VZCZCXRO3072
PP RUEHAG RUEHBI RUEHCI RUEHLH RUEHPW RUEHROV
DE RUEHAH #0551/01 1221236
ZNY CCCCC ZZH
P 011236Z MAY 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0717
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 3711
RUEHBJ/AMEMBASSY BEIJING 1529
RUEHKO/AMEMBASSY TOKYO 1396
RUEHIT/AMCONSUL ISTANBUL 1965
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 2475

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000551 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
STATE PLEASE PASS TO USTDA DAN STEIN 
COMMERCE FOR HUEPER 
TREASURY FOR BAKER/LANIER 
 
E.O. 12958: DECL: 05/01/2017 
TAGS: PGOV PREL EIND ETRD EPET SOCI TX
SUBJECT: AT LONG LAST, A UNIFIED EXCHANGE RATE IN 
TURKMENISTAN -- BUT LOCALS FEEL THE PAIN 
 
REF: A. ASHGABAT 523 
     ¶B. ASHGABAT 366 
 
Classified By: CDA Sylvia Reed Curran for reasons 1.4 (B) and (D). 
 
¶1.  (SBU) SUMMARY:  On May 1, the Central Bank of 
Turkmenistan announced a unified exchange rate of 14,250 
manat per $1.  The final impact of the four-month process for 
unifying the dual exchange rate is yet unclear.  Immediately 
evident is the fact that the arbitrary devaluation of the 
dollar has caused significant disturbances throughout the 
economy.  However, the substantial appreciation of the manat 
-- about 40 percent in the last six months -- is felt by many 
average citizens, including those paid in dollars, those who 
trade and do business in dollars, those who own real estate, 
and those who keep savings "under the mattress" in dollars. 
Since practically everyone in Turkmenistan does not trust 
banks, this means the entire country is feeling the pinch of 
this change.  While one foreign businessman feels that the 
unified rate is a very positive step in terms of making the 
business climate more welcoming to foreign investors, and 
some locals are thrilled that the devaluation of the dollar 
is not as low as it could have been, it may very well be that 
no real change has taken place.  There is a strong 
possibility that the new unified rate -- which many feel is 
unrealistically high versus the value of the dollar -- will 
prove unsustainable for the marketplace and that continued 
prevalence of government corruption will allow for the 
emergence of a black market.  END SUMMARY. 
 
AS OF MAY 1, A UNIFIED EXCHANGE RATE 
 
¶2.  (C) Following two devaluations in the past 12 days -- and 
as predicted by post sources (Refs. A and B) -- the Central 
Bank of Turkmenistan devalued the dollar and unified the 
commercial and the official exchange rates on May 1. 
Official currency exchange points are buying $1 for 14,250 
manats, and are selling $1 for 14,000 manat.  The short 
article in official government Russian-language newspaper 
"Neytralniy Turkmenistan" did not specifically state if 
exchange rate changes were coming to a halt, but did mention 
that the Central Bank is able to satisfy the demand for 
foreign currency and that it can maintain this rate in the 
future.  The World Bank representative in Turkmenistan 
(please protect) believes that the government wants to 
maintain the current exchange rate until the end of the year. 
 
EXPATRIATE VIEWS 
EBRD 
 
¶3.  (C) European Bank for Reconstruction and Development 
(EBRD) Ashgabat Office Head Tony Myron said that Deputy 
Chairman for Economy and Finance Hojamurat Geldimuradov told 
an EBRD delegation last week that the exchange rate would 
land between 14,000-15,000 manat per $1 "before May 5."  In 
response to Myron's question about thin commercial margins, 
Geldimuradov said that the Government of Turkmenistan would 
provide subsidies to textile companies.  Myron said the 
dollar devaluation will most affect real estate owners, 
shuttle traders, and foreign entities such as oil and gas 
companies, other businesses, international organizations and 
foreign missions. 
 
¶4.  (C) Myron agreed that the new exchange rate is completely 
artificial.  Since already high government revenues will 
continue to increase -- especially because Iran recently 
agreed to match the Russian price of $130 per thousand cubic 
meter (septel) -- the government has the financial resources 
to maintain the current exchange rate as long as it wants to. 
 
 
ASHGABAT 00000551  002 OF 003 
 
 
BRITISH PETROLEUM 
 
¶5.  (C) A foreign businessman whose company is in the process 
of setting up and registering an office in Ashgabat, Dan 
Bliss of BP, was extremely positive, stating that this was a 
strong indication of the government's commitment to 
attracting foreign investment.  This, he said, will make 
doing business less difficult, because foreign businessmen 
are not being discriminated against.  (One example is that 
hotels that cater to foreigners are now doing the exchange 
rate for incidental expenses at the new unified rate of 
14,215 manat to the dollar, rather than the old official rate 
of 6,250 manat to the dollar.)  He noted that he was in 
Uzbekistan during exchange rate unification there, when Uzbek 
President Karimov used the unification and manipulation of 
the exchange rate to get rich.  Turkmenistan,s unification 
process seems to be more focused on improving the foreign 
investment climate. 
 
DOMESTIC COMSUMER VIEWS 
 
¶6.  (SBU) At an MTS cellular phone service unit, a line of 
people waited to top up their cell phones, despite the fact 
that MTS raised its rate from 6,250 to 14,250 manat.  MTS 
raised the rate in reaction to the unification of the 
official and commercial rates. 
 
¶7.  (C) It appears from spot checks that restaurants have 
also been visibly less crowded in recent days.  An Embassy 
employee mentioned that sales of imported cars will also feel 
adverse effects due to import taxes that were previously 
calculated using the official rate, which is now doubled. 
Also, the devalued dollar will also cause the manat price of 
the vehicles to rise. 
 
REPORTS FROM THE STREET:  BLACK MARKET 
 
¶8.  (SBU) Throughout the four months of the unification 
process and exchange rate instability, a healthy black market 
for exchange has existed.  Illicit traders have taken 
advantage of the relative scarcity of manat by trading 
dollars at a lower rate.  For example, when the commercial 
rate was 17,430, black marketers routinely sold manat at 
14,000.  The prevalence of such traders demonstrates a 
continued willingness -- or inability -- of the local 
government to stop unofficial trade in currency.  All 
indications are that, while today's unification was likely a 
reaction to increasing currency speculation over recent days, 
it will not bring the black market to an end.  There is a 
continued strong preference for holding savings in foreign 
currency, the most prevalent of which remains dollars. 
 
¶9.  (C) Myron said that the extra manat being held by 
individuals due to speculative activity over two weeks should 
add to the inflation problem.  He added that "everyone will 
be watching the black market to watch for a gap."  There is a 
significant potential that the black market will offer more 
attractive rates than the current rate of 14,250. 
 
¶10.  (U) So far, according to spot checks in markets, prices 
for food products have not changed.  Ticket prices on Western 
airlines such as Lufthansa and Turkish Airlines have also 
remained stable as their prices are pegged to the euro. 
 
¶11.  (C) COMMENT:  If the current rate proves to be stable, 
eliminating uncertainty in the marketplace, the reality that 
dollars -- and thus imports -- are now cheaper should bring 
consumer prices down in the long term.  More importantly, 
however, is the notion that 14,250 manat for $1 is completely 
arbitrary.  Should the dollar prove more valuable than 
 
ASHGABAT 00000551  003 OF 003 
 
 
Turkmen officials have guessed, it is likely that the same 
corrupt government officials who previously benefited from a 
black market in exchange will do so again -- begging the 
question, has anything changed?  END COMMENT. 
CURRAN