way for a personalistic dictatorship that will severely limit the prospects for democratic reforms.

Kazakhstan's vast mineral and oil resources, and its self-proclaimed image as an "oasis of stability," have attracted considerable Western support and foreign investment. After an economic slowdown over the past three years, Kazakhstan's gross domestic product (GDP) witnessed the fastest growth in the region last year, largely due to an increase in oil exports. However, the prospects for sustained longterm growth are still uncertain. There is growing skepticism about how these macroeconomic indicators can be translated into better living conditions for the citizenry as a whole. The discovery of an estimated 40 billion barrels of oil in the offshore Caspian region (one of the world's largest oil deposits) and the promise of petrodollars have already brought to the fore highlevel corruption and bribery scandals and triggered massive capital flight.

The January 1999 presidential election, in which Nazarbaev's political opponent and former premier Akezhan Kazhegeldin was denied registration, and the October 1999 parliamentary elections, which returned a parliament full of proregime parties and supporters, have been widely condemned by international observers. The Office for Democratic Institutions and Human Rights (ODIHR) at the Organization for Security and Cooperation in Europe (OSCE) boycotted the presidential election, which was held almost two years ahead of schedule after the constitution was hurriedly amended to extend the term of office for the president from five to seven years and to remove the age limit of 65 for a presidential candidate. The OSCE noted that the parliamentary elections fell short of OSCE commitments formulated in the 1990 Copenhagen document. Nazarbaev accused the OSCE of behaving like Communist Party officials and maintaining double standards.

The OSCE's criticism spurred the consolidation of opposition groups into a broadbased alliance called the Forum of Democratic Forces. The Republican People's Party is the linchpin of this alliance and the most threatening challenge to the regime. It was founded by Kazhegeldin, who has been living in the West since 1998 along with other long-standing critics of the regime.

DEMOCRATIZATION

The parliament elected in October 1999 is the third popularly elected parliament since Kazakhstan proclaimed independence in 1991. The first post-independence parliament, elected in 1994, frequently clashed with the executive on a number of legislative acts. Nazarbaev dissolved parliament in March 1995 following a contrived verdict by the constitutional court declaring the body to be unconstitutional. The second parliamentary elections were held in December 1995 after the adoption of a constitution that severely limited legislative authority. Political parties had the right to nominate candidates, but the candidates could not refer to their party affiliations. Several constituencies had only one candidate.

The Majilis has 77 members who are elected for five-year terms. In 1999, in response to the OSCE's recommendations, the election law was reformed. Ten out of 77 members are elected from a party list on the basis of proportional representation with a seven percent threshold. The remaining 67 members are elected in single-mandate constituencies in which winning candidates must receive more than 50 percent of the votes cast in the first round..

Both the senate and the Majilis elections of October 1999 were marred by serious procedural violations and irregularities. For example, since Maslikhat elections were scheduled for November 1998, outgoing Maslikhat deputies rather than new ones elected the senate. As expected, the Majilis elections produced an overwhelming victory for parties and candidates supported by the regime.

In terms of formal markers such as registration requirements, the number of contenders and parties, and the level of electoral competition, the 1999 parliamentary elections were an improvement over the previous ones. Acceding to the OSCE's demands, Kazakhstan authorities liberalized the registration process for parties and candidates and reduced the registration fee for candidates by 75 percent. The fee demanded previously was equal to 100 times the minimum monthly salary and, thus, was beyond the reach of ordinary citizens.

Out of 547 candidates registered for the single-man-date constituencies, political parties nominated 20.7 percent and public associations put forward 14.6 percent. The remaining 64.7 percent were self-nominated. As the OSCE noted, more than a third of the self-nominated candidates in fact had very close ties with the regime and the pro-regime party Otan (Fatherland). The large pool of contestants, averaging about eight per seat, made it more difficult for candidates to obtain more than 50 percent of the votes cast in order to win in the first round. Since a second round of elections had to be held in 27 out of 67 constituencies, widespread complaints about intimidation and vote-counting procedures cast doubts on the validity of the first round.

Independent observers and opinion polls confirmed outright victories for Pyotr Svoik of Azamat and Gaziz Aldamzharov of the Republican People's Party in their respective constituencies in Almaty and Atyrau. However, the official results indicated that no candidate obtained 50 percent of the vote and, therefore, that a second round of elections had to be held. In Almaty, OSCE monitors noted the discovery of forged returns in favor of the candidate opposed to Svoik. The chairman of the district election commission in Atyrau denied international observers access to the vote tabulation process, claiming that their security could not be guaranteed. In Almaty, vote rigging denied Svoik a victory; whereas in Atyrau, violence allegedly triggered by authorities led to a suspension of elections and the disqualification of all candidates.

