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Country Commercial Guides FY 2000: Kazakhstan Report prepared by U.S. Embassy Almaty, released July 1999 Note*

CHAPTER III. POLITICAL ENVIRONMENT

A. Nature of the Bilateral Relationship with the U.S.

The U.S.-Kazakhstani bilateral relationship was severely tested by a 1999 transfer of Kazakhstani MIG-21 fighter aircraft to North Korea, and the lack of transparency of Presidential and Parliamentary elections. Despite these contentious issues, the

United States remains committed to supporting Kazakhstan's development as an independent, market-oriented, and democratic state. A Joint Commission under the chairmanship of Vice President Gore and President Nazarbayev meets annually, most recently in December 1999, to review the entire scope of relations between the two countries.

Initial U.S.-Kazakhstani cooperation emphasized the removal of nuclear warheads, weapons-grade materials and supporting infrastructure under the U.S. Congress's Cooperative Threat Reduction (CTR) program, which supports the implementation of Kazakhstan's decision to eliminate the weapons of mass destruction and related infrastructure that it inherited from the Soviet Union. In November 1994, Kazakhstan and the U.S. transferred over a half-ton of weapons-grade uranium from Kazakhstan to the U.S.; Kazakhstan's last nuclear warheads were removed in 1995. The U.S. continues to provide assistance for programs to seal missile silos and nuclear test tunnels, and to enhance export controls and re-orient defense industries, continue, as well as maintain an active military-to-military relationship.

Since 1993, the United States Agency for International Development (USAID) has administered more than $260 million in technical assistance programs in Kazakhstan, in addition to the counter-proliferation programs mentioned above. These programs include cooperation in privatization, fiscal and financial policy, commercial law, judicial reform, support for democratic institutions and non-governmental organizations, energy, social transition (especially in the health care sector), and efforts to improve Kazakhstan's natural environment. The Department of Defense has provided significant amounts of humanitarian assistance, and in August 1996 provided six coastal patrol boats to enhance Kazakhstan's export control capabilities on the Caspian Sea. The Departments of State and Justice sponsor law enforcement and counter-narcotics training and assistance. The United States State Department also provides support to independent media and manages an active exchange program. The U.S. Foreign Commercial Service (the overseas branch of the Department of Commerce) provides U.S. business internships for Kazakhstanis, supports Kazakhstani businesses through a match-maker program, and disseminates information on U.S. goods and services. The Peace Corps has more than 100 volunteers working throughout Kazakhstan in business education, English teaching, and the development of environmental non-governmental organizations.

With more than $2 billion in U.S. investment in Kazakhstan, the U.S. Government has a strong interest in the wellbeing of American companies doing business in the country. Moreover, the potential for significant future investment and trade will ensure that commerce will continue to be a major element of the bilateral relationship.

B. Major Political Issues Affecting the Business Climate

The major political issues affecting the business climate are: centralization of power around the President; constant personnel and portfolio changes at senior levels of the government; increasing government harassment of foreign investors thought not to be meeting their contract obligations; and, an increasing emphasis on mandatory use of locally produced goods and services.

In 1997, the Higher Disciplinary Council under the President was created to combat corruption among public officials. It has since been reorganized as the State Anti-Corruption Commission. A new criminal code passed in 1997 contains special articles regarding penalties for giving and receiving bribes, and provisions regarding other economic crimes unheard of in the Soviet period. In 1998, the government stepped up prosecution of low and mid-level officials for corruption. One provincial governor was removed from office on corruption charges in 1998, but prosecution of senior officials is extremely rare.

