More than three million Kazakhs will get their debts canceled, as the loan-forgiveness program is aimed at "people who find themselves in very difficult living circumstances."
Kazakh President Kassym-Jomart Tokayev said on Tuesday that his new government will stop bailing out private banks and write off bad loans held by about 30 percent of the central Asian country’s population.
"My attitude is that there should be no governmental bailouts" for lenders, Tokayev, told Bloomberg, adding that "the government should not get involved anymore, any longer, with its loans as far as private banks are concerned."
More than three million Kazakhs will get their debts canceled, as the loan-forgiveness program is aimed at "people who find themselves in very difficult living circumstances," Tokayev added. Debts per person average at around 300,000 tenges ($790), although in total the government will need “a bit less than US$1 billion.”
The Central-Asian country has been facing a decade-long crisis in which the government has pumped at least US$18 billion into private banks to keep the sector from collapsing. The official decree released on Wednesday also ordered authorities to tighten regulations on uncollateralized retail lending to prevent more people from ending up in debt traps.
President Kassym-Jomart Tokayev signed a Decree on measures to reduce the debt burden of Kazakhstan’s citizens— MFA Kazakhstan ���� (@MFA_KZ) June 26, 2019
According to the Decree, debts on unsecured consumer loans of socially disadvantaged population in second-tier banks and microfinance organizations will be written off. pic.twitter.com/zVeniLhp9e
This announcement marks Tokayev's first major policy since he assumed power on June 9 after long-time leader Nursultan Nazarbayev resigned in March. After the transfer of power, Tokayev’s government faced widespread protests, so many critics say this new policy is similar to one done by Georgia’s ruling party, which announced the write-off of loans for 600,000 people days before a heated presidential election in November.
“We are not following the example of Georgia, this is a different case” focused on the poorest citizens, Tokayev dismissed critics.
Another government that decided to not bailout private banks was Iceland. In 2008, after the global financial crisis, the Icelandic government decided to allow the country’s three largest banks Glitnir, Kaupthing, and Landsbankinn to default on the US$85 billion in debt accumulated.
The country then protected the accounts of Icelanders’ deposits in banks and forgave debts for a quarter of the population, especially homeowner debt which represented up to 110 percent of the property value. The result was the “Icelandic miracle” as in less than four years the economy recuperated and started growing even faster than that of the U.S. or European nations.