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UNCLAS SECTION 01 OF 05 ASHGABAT 000930 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, TREASURY FOR JEFFERY BAKER 
 
E.O. 12958: N/A 
TAGS: PREL ECON EFIN ENRG PHUM KIRF PGOV EPET TX
SUBJECT: TURKMENISTAN:  SCENE-SETTER FOR TREASURY VISIT, 
SEPTEMBER 9-11 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) Embassy Ashgabat warmly welcomes you to 
Turkmenistan.  You are coming to Turkmenistan in the early 
months of a bilateral dialogue directed toward 
encouraging Turkmenistan to make the economic and finance 
reforms that will improve its foreign investment climate and 
develop its economy.  USAID Deputy Assistant Drew Luten 
started the dialogue during a July 22-28 visit, and the State 
Department's Assistant Secretary for Economic, Energy and 
Business, Dan Sullivan, continued it during an August 12-15 
trip.  You will have a heavy schedule on September 10, but we 
are certain that your visit can help advance U.S. foreign 
policy. 
 
ECONOMY AND FINANCE 
 
¶3.  (SBU) Turkmenistan's economy is closely controlled by the 
state, and, although the government for many years regularly 
proclaimed its wish to attract foreign investment, it made 
little effort up to now to change the state-control 
mechanisms and restrictive currency-exchange system that 
created a difficult foreign investment climate.  However, in 
recent months, we have seen greater 
willingness among upper-level personnel at Turkmenistan's 
main economic and financial institutions -- including both 
the Ministry of Economy and Finance and the Central Bank -- 
to acknowledge that reforms are necessary.  Part of this new 
attitude is linked to the president's growing frustration, 
expressed publicly during several cabinet-level meetings in 
August, with Turkmenistan's 
complex, opaque web of on- and off-budget funds, which have 
made a thorough accounting of state income and 
disbursements/expenses virtually impossible.  And, in fact, 
President Berdimuhamedov's frustration with the lack of 
accountability in the budget was one of the key factors that 
led, in late July, to the creation of a Supreme Auditing 
Chamber.  That said, growing interest in investing in 
Turkmenistan among western businessmen in hopes that the new 
government eventually will make the changes necessary to 
improve the investment climate is also providing an incentive 
for change. 
 
¶4.  (SBU) Given the unrelenting pressure from Berdimuhamedov 
for a new way of handling the budget, you are likely to find 
the Ministry of Economy and Finance receptive to almost any 
assistance the United States can offer related to budget 
management.  This would include not only assistance with the 
planning process, but also mechanisms to increase 
transparency and accountability as well as tax and 
expenditure policy.  In addition, officials at the Ministry 
(and, in fact, the growing number of U.S. companies doing 
business here) have raised the possibility of concluding a 
new double taxation treaty with Turkmenistan.  The United 
States recognizes the old treaty that it concluded with the 
Soviet Union, but all players most closely involved agree 
that the treaty is both out-of-date and not working. 
Finally, the dual exchange rate regime also remains an 
impediment both for foreign firms (repatriation of profits is 
at best complicated and at worst impossible) and for many 
diplomatic missions and foreign NGOs serving as assistance 
implementers here.  Such entities are forced to exchange 
currency at the official rate of approximately 5000 manat to 
one dollar, rather than the still-legal unofficial rate of 
23,800 manat to one dollar.  Although the Central Bank told 
the European Bank for Reconstruction and Development that it 
was not prepared to discuss this issue, it has subsequently 
expressed an interest in receiving assistance with currency 
reform.  The Ministry of Economy and Finance reportedly is 
preparing a report on this issue, but is said to worry that 
rapid change would financially devastate government 
ministries.  Of course, intellectual property rights 
continues to be an area of concern for the U.S. government. 
 
ENERGY RESOURCES 
 
 
ASHGABAT 00000930  002 OF 005 
 
 
¶5.  (SBU) Turkmenistan has world-class natural gas reserves, 
but Russia's monopoly of its energy exports has left 
Turkmenistan receiving less than the world price and overly 
beholden to Russia for export.  Pipeline diversification, 
including both a pipeline to China proposed for 2009 and the 
possibility of resurrecting plans for Trans-Caspian and 
Trans-Afghanistan pipelines that would avoid the Russian 
routes, and construction of high-power electricity lines to 
transport excess energy to Turkmenistan's neighbors, 
including Afghanistan, would not only enhance Turkmenistan's 
economic and political sovereignty, but also help fuel new 
levels of prosperity throughout the region.  Berdimuhamedov 
has told U.S. interlocutors he recognizes the need for more 
options and has taken the first steps to this end, but he 
also moved toward increasing the volume of gas exports to 
Russia -- agreeing in principle to build a new littoral 
pipeline -- during the May tripartite summit in Turkmenbashy. 
 He will require encouragement and assistance from the 
international community if he is to maintain a course of 
diversification in the face of almost certain Russian efforts 
to keep Turkmenistan from weaning itself away from Russia. 
 
TURKMENISTAN POST-NIYAZOV 
 
¶6.  (SBU) A hydrocarbon-rich state that shares borders with 
Afghanistan and Iran, Turkmenistan is