The pro-presidential Civil and Agrarian parties won two seats each. The Communists, who now constitute the major opposition, won two seats. Other parties failed to win any seats.

In a number of constituencies between pro-regime candidates, bitter contests took place. The CEC failed to provide any details on the number of votes received by the losing candidates; it only offered the percentage of votes received by the winners and those advancing to the second round.

The second round of elections was held just two weeks later, despite warnings by the OSCE that this allowed insufficient time to rectify anomalies and guarantee proper procedures.

More than two-thirds of all members of parliament were up for reelection, and 61 percent failed to retain their seats.

Business and financial interests that are closely connected to the regime dominate the current parliament. Parliament is also strongly biased in favor of ethnic Kazakhs, who hold 58 out of 77 seats. Only eight deputies are women. This is consistent with the low rate of female representation in political affairs.

Official figures report high voter turnout, but this is simply implausible because of pervasive voter apathy and disinterest in electoral and party politics. Turnout was reported to be about 90 percent for the 1995 referendums on the presidency and the new constitution and about 86 percent for the 1999 presidential election. Turnout in December 1995 parliamentary elections was reported 79 percent in the first round and 65 percent in the second round. No voter turnout figures for the last elections were released by the CEC for the first round of elections. Turnout for the second round of elections was 52.4 percent. Even this number is considerably exaggerated, given the extent of voter apathy.

Polls conducted by the Association of Social and Political Scientists (AsiP) noted that turnout was below 35 percent in Almaty and much lower for voters under the age of 30.

Notwithstanding some reforms to the election law, legal and institutional impediments to fair electoral procedures persist. First, the election law disqualifies people who have been convicted of corruption, fined by a court of law during the year preceding registration, or not cleared of a conviction by the time of registration. The regime has used this provision widely to prevent opposition leaders from contesting elections. Akezhan Kazhegeldin was barred from contesting both the presidential and the parliamentary elections of 1999 under this clause.

Second, according to the OSCE, the 7 percent threshold required to win seats on the party list is too high and seriously limits the prospects of small parties. The "soft" opposition Azamat, which enjoys significant popularity in Almaty, did not gain a single seat even though it obtained 4.6 percent of the vote.

Despite the introduction of a party list, it is premature to talk about a party system in Kazakhstan. Existing parties, whether proregime or opposition, lack organizational structures and active membership bases across the country. The only exception is the Communist Party, which has inherited the grassroots organizational structure from the Soviet era and has a large following among the older citizenry. However, it lacks financial support, leadership, and a reform agenda. Since 1991, Kazakhstan has seen the emergence of numerous parties, the vast majority of which have been founded by personalities within the regime or by forces indirectly supported by the regime. Parties like these have surfaced and vanished with the rise and fall of their founders.

There are no legal or constitutional obstacles to the formation of political parties and their participation in elections, although the president has the right to ban any party.

According to the constitution, the president is above any political party. However, all pro-regime parties pledge allegiance to the president, who serves as their ultimate patron and benefactor. Among the prominent pro-regime parties currently represented in parliament are Otan, the Civil Party (Grazhdanskaia Partiia), and the Agrarian party. Otan was launched in January 1999 by Sergei Tereshchenko, a former premier (1991-1993) and the head of the presidential election campaign staff, with the explicit purposes of contesting the forthcoming parliamentary elections and consolidating the presidential program of "democratization of the society." Otan utilized its control over the central, regional and local administrative machinery to muster a large membership and to secure the most seats in parliament.

The Civil Party, which gained the second highest number of seats, represents powerful industrial interests. It is supported by the Eurasia group and headed by Aleksandr Mashkevich, a leading metallurgist and the founder of the Eurasian Bank in Kazakhstan. Mashkevich is now an Israeli citizen. The Eurasia group is estimated to produce almost one quarter of the country's GDP. Among its other key members are the leaders of six major metallurgical enterprises in Kazakhstan. Though the Civil Party has periodically contested the authority of Otan, it has pursued a clear pro-presidential agenda.

Azamat and the Communists were the only recognizable opposition parties from 1996 to 1998. Lacking financial resources and patrons, though, Azamat fell prey to intimidation and gradual cooptation. Murat Auezov, one of its founding leaders, became the head of the Soros Foundation in Kazakhstan and shunned politics.

It lends credence to the view that Rakhat Aliev, the president's son-in-law, is being molded as Nazarbaev's successor.

