ASHIBULAK (Kazakhstan) From a lone shepherd in the great silence of the empty steppes to the champagne-sipping socialites of the big cities, no-one in Kazakhstan can escape a looming shadow.

Life may already be tough enough for Danaibek Saidenov, who like generations of nomadic ancestors lives in austere, fog-filled pastures protecting his sheep from wolves.

Now, with a global financial crisis, he faces an enemy far more pervasive than anything the steppes have seen.

“Life`s much harder now,” said Saidenov, as he let the reins fall loosely on his horse`s neck. “There is simply no money. When bankers have no money, that means we don`t have it either.”

With demand for sheep products falling and shearing costs still high, Saidenov says he is struggling. He sighs and kicks his horse into a gallop as his flock streams down the hillside.

In this remote corner of the world near Kazakhstan`s border with China, Saidenov`s concern shows the spread of damage from the world`s worst financial crisis in 80 years.

In Kazakhstan, a resource-rich nation where traditional herder communities exist alongside a complex oil-fuelled economy, the consequences may be stark.

Long the darling of emerging market investors, the land-locked ex-Soviet state five times the size of France is suffering badly, after years of unlimited access to cheap credit funded economic expansion.

With oil prices now falling and investors fleeing high-risk markets, the pace of Kazakh economic growth has already halved to five per cent this year from an average 10 per cent since 2000.

As the gloom seeps fast through society, the crisis is a worry to veteran leader, Nursultan Nazarbayev, who knows how much stability in a volatile region depends on economic fundamentals.

So worried are senior figures about eroding confidence that a top official suggested this month that Nazarbayev stop using the very word “crisis” altogether - a telling insight into the minds of those who run Central Asia`s biggest economy.

Adding political undertones, activists have held small but regular rallies against what they see as the injustices of Nazarbayev`s rule - a rare trend in a society where the state, as in Soviet times, brooks no dissent.

Glitter

Just an hour`s drive from the barren steppes where Saidenov grazes his sheep lies Kazakhstan`s financial capital Almaty - a city of bleak Soviet architecture glossed over by the flashy extravagance of Kazakhstan`s new-found wealth.

The sight of dozens of cranes, towering motionless over Almaty`s hazy skyline, is testament to how the crisis has frozen the highly leveraged real estate industry.

At a fashion show this month, the crisis was the talk of the day for celebrities, socialites and fashion gurus as they savoured champagne beneath lavish chandeliers.

“In the pre-crisis days, girls would come over and buy five or more garments at a time, but now it`s just two on average,” lamented Sayat Dosybayev, a prominent Kazakh designer.“It`s a global problem, so what can we do?” he added, his futuristic tinted spectacles and spiky hairstyle catching the light.

Demand for luxury goods, foreign travel, fashion items, and cars - all coveted status symbols across the ex-Soviet world - is falling fast.

Few statistics are available but one night-club owner complained he could now sell only one bottle of vintage Cristal champagne a night - down from three before the crisis.Sales of Porsche and Mercedes cars have halved year-on-year so far this year.

“People who have done well are just going to have to get used to buying fewer Louis Vuitton bags,” said Doris Bradbury, a seasoned Kazakhstan-watcher at the American Chamber of Commerce.

Average wages fell 1.1 per cent in Kazakhstan in the first nine months of the year, but in some sectors like tourism they shed as much as 25 per cent.

“Everyone feels the crisis,” said Anatoly Fedoseyev, a young entrepreneur from the industrial city of Karaganda. “Before, I travelled a lot to places like France but now I can afford to travel only inside Kazakhstan.”

Growth

As investors who had sought to ride the high-risk Kazakh wave panicked last month, the cost of insuring Kazakh debt against restructuring or default soared in the credit default swaps market to around 1,300 basis points a rate of 1,000 basis points traditionally denotes distressed debt.

This meant it cost $1.3 million a year for five years to insure $10 million of debt. Dealers were demanding upfront payments, a further sign of stress.

That strain eased slightly after confidence-boosting measures by the government including a $21 billion aid package, an unprecedented injection given the size of Kazakhstan`s $100 billion economy.

“The fundamentals of Kazakhstan look very attractive at these sorts of prices,” said Jerome Booth, head of research at Ashmore Investment in London, which manages $32 billion in emerging market assets.

But others say it may not be enough.

“The external crisis has deepened and it seems that the authorities and banks have been slow to recognise this,” said Ali Al-Eyd, an economist at Citigroup.

“There seems to be a learning process that they are going through, insofar as external funding will remain challenging.”

Analysts say Kazakh growth may fall below even conservative forecasts of 4.5 per cent this year amid sustained concerns about the quality of banks` assets.

Few people seem to blame the government for their trouble, although Ainur Kurmanov, an opposition activist, said discontent is quietly rising.

“People are tired of waiting for the government to do something about it,” he said, a battered bag with a Che Guevara logo slung against his shoulder.

But in an old village of mud-brick huts - itself curiously called Kazakhstan - people are still going about their daily tasks tending their flocks and passing on skills.

“Everyone is talking about the crisis,” said Yerbol, the 55-year-old head of a big family, his face brick-red from years spent in the steppe. “Of course life is tougher now. But when has it not been tough?”—Reuters