Traders of credit-default swaps last month ranked Kazakhstan’s banks as the most prone to default in emerging markets, based on the cost of contracts on BTA Bank and AO Kazkommertsbank, the central Asian nation’s biggest lenders.  However, today the cost to protect against a default by Kazakhstan fell by a record after the government said it will buy stakes in the nation’s biggest lenders to boost liquidity in the banking system.  Credit-default swaps based on Kazakhstan dropped to 5.1 percent of the debt insured from 7 percent.

Last month, RBC Capital Markets analysts had grouped Kazakhstan with Latvia as the most at risk among developing countries worldwide from the credit crisis, as a reliance on short-term foreign borrowing made it a “canary in the coal mine.”  But that prognostication may have always been suspect given the country’s vast oil wealth.  In contrast with Iceland or Ukraine, for example, which had to be rescued by the IMF, Kazakhstan has $49.5 billion of reserves, including $27.6 billion in the National Oil Fund created eight years ago to guard against a drop in crude.  And its Prime Minister Karim Masimov said in an interview last month that leaders would spend as much as $15 billion to spur growth and prevent any bank failure.

Meanwhile today, crude oil prices jumped to a two-week high, and given the recent OPEC cuts, may be there to stay?