In a parliament packed with pro-regime supporters, there are few stumbling blocks to enacting further legislation that grants some form of immunity to other elected officials.

The post-Soviet transition in Kazakhstanat least its first decade-has culminated in the consolidation of author-itarianism through patronage networks. The virtual closure of all independent newspapers and media, tightened censorship, and strict governmental regulation of the civic sphere, on the one hand, and pervasive citizen apathy, on the other, present serious obstacles to civic activism and the rule of law.

Kazakhstan's Law on Public Associations, adopted in 1998, contains severe restrictions on the right to free assembly.

Specifically, holding a public rally requires prior permission from the authorities. Those accused of participating in an unsanctioned rally or meeting face arrest and fines. Persons convicted and fined in a court of law may not occupy public office or contest elections. Furthermore, Article 337 of the Criminal Code provides stiff penalties for participation in an unregistered public association. Overall, surveillance by the interior ministry, legal restrictions, and harsh penalties make it extremely difficult to organize spontaneous public action. The authorities have frequently used this provision to break up public meetings and protests.

Nongovernmental organizations (NGOs) have encountered fewer governmental obstacles and have continued to grow. There were 3,050 registered NGOs in early 1997.

The Counterpart Consortium estimates that as of October 2000, 814 of these were fully functioning. NGOs together produce 35 newsletters and form seven major associations.

More experienced organizations like the Counterpart Consortium, the Feminist League, and ISAR serve as umbrella organizations for newer NGOs.

Like political parties and public organizations, NGOs must register with the Ministry of Justice. NGOs devoted to social welfare issues are, on the whole, less subject to governmental pressures. Public interest organizations, human rights organizations, and Uighur rights advocacy groups have faced greater struggles in obtaining registration, and maintaining their legal status. Nonetheless, some efforts at building up a mutual dialogue and partnership between the government and NGOs can be discerned.

In a poll of government officials in five cities conducted by the Association of Social and Political Scientists (ASiP), 41.5 percent of respondents recognized the need for the government to "collaborate" with NGOs. Kazakhstan's Ministry of Labor and Social Protection has hired an NGO to supply hearing aids for the elderly. An ecological organization has received funds from the Akimat oblast to examine the level of air pollution. However, partnerships like these are still rare. NGOs essentially depend on external funding, usually from the West. And since international aid is on the decline, the sustainability of NGOs is a serious issue.

Negative attitudes to NGO activities are still common.

However, the more successful NGOs, particularly in the health and education sectors, are slowly altering official and popular perceptions of their roles. Many NGOs came into being in order to tap into the funding opportunities created by international development programs. A significant number of these groups lack internal accountability and are primarily networks of friends and families with limited organizational capacity. The majority of available grants are for specific projects designed by development agencies, rather than for specific local initiatives. This has inspired some opportunistic individuals to organize into NGOs simply for profiteering purposes. Another problem is that NGOs have tended to cluster around Almaty and in the southern regions. About 45.7 percent are concentrated in the Almaty oblast, and an overwhelming proportion of these are in Almaty city. More remote regions, particularly in central and northeastern Kazakhstan, remain unaffected by NGO activity.

Obstacles to NGO activities are informal rather than legal. A common way to counteract their influence is to create a government-sponsored network of "'independent" organizations that received favorable treatment in registering and obtaining funds. Genuinely independent groups, meanwhile, are subjected to legal, financial, and judicial pressures. Government-supported NGOs also compete for international aid. For example, the children's health and charity fund Bobek, headed by Sara Nazarbaeva, serves as an umbrella organization and funnels international aid to smaller NGOs.

NGOs that promote women's issues have been quite effective. The Women's Network of Almaty, a support group set up in 1998, established the Political Alliance of Women's Organizations to contest the 1999 elections. This led the government to sponsor a parallel group, the Association of Women Entrepreneurs, which was quickly granted registration, an office, and publicity.

In January 2000, Kazakhstan instituted one of the most progressive changes in NGO taxation in Central Asia. The country's tax code was amended so that NGOs receiving grant money from international organizations are no longer obliged to pay the "social tax." (The amendment also applies to donor organizations themselves.) Previously, NGOs that engaged in business activities to supplement their in-comes ran the risk of being defined as businesses and, therefore, of being taxed accordingly.