C. Brief Synopsis of the Political System

Kazakhstan is a constitutional republic with a strong presidency. President Nursultan Nazarbayev, who has been in office since Kazakhstan became independent, won a new seven-year term in a January 1999 election that the Organization for Security and Cooperation in Europe (OSCE) said fell far short of international standards. The election was held nearly two years early, only three months after Parliament adopted a series of constitutional amendments in October 1998 permitting the early election and extending the Presidential and Parliamentary terms of office. The government disqualified two would-be opponents from running on the grounds that they had participated in an unsanctioned political meeting. Nazarbayev's previous term in office, which began when he was elected to a five-year term in 1991, was extended to the year 2000 in a 1995 referendum. A separate 1995 referendum, held after Nazarbayev dissolved the Parliament, approved a new constitution that concentrates power in the presidency, permitting it to dominate the parliament, judiciary, and local government. There was increasing centralization of power within the presidency in 1997-98, when the presidential administration took on some of the responsibilities of line ministries.

The President is the head of state. He is also the commander-in-chief of the armed forces and may veto legislation that has been passed by the Parliament. In November 1996, the President created a State Committee on Investments to manage new direct investment in "priority sectors." The Committee reports directly to the President. The Prime Minister, who serves at the pleasure of the President, chairs the Cabinet of Ministers and serves as Kazakhstan's head of government. In March 1997, the President ordered a major restructuring of the government, resulting in significant reductions in the number of governmental bodies and government staff. There are three deputy prime ministers, 14 ministers, and 11 chairmen of state agencies.

Kasimzhomart Tokayev, the former Minister of Foreign Affairs, became Prime Minister in October 1999. At the same time, the President replaced several key ministers and created a new Ministry of the Economy, among other governmental changes. Previous high-level government shuffles occurred in February and April 1998, and following President Nazarbayev's reelection in January 1999.

Kazakhstan has a bicameral parliament, comprised of a lower house (the Majilis) and upper house (the Senate). The 77-seat Majilis is popularly elected by single-mandate districts, with 10 members elected by party-list vote. Senate membership following the 1999 election stood at 39. Two senators are selected by each of the elected assemblies (Maslikhats) of Kazakhstan's 16 principal administrative divisions (14 regions, or oblasts, plus the cities of Astana and Almaty). The President appoints the remaining 7 senators. Majilis deputies and the government both have the right of legislative initiative, though most legislation considered by the Parliament is proposed by the government.

Until 1999, political parties in Kazakhstan, other than the opposition Communists, were generally small and nearly unknown outside the major cities. Party affiliations have traditionally played little role in local Kazakhstani politics, where personal and family ties are more important. Several new parties formed and were registered in 1999 following passage of a constitutional amendment that created ten new seats in the Majilis attributed by party-list voting. Three parties that support President Nazarbayev--Otan (Fatherland), the Civic Party and the Agrarian Party--won eight of the ten seats; the Communists won the other two. Two opposition parties, the Republican National People's Party (RNPK) and Azamat, were registered for the election. One member of RNPK, but no Azamat candidate, was elected, from a single-mandate district. The political opposition is weak and subject to constant government harassment. Most major opposition figures unified following the parliamentary elections to form the Forum of Democratic Forces of Kazakhstan.

In 1997, the president consolidated several provinces (oblasts), bringing the total down to 14 from 19. In 1998, the new capital, Astana, received the status of a special administrative territory. Kazakhstan is now divided into 14 oblasts, the territory of the former capital (Almaty), and the territory of the new capital (Astana). Each is headed by an "akim" (provincial governor) appointed by the President. There are also local city and "rayion" (city district) government administrations. Oblast and city akims commonly play an important role in facilitating or hindering trade and investment in Kazakhstan: U.S. companies often must deal with these officials in their day-to-day operations.

Although the government of Kazakhstan respects many of the human rights of its citizens, it has frequently infringed upon the basic democratic rights of free speech, press and assembly. Prosecutors have brought legal actions against government critics for insulting the President and participating in unsanctioned meetings and demonstrations. Under a May 1998 amendment to the election law, the government was able to use administrative convictions for such political offenses to disqualify two opponents from participating in both the January 1999 presidential election and the October 1999 Parliamentary elections. Presumed government allies have bought out or have sued independent media perceived to be unfriendly to the government.