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Experts challenge legalization effect on capital flight from Kazakhstan

25 june 2014, 15:19
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Photo courtesy of lenta-ua.net
Photo courtesy of lenta-ua.net

The upcoming property legalization in Kazakhstan has received a mixed assessment of its effectiveness for combating capital flight from Kazakhstan to offshore zones, Tengrinews reports.

The property legalization will begin in September this year. It is the third legalization in the history of Kazakhstan. Its terms are generally similar to the previous pre-crisis property legalization. The only novelty is that those wishing to legalize money have to keep it in Kazakhstan for a set period of time.

Kazakhstan held its first legalization campaign in 2001. It resulted in return of $480 million. The second legalization held in 2006-2007 was more successful and brought a lump sum of $6.8 billion. The Government of Kazakhstan is expecting the third amnesty to draw $10 to $12 billion back into the country.

On June 19 June the Kazakhstan Parliament adopted the law "On amnesty of citizens of the Republic of Kazakhstan, repatriates and persons holding a residence permit in the Republic of Kazakhstan due to legalization of their property". Money and real estate, stakes and securities can be legalized in the amnesty. However, it is not possible to legalize property that was obtained as a result of criminal offenses.

Legalization of money will be conducted through commercial banks or the national mail operator KazPost, where special savings accounts will be opened. The money subject to legalization will be transferred and kept on these accounts for at least 60 days. The legalization will start on September 1, 2014, and will last until the end of the year.

The analyst of Halyk Finance Nurfatima Dzhandarova believes that this new initiative will not solve the problem of capital flight. "The requirement to keep the money on a deposit account for a period of time is an attempt to prevent the immediate return of the capitals back to offshores after the legalization. However, in our opinion, this measure does not solve the problems that lead to the capital flight in the first place, and therefore, its effectiveness is negligible. We believe that the main causes of the capital flight were and still are: poor definition and enforcement of property rights, a high risk of expropriation and other manifestations of the weak institutional development, which together increase the risk to welfare accumulation," she said.

Alpari’s analyst Anna Kokoreva also doubts the legalization will produce significant effects. She believes that the legalization law is a good but inefficient initiative. “First, a question arises: if the person did not wished to legalize the property before, then what is the point of doing it now? According to this law the benefit from doing so is little. Second, the law does not solve the problem of capital flight but only contributes to the legalization of undeclared property acquired before the amnesty,” Kokoreva said.

Kokoreva is sure that the law can only lead to partial legalization of property but will not alter the situation dramatically. “The international practice shows that such measures are too lenient. It is necessary to toughen the laws to prevent accumulation of illegal income and property,” she said.

Head of the analytical department of Golden Hills-Capital АМ investment company Natalia Samoilova belives that the legalization will not affect the top tier of the society. She affirms it will affect only the middle class, only those who have sufficiently good incomes but do not wish to disclose it. “The richer layer of the population had solved the issue long ago by employing competent lawyers, while the poor ones have nothing to legalize,” she said.

The analyst of MFX Broker Sergey Nekrasov also believes that the legalization law will not create a significant impact on the capital flight. He thinks that the primary cause of the capital flight is the unfavorable business climate in Kazakhstan, not the origin of the capitals. Therefore, legalization of property in Kazakhstan does not address the causes. However, Nekrasov believes that the initiative will have some positive outcomes. It will increasing transparency of the capitals and strengthen the banking sector. “The necessity to place money on banking deposits or accounts in KazPost will positively affect the financial system of Kazakhstan – increase the reserves and boost lending to the population,” he said.

Reporting by Azhar Ashirova, writing by Dinara Urazova


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