The closure of industrial enterprises and mining sites because of inadequate financing and equipment has caused a rapid deterioration in the socio-economic conditions of industrial workers. Industrial unrest has been on the rise, and independent worker's unions have challenged the dominant status of the state-sponsored Association of Trade Unions. This union is a successor to the Sovietera General Council of Trade Unions and, with a declared membership of four million, remains the largest organization of its kind in the country. The Confederation of Independent Trade Unions, which receives support from the Human Rights Bureau and many other nonprofit groups, has expanded its grassroots organizations across the country and claims 250,000 members. It is the first organization of its kind in the former Soviet Union to join the World Labor Confederation.

The Kazakhstan Workers' Movement, which is affiliated with the Independent Confederation of Trade Unions, has been in the forefront of several industrial actions. It succeeded in obtaining a settlement on overdue salaries and pensions for workers at the Taraz Phosphorous Plant in the Zhambyl oblast after a prolonged phase of protests and hunger strikes. Madel Ismailov, the leader of the Workers' Movement, was arrested in 1998 for demanding the annulment of the law that defines the preconditions for holding mass gatherings. Kazakhstan's labor law requires that employees receive notification of a strike no less than 15 days before its commencement. Workers are coerced routinely to join the state-sponsored trade union. Their jobs are threatened if they associate with independent trade unions or NGOs that champion their rights. In early 2000, the independent union Energetik was ordered to merge with its governmental branch Shymkentenergo.

In 1996, state control of the media was effectively reinforced when a government decree transformed the state media into a jointstock company. Its shares were bought by Dariga Nazarbaeva, the president's eldest daughter, who now heads the state news agency Khabar and controls three television and two radio stations. When a series of closed auctions for broadcast frequencies were held in 1997, pro-regime groups acquired licenses by posing as private companies.

The 1998 Media Law has severely restrained independent media and resulted in self-censorship. A new Law on Confidential State Affairs, adopted in March 1999, makes the "disclosure or publication of information about the president and his family and their economic interests or investments into the realm of state secrets punishable by severe sanctions." Those charged with the "infringement of the dignity and honor of the President" can be prosecuted under Article 318, Part 2, of the criminal code. Although there are 45 independent broadcast outlets, which include 17 television stations, 15 radio stations, and 13 combined radio and television stations, all broadcast transmission facilities are government-owned. Almost all existing newspapers are financed by financial and business groups associated with the regime.

The government lifted many restrictions on the media during the 1999 parliamentary elections. Representatives of all nine registered parties were invited to a nationally televised debate on the state channel Khabar. However, pro-regime commentators and academics appeared frequently on state media to commend Otan's high degree of professionalism in conducting its election campaign and raising funds. The opposition was portrayed as disorganized and fragmented.

Nazarbaev has accused the media of distortion and has warned that the right to freedom of speech "must not be turned into an instrument for settling personal scores, misinforming society, and discrediting the state." He has also called for an investigation into the ownership and financing of individual media outlets that are allegedly linked with unspecified hostile organizations abroad. In August 2000, Prosecutor-General Yurii Khitrin advocated a "code of honor and journalistic ethics," claiming that 44 out of 148 critical articles checked by his office for "accuracy" contained unfounded allegations.

Since Rakhat Aliev assumed control of Almaty City's National Security Council in September 1999, independent media have virtually disappeared and the intimidation of the opposition and other independent civil rights activists has intensified. Aliev's appointment is critical because most political and civic activism is concentrated in the former capital.

Denied access to independent channels for voicing their views at home, opposition activists and independent journalists have resorted to the Internet to disseminate their views. The Web site www.neweurasia.info, which is based in Moscow and funded partly by Kazhegeldin and his associates, is a comprehensive Web site that purports to expose corruption within the Kazakh regime, especially in the presidential family. Access to the site has been blocked since September 2000, following the release of information detailing the payment of multi-million dollar bribes by Western oil companies into Swiss bank accounts believed to be held in the President's name. Reporters Sans Frontieres has included Kazakhstan among 20 countries that practice censorship of the Internet.

The constitution grants a near-absolute mandate to the president, who appoints the prime minister, members of the cabinet, the chief justice of the supreme court, the heads of the central election commission and the constitutional court, and the regional akims. The legislature has been reduced to the role of a rubber stamp body because the president has the right to issue decrees that have the effect of law but require a formal endorsement by the parliament.

Time and again, Nazarbaev has reminded the parliament of its obligation to pass legislation, rather than prolong debate. He accused the parliament elected in March 1994 of failing to pass necessary legislation and engineered its disbandment by the constitutional court.

Despite its limited legal powers, the present parliament, which consists of some rich and powerful businessmen, may challenge executive authority.

