Kazakhstan Comes On Strong

This story originally appeared in the October 2nd issue of TIME Europe

O.K., it wasn’t exactly the G-8. Still, when Kazakhstan’s President Nursultan Nazarbayev hosted a summit of heads of neighboring Central Asian states in his capital of Astana earlier this month, there was a certain whiff of power being flexed, albeit arriviste power. The occasion was marked by the inauguration of the Palace of Peace and Accord — a 62-m-high pyramid of steel and pale gray granite, designed by Norman Foster, with stained-glass panels by the artist Brian Clarke. Its art and sculpture were chosen to represent the world’s major religions, to underscore the religious tolerance and respect that has been firmly established in a multiethnic country. An opening concert was headlined by legendary Spanish soprano Montserrat Caballé, as if to personify the harmoniousness and opulence Kazakhstan wants to project.

Perhaps the biggest surprise was the presence of Uzbekistan’s President Islam Karimov. After the 1991 U.S.S.R. breakup, Uzbekistan looked down its nose at Kazakhstan — historically nomadic, steppe-locked, undeveloped — and Karimov claimed the role of regional heavyweight for himself. But here he was, despite his obsession with protocol, choosing his own country’s independence day to embark on a state visit to Kazakhstan. It was the visible sign of a new order in the region. “From now on, we’re calling the shots in Central Asia, and Karimov came to acknowledge that,” commented a senior Kazakhstani official.

It’s hard to disagree. Kazakhstan is now the most prosperous nation in the region, accounting for 60% of Central Asia’s entire GDP. This week, U.S. President George W. Bush will welcome Nazarbayev at the White House, and then the Kazakhstani President will go to the Bush family compound in Kennebunkport, Maine. Kazakhstan’s growing oil shipments to world markets, and its potential to emerge as a stable, modernized, predominantly Muslim but religiously tolerant state with a secular government in the volatile region, have obvious appeal for the Bush Administration — so much so that it tends to downplay the country’s gagged media; the arbitrary arrests, exiles and murders of opposition leaders; its rubber-stamp political institutions and bogus elections; and rampant corruption, including a $78 million kickbacks-for-oil-rights case that has been pending in the U.S. courts for more than three years.

Within the country, the tension between the surging economy and stagnant politics is palpable. Nazarbayev, popularly referred to as “Papa,” has used his unlimited powers to pursue liberal economic reforms with vigor, and maintains that economic growth and stability come ahead of political freedoms. Yet a political system that trumpets its commitment to development has grown too rigid to accommodate the very success it helped create. “Our main problem is our political system that hinges on one man,” soberly admits Dariga Nazarbayeva, the eldest of Nazarbayev’s three daughters, a Member of Parliament and a major influence in Kazakhstani politics.

The issue that now worries the country’s ruling élites is whether Nazarbayev, 66, has the courage to launch long-promised political reforms, delegating many of his powers to the now subdued Majlis (lower house of Parliament), Cabinet and judiciary. “Even if they were necessary to get the country to where it is now, authoritarian ways have exhausted themselves,” says Asylbek Bisenbayev, formerly Nazarbayev’s spokesman and top strategist.

Getting the country where it is now has taken guts, though. “Back in 1991, there was no money, no food, no nothing,” says noted Kazakhstan economist Rakhman Alshanov, a mastermind behind the early 1990s liberal economic reforms. Nazarbayev had to rule by decree. He twice dissolved the Parliament, and gave reformers the latitude to abruptly terminate the state’s paternalistic support of industry as well as collective and state farms. “No more injections into a wooden leg — no more credits to big state-run industries,” Alshanov explains. The message was straightforward: earn or else. Credits went where they belonged: “New banks immediately accomplished their basic function — that of extending credits to encourage budding businesses,” says Ulf Wokurka, a former Deutsche Bank director and now CFO of Samruk, Kazakhstan’s holding company, which runs such giants as KazTelecom and oil and natural gas firm KazMunaiGaz.

The state rapidly privatized over 10,000 trading, service and industrial firms. As often happened in post-Soviet countries, the best of these firms were sold off to insiders, shoring up the power bases of important clans. But the biggest economic engine was oil, and that required outside help. Says Mikhail Dorofeyev, public relations director of KazMunaiGaz: “We offered oil to the West in exchange for technology, know-how and money.”

To help attract that money, Kazakhstan established a single investment regime for both domestic and foreign investors, and since 1993 over $40 billion in gross direct foreign investment has flowed in. Now Kazakhstan is churning out 1.2 million bbl. of oil a day — and exports 80%. Nazarbayev plans to triple the volume and join the group of 10 leading oil exporters within a decade.

The results have been phenomenal. Over the last six years Kazakhstan’s GDP growth has averaged 10%, and it hit 9.3% in the first six months of this year. Tax collecting stands at over 95%. Kazakhstan has a BBB positive outlook investment rating from Standard & Poor’s. The E.U. and the U.S. have recognized Kazakhstan as a “market economy,” and it has a firm chance of joining the World Trade Organization this year.

