What does a financial crisis really look like?

Kazakhstan is currently engulfed in the worst street protests the country has seen in its short life of three decades. Government buildings have been burned down, protestors killed and injured, the government dismissed, a state of emergency declared, and the Russians coming in to help. To think, all this happened because of a sharp rise in petroleum prices.

The background

On January 2, 2021 protests began in Zhanaozen, an oil town in Kazakhstan, when the government lifted its cap on prices of liquefied petroleum gas (LPG). This was a step in the gradual phasing out of subsidies on fuel in the country along with a shift to electronic trading of LPG.

The reason for removing the subsidies was that structural issues had emerged due to it where most of the fuel produced was exported instead of being supplied domestically. As a result, a resource rich country such as Kazakhstan faces shortage of butane and propane. This prompted the government to move towards liberalization of fuel prices so that the market would sort things out and more fuel would be diverted to the domestic market resulting in no domestic shortages.

However, the liberalization didn’t work out as planned with prices of LPG shooting up to twice their price within a day of the subsidies ending. It is important to know that on the backdrop, the country was battling an inflation rate of nearly 9 percent. Adding to this is the fact that 1 million Kazakh people out of a total of 19 million live below the poverty line.

Protestors took over the streets demanding the price cap to be reinstated and the government to pack their bags and go home. What began in just a region spread throughout the whole country. Things got worse as resentment towards the former leader Nursultan Nazarbayev escalated after he renamed the new capital after himself. Nazarbayev was replaced by Kazakh President Kassym-Jomart Tokayev, allegedly handpicked by Nazarbayev himself through a heavily doctored election. While protesting, you could hear individuals chanting Nazarbayev’s name in anger.

While the surge in fuel prices prompted the protests, the root cause had been building up for a while. Despite the fact that Kazakhstan is one of the largest and wealthiest of the former Soviet Union republics, there has been some discontent within citizens.

Owing to the massive reserves of oil, natural gas, precious metals, uranium, etc, the country was able to grow and bolster a middle class. This, however, also led to an unequal increase in the wealth for the elite. Corruption, like other Central Asian Republics, also remains a concern. The resentment over the unequal spread of wealth also stems from the fact that Zhanaozen and its neighboring areas are where most of the nation’s resources are. The region’s energy riches, however, as per citizens, hasn’t been fairly spread among the local population.

Moreover, to add to all this, the same party has been in power since the country’s independence making citizens feel they are living in an authoritarian regime. Press controls and social media shutdowns have been used in the past to silence dissenting voices and criticism.

Amnesty International called the protests "a direct consequence of the authorities' widespread repression of basic human rights." Marie Struthers, Amnesty's director for Eastern Europe and Central Asia in a statement said, "For years, the government has relentlessly persecuted peaceful dissent, leaving the Kazakhstani people in a state of agitation and despair."

What is the government doing?

President Tokayev has declared an emergency, and also removed Nazarbayev and his family members from several government positions. Nazarbayev, was the country’s head of security council and has been relevant in the country’s political scene even before the country gained independence.