Kazakhstan is a unitary and highly centralized state. The constitution grants no special powers to the regions. Over the past three years, the president has abolished five major oblasts, and merged them with the neighboring ones by declaring them financially unviable. All major decisions are made at the central level, and the regional and local heads are primarily entrusted with the task of implementing them.

Under current practice, the president appoints all heads (akims) of oblasts, regions, and cities. There has been a high turnover in regional leadership, and the average tenure of an akim does not last more than a year and a half. A survey conducted by an independent sociological research institute headed by sociologist Sabit Zhusupov indicated that the office of the akim is one of the "least reformed" of all administrative positions.

The central government determines taxation rates and budget regulations. Regional heads do not have the formal authority to generate their own revenues from local taxation.

Nazarbaev has resolutely opposed demands by the opposition and the OSCE to introduce direct elections of akims. He argues that the country is not ready for such a measure. Officials close to the president have reprimanded the akims for tampering with the results of parliamentary elections. Ermukhan Ertysbaev, a presidential advisor, has demanded that akims be prosecuted under the criminal code, but no action has been taken.

RULE OF LAW

Nazarbaev has emphasized the need to establish a state based on the rule of law, no fundamental changes to the legal structure have been initiated. The criminal code adopted in 1997 retains many of its Soviet-era features. It forbids the detention of individuals for more than 72 hours without charging them. With the approval of a prosecutor, a person may be held up to ten additional days. In practice, the approval of a prosecutor is a mere formality; police routinely hold detainees for months without bringing charges. Most detainees are people arrested for petty crimes, though in some cases the charges were politically motivated.

The criminal code is subject to interpretation by the executive and, notably, by officials in the Ministry of Internal Affairs. Local police execute orders received from above and are generally unaware of changes in legislation. There is no legislation punishing torture by police officials. Although, the Ministry of Interior Affairs conducts inquiries into allegations of torture, this agency has a widespread reputation for using torture itself. Human rights advocates have demanded that the prosecutor's office, rather than the ministry, examine investigations of torture.

Unofficial sources rank Kazakhstan among the top five countries in which the death penalty is widely used.

Kazakhstan's International Bureau of Human Rights and Rule of Law has convinced the government to introduce a two-year moratorium on capital punishment. This bureau estimates that there are about 105,000 people in custody in Kazakhstan: 85,000 of these are convicted criminals and the remaining 20,000 are in isolation and await investigation.

These figures suggest that seven out of every 1,000 citizens are prisoners.

Kazakhstan's constitution contains human rights provisions, but it does not spell out the mechanisms for safeguarding them. Defendants are formally protected from self-incrimination and have the right to appeal a decision to a higher court. However, corruption is endemic in the judiciary.

Bribes, rather than appeals to higher courts, ordinarily settle a case. Poorly paid judges supplement their living by soliciting bribes and favors. Informal reports suggest that the legal profession has become one of the most coveted in the country. Law faculties at more prestigious universities routinely demand bribes ranging between $10,000 and $20,000 for entering students. The American Bar Association has estimated that 80 percent of all lawyers are employed by the state. However the number of lawyers who are either self-employed or work with foreign companies is growing rapidly. There are two main organizations of independent lawyers: the Association of Lawyers of Kazakhstan and the social movement Legal Development of Kazakhstan.

Both are based in Almaty.

Although, the constitution guarantees equal rights for citizens regardless of race, ethnicity, or religion, ethnic Kazakhs are preferred over all other ethnic groups in government employment, education, housing, and other areas.

Kazakh is the sole state language, but Russian is recognized as an "official" language that is on par with Kazakh. The state policy of promoting Kazakh has resulted in the conversion of several schools and universities that used Russian as the medium of instruction. The decision of the Ministry of Education to ban foreign textbooks was largely intended to prevent the use of textbooks from Russia. It has adversely affected Russian schools. Another law that requires 50 per-cent of all broadcasting to be in Kazakh has limited access to Russian radio and television channels.

By restricting public rallies, the Kazakh regime has depoliticized the public sphere and, thereby, achieved its muchacclaimed social and ethnic stability. Under the guise of reviving the Kazakh language and culture and rectifying the so-called ills of Russification under the Soviet regime, the present leadership has considerably undermined respect for multiethnic norms and cultural diversity. This poses a longterm threat to the prospects of building an ethnically integrated state and establishing a strong and inclusive national identity. In the past decade, about 3 million people- predominantly Slavics, Germans, and Jews-have emigrated.

Given the regime's failure to establish a democratic and civic polity, ethnic mobilization and separatism cannot be ruled out in the long run. The government's tight surveillance of any issue with ethnic ramifications is a key source of social tension, especially in the Russian-dominated northern and eastern regions.