Though it’s careful not to annoy Russia — ever a major and jealous presence and a key market — Kazakhstan nevertheless had a pipeline built, allowing transport of its oil directly to China. To Russia’s chagrin, it also joined the U.S.-sponsored Baku-Tbilisi-Ceyhan (BTC) pipeline that breaks Russia’s long-standing monopoly on delivering Caspian Sea oil to world markets, though the pipeline does not cross its own territory. The plan was to lay an additional pipe across the Caspian seabed to Azerbaijan’s capital, Baku, but Russia protested, citing potential ecological damage. So Kazakhstan ships oil there by tanker.

The country’s new oil wealth is spreading throughout its region and beyond. Its big businesses are buying land and building hotels along Georgia’s posh Black Sea coast and in Moscow, purchasing big banks and companies in Siberia, and investing in the telecommunications network of Nepal. Kazakhstan is the only country in Central Asia that attracts rather than supplies guest workers. “Kazakhs don’t work in other countries’ markets as vendors,” proudly comments Zhenis Kasenov, an Astana dweller. “Kazakhs come there as buyers.”

Oil wealth, however, often brings corruption in its wake, and for three years the country has been embroiled in “Kazakhgate.” In March 2003, in the most far-reaching charges ever brought under the Foreign Corrupt Practices Act, U.S. prosecutors charged James Giffen, an American businessman who was once a key Nazarbayev adviser, with funneling $78 million in bribes from oil companies to Kazakhstan’s top leaders. Kazakhstan has flatly denied that its officials have done anything wrong, and Giffen has denied the charges against him. His case is scheduled to go to trial in January.

The temptations of oil money make political reform all the more imperative. There are some promising signs. The 2005 U.N. Development Program Fact Sheet praised Kazakhstan as “thus far the only country in the region that has begun a civil-service reform program.” In Astana, Kuat Akizhanov, 30, head of the social-economic analysis department of the all-powerful presidential staff, holds a law degree from the University of Virginia, which he obtained under Kazakhstan’s state-paid training program. He says his young Western-educated counterparts now constitute a tight network in major state institutions and private companies. “Even now,” Akizhanov says, “we’re mapping out our prospective kids’ future. That’s what the country picked up our school tab for — to help make it that stable.” But there are no illusions about who holds the power. Nazarbayev has been in charge since 1989, when he first became the Communist Party boss. Before that, he had served as Prime Minister since 1984. Last December, he gained another seven years in office, having won a carefully orchestrated election claiming 91% of the vote. He says it will be his last term.

Key opposition leaders, who are all former allies and top officials of Nazarbayev, have not fared well. Former Energy Minister Mukhtar Ablyazov was jailed in 2002 for embezzlement and misuse of state funds. A year earlier former Prime Minister Akezhan Kazhegeldin, who played a crucial role in liberal economic reform, was forced into exile and tried in absentia for financial abuses, was sentenced to 10 years and had his property confiscated. Last November, Zamanbek Nurkadilov, a former regional Governor and Emergencies Minister who had become a strong critic of Nazarbayev and opposition leader, was found dead from multiple gunshot wounds. The official inquiry said it was suicide. However, people still wonder how he could have managed to inflict several mortal wounds on himself and then shoot himself in the back of the head.

The opposition sustained a serious blow last February when its key leader, Altynbek Sarsenbayev — who had been Nazarbayev’s Information Minister, secretary of the Security Council, and ambassador to Moscow — and two associates were murdered by a group of officers belonging to the National Security Committee (KNB), heir to the Soviet-era KGB. Late last month, a court found Yerzhan Utembayev, the former Senate chief of staff, guilty of putting out the contract on Sarsenbayev “for reasons of personal enmity,” and sentenced him to 20 years. Nine others received sentences ranging from three years to life for complicity in the murder.

Hoping to slowly add more democratic elements to a system that now rejects them, analyst Asylbek Bisenbayev suggests holding transparent elections at the local level, and gradually expanding them to regional and national bodies. Right now, however, the trend is in the opposite direction: district and town heads to be selected next month will be nominated by regional governors and elected by local legislators, rather than nominated by the people and elected through universal suffrage. And this democratic deficit has big repercussions, even according to the President’s own daughter. “Launching a more sophisticated and competitive economy requires a much freer political system,” concludes Dariga Nazarbayeva. Without it, Kazakhstan will remain, for all its achievements, a raw-materials export economy, shored up by high oil prices.

For now, Papa remains firmly in charge, and has little incentive to change. Might Bush give him a lecture in democracy this week? An administration official insists that the White House wants Kazakhstan to “accelerate itself down the path of democracy.” But Nazarbayev seems more interested in the prestige value of his meeting. “We’re now a key ally of the United States in Central Asia,” said Nazarbayev in 2004, when Bush sent him a letter of gratitude for “Kazakhstan’s continued assistance in the war on terror.” Kazakhstan’s abundant oil, political stability, and a foreign policy friendly to the West outweigh its human-rights and democratic shortcomings, and will ensure that Nazarbayev’s visit to the U.S. is largely a friendly one.