According to human rights lawyers in Russia, the 13 men may soon be pardoned.

Despite efforts by Nazarbaev and other top officials to go after corruption, complaints of corruption are still widespread at all levels of the government, the bureaucracy, the legal system, and the educational system. In 2000, Kazakhstan ranked 65 out of 90 on Transparency International's Corruption Perceptions Index. Its overall score was 3 in a scale of 1-10 (10 being the least corrupt, 0 being the most corrupt). This put Kazakhstan just marginally above Uzbekistan.

The extent and precise manifestation of corruption is impossible to document because no neutral agency exists to inquire into such matters. The prosecutor-general's office is formally in charge of such inquiries and works together with the Ministries of Justice and Internal Affairs. The prosecutor- general is appointed by the president and is not accountable to the government. Inquiries into alleged corruption are almost invariably politically motivated and ordered by top government leaders. Kazakhstan's prosecutor- general, Yurii Khitrin, has concerned himself with the single task of levying corruption and criminal charges against Kazhegeldin and securing his arrest and trial. He even traveled to Moscow and other European countries in a failed bid to secure Kazhegeldin's arrest. A conflict between the prosecutor-general's office and the Ministry of Interior Affairs flared during the period covered by this report. Khitrin accused the Interior Ministry of benefiting from the sale of confiscated narcotics; Kairbek Suleymenov, the minister of interior affairs, in turn accused Khitrin of incompetence and failure to prove a single case of corruption.

Nazarbaev has used the charges of corruption and misappropriation of funds to oust several regional heads, including the akim of South Kazakhstan oblast. Similarly, in 2000 the government tried to revive charges of money laundering, tax evasion, and abuse of power against Akezhan Kazhegeldin, a former premier and Nazarbaev's principal political opponent. Kazhegeldin was arrested in Rome on a warrant from Interpol but was later released.

There is no clear evidence that corruption investigations are pursued once an official is removed from office. In fact, it is not uncommon for a politically disgraced person to resurface and soon hold another political office. Vitaly Khliupin's "Bol'shaia sem'ia Nursultana Nazarbaeva" (The Big Family of Nursultan Nazarbaev) and a volume called "Vneshnii dolg Kazakhstana" (Kazakhstan's Foreign Debt), both published in 1999 by the Institute of Contemporary Research in Moscow, present detailed accounts of corruption at top levels of the Kazakh government. Khliupin mentions that a ministerial position costs between $250,000 and $500,000 and that the position of a deputy premier costs $500,000 to $1 million. Although, the veracity of these details is impossible to establish, it is generally agreed that a high degree of corruption emanates from the top. References to the concentration of wealth with the Nazarbaev family and its close associates have proliferated internationally.

Reports in 2000 of a scandal involving multimillion dollar kickbacks paid by U.S. oil companies have implicated Nazarbaev and Nurlan Balgimbaev, a former premier and the current president of the state oil company Kazakhoil.

These reports state that U.S. businessman James Griffen, posing as a broker, paid $35 million into the accounts of top Kazakh leaders. An FBI investigation into the case is currently under way.

Kazakhstan's single biggest corruption scandal-the high-level smuggling of some 40 MIG aircraft to North Korea through the Czech Republic in 1999-still remains unresolved. Many top officials who were implicated in the scandal, including the former chief of general staff Bakhtyzhan Ertaev and former national security council chief Nurtai Abyqaev, have regained jobs in the administration.

Ertaev has been formally acquitted of all charges. The murder of Talgat Ibraev, the head of the state arms export company, is thought to be linked to the scandal.

High-level corruption, the presence of powerful and competing economic interests within the regime, and the lack of accountability and a legal framework impeded Kazakhstan's efforts to attract significant foreign investment in 1999 despite an ongoing economic recovery. Nazarbaev's call for foreign investors to contact him directly when they encountered bureaucratic obstacles has curious ramifications.

First, it indicates a desperate effort to invite investment.

Second, it aims to supersede the authority of officials and agencies that are officially in charge of investment. Finally, it confirms the widely held view that the presidential family is closely involved in all major foreign investment deals.

However, GDP grew by more than 10 percent in the first nine months of 2000, registering one of the highest growth rates among the post-Soviet states. GDP rose by 1.7 percent in 1999, growing by over five percent in the second half of the year. The economic upturn is mainly a result of increased in oil exports and the recovery of global oil prices. Kazakhstan extracted 14,191 million tons of crude during the first six months of 2000-a 13 percent increase over the corresponding period in 1999. Tengizchevroil, the $20 billion joint venture between Chevron and Kazakhstan to develop the Tengiz oil field has enabled Kazakhstan to project a 10 percent increase in oil output in 2000.The Tengiz field has an estimate reserve of six to nine billion barrels of oil. Kazakhstan produced 30 million tons of oil in 1999. It has planned another 15 to 20 percent increase in 2001 by raising production by nearly 40 million tons.

Kazakhstan is the second largest oil producer among the former Soviet republics, after Russia. The increase in oil production and the recent discovery of an estimated 7 billion tons (40 billion barrels) of oil deposits in Kazakhstan's off-shore East Kashagan field in the Caspian Sea have buoyed the regime' confidence. The entire offshore Kashagan block is being developed by the Offshore Kazakhstan International Operating Company (OKIOC), currently the biggest off-shore drilling project in the world that involves some of the largest oil companies. Production is likely to commence around 2005 after the six-year exploration of the northwestern offshore Caspian region by OKIOC ends. OKIOC has already spent about $1 billion on drilling and exploration.

Kazakhstan has projected a fourfold increase in oil production by the year 2010 and aspires to become one of the top five oil-producing countries in the world. However, the projected increase is contingent upon enhancing the capacity of the Atyrau-Samara pipeline, which accounts for 75 percent of oil exports, and completing the Caspian Pipeline Consortium pipeline on schedule. Russia's decision to increase the Kazakh oil export quota through its pipelines by two and a half times has greatly helped its oil industry. The ongoing competition between Russia and the Western oil companies to control pipeline routes, and the involvement of Iran and China in constructing alternative routes, makes it difficult to make realistic projection of Kazakhstan's oil exports over the next decade. The quality of oil in the Kashagan oilfield remains uncertain. Furthermore, extremely high oil extraction and transportation costs and poor infrastructure mar Kazakhstan's prospects for competing with the OPEC countries in the near future.

Heeding the IMF's recommendations, the government has given a relative free hand to the National Bank of Kazakhstan (NBK) in implementing monetary reforms, which account for the dynamic economic climate of the past year. Kazakhstan's banking sector is one of the most advanced of the post-Soviet states. The two major banks, Halyk and Kazkommertsbank, have received positive ratings from international bank rating agencies but they do not yet have borrowing power in international markets. The banks' total assets as a percentage of GDP are just under 5 percent, and the state is their major lending customer. The NBK, under the leadership of Grigory Marchenko, has been consolidating the banking system and has reduced the number of banks to less than 40. (There were 204 banks in 1993 when re-structuring began.) The flip side of consolidation is that the major banks are controlled by members of the Nazarbaev family and by major business interests.

The NBK's decision in 1999 to float the tenge enabled the government to shore up hard currency reserves, stabilize its banking system, and end protectionist policies that had supported an overvalued exchange rate. The collapse in the value of Kyrgyz and Uzbek currencies in 1999 flooded Kazakhstani markets with cheap imports and led the government to impose the much-criticized 200 percent tariffs on select imports from the region. The devaluation of the tenge has led to significant import substitution and has helped domestic manufacturers. Domestic investment in the economy in 2000 is projected at $1 billion and may exceed foreign direct investment (FDI). The European Union's decision to grant Kazakhstan the status of a country with a market economy should make it easier to get Kazakhstan's goods into European markets and should help in its negotiations for the entry into the World Trade Organization.

Under the government headed by Kazhegeldin (1993- 1997), Kazakhstan embraced a plan to privatize large-scale "blue-chip" state enterprises, mainly in the oil, gas, and metallurgical sectors. The private sector share of GDP was 55 percent in 1999, and about two thirds of the population is employed in the private sector. Revenues from privatization during the first three months of 2000 were only 11 percent of the planned amount, marking a slowdown in the process.

Privatization of the energy sector has been shelved since 1998.

Despite Prime Minister Kazymzhomart Tokaev's pledge to make 2000 a year of "intensive privatization," the sale of key enterprises has stalled, and Tokaev has called for an investigation into the activities of previous heads of the State Property and Privatization Committee. In May 2000, four companies were removed from the list of ten major enterprises earmarked for the government's long-awaited "blue chip" privatization.

Kazakhstan's decision to sell a 5-percent stake to Chevron in the Tengizchevroil joint venture, after repeated refusals, has incited controversy and intraelite feuds.

Tengizchevroil currently accounts for a third of the country's oil production. There have been numerous allegations of a "sellout" of the country's precious oil resources, but the official publications have refrained from discussing the sale's long-term implications. Kazakhstan will receive a total of $680 million for selling its stake: $450 million is to be paid in cash and the remaining $230 million in the form of funding for development programs. Under the scrutiny of the IMF, the government has proposed freezing petrodollars in a special fund, rather than depositing them into the state budget. The parliament is debating whether this amount should first go into the budget and be used to clear the deficit. It is unclear at this stage how the creation of a special fund could assure accountability and a significant level of investment in the national economy.

Sustaining foreign investment and winning investors' confidence has become one of the most important challenges for Kazakhstan. Between 1992 and 1997, Kazakhstan attracted 76 percent of all FDI into Central Asia and around one-eighth of all FDI into the former Communist bloc. FDI reached a record $2.1 billion in 1997, followed by $1.2 billion in 1998. FDI reached an all-time low when it fell to $960 million in 1999, and it is expected to be even lower in 2000. The lion's share of FDI is accrued from Tengiz-chevroil, OKIOC, and Ispat International.

In October 2000, after prolonged debates and protests, the parliament passed a much-amended version of the land law that allowed for land privatization. The law stipulates that land adjacent to rural dwellings may be privately owned.

Under the previous law, one could only lease agricultural land, not buy it. Some 75 percent of agricultural land in Kazakhstan has been leased to individual farmers or private farms, and over 90 percent of agricultural enterprises have been privatized. The bill on land privatization had faced serious opposition, including hunger strikes by some Kazakh nationalist parties. They complained that land privatization would adversely affect the titular population.

Like other post-Soviet states, Kazakhstan has an inefficient and corrupt tax collection structure. The adoption of a new tax code has been delayed because of prolonged debates and the addition of multiple amendments. The draft tax code has already been amended 27 times over the past four years. Nazarbaev has promised its adoption by the end of 2000. He has also hinted at granting some form of amnesty for accounts held offshore to induce their owners to invest in the country. Independent estimates say that about $2 billion, mainly from oil revenues, annually escapes tax regulations and is deposited into offshore accounts. Furthermore, the shadow economy is estimated to account for 20 to 28 percent of GDP.

Nazarbaev continues to project the image of Kazakhstan as an "oasis of stability" in the region. He boasts of the country's success in preserving social and political stability despite its multiethnic composition and a torturous economic transition. The absence of overt conflict and public discontent is cited as a key indicator of stability. The tight regulation of ethnic relations and the steady marginalization of non-Kazakhs in the political sphere and in state employment have compelled the majority of Russian-speakers to leave.

According to the 1999 census, the population is 14.9 million. However, more recent estimates suggest that the actual number may be below 13 million and in decline. There has been a marked increase in the emigration of Kazakhs, especially youths to the West, but the 1999 census does not reflect this because the emigrants are still listed as inhabitants and citizens of Kazakhstan. The decline in population is compounded by a falling birthrate, which reached an all-time low of 1.6 percent in 1999. In order to boost the birthrate, the government created the Demographic Fund, headed by Sara Nazarbaeva, which offered 100,000 tenge ($700) to the first 2,000 babies born in the year 2000. Lacking finances and a strategy for demographic growth, the government has relied on meager material incentives or "donations" procured from businesses and wealthy individuals in lieu of tax relief.

Kazakhstan's shrinking population weakens the country's self-image and dampens its ambition of becoming the dominant player in the region. Kazakhstan has a population 60 percent of the size of Uzbekistan's, but it possesses six times Uzbekistan's territorial mass. Population density in Kazakhstan is below six persons per square kilometer.

Kazakhstan has an extremely rich resource base and a small population, but it severely lacks gainful employment opportunities. Official statistics claim that unemployment is under 3 percent, but the real figure may be as high as 30 percent. Due to the decline in the birthrate and the high rate of emigration, the share of pensioners is likely to increase steadily. A World Bank loan of $100 million to finance pension reforms enabled Kazakhstan to pay 15.3 billion tenge ($110.7 million) in back pensions in 1999.

Kazakhstan has still faltered in making timely pension payments, including arrears, and in offering incremental increases to pensioners. The liberalization of prices, following the decision to float the tenge, has hit groups with small or fixed incomes, the hardest. Pensioners, rather than workers or students, constitute the most active, politically disgruntled and mobilized social group in Kazakhstan. Pokoleniye, the movement of pensioners and the elderly that is led by a dynamic leader Irina Savostina, has offered the most powerful social opposition to the regime. Savostina has been arrested eight times for organizing "unsanctioned" protests and has had three criminal cases filed against her. Authorities consistently have denied pensioners permission to hold public meetings by using a combination of intimidation, arrests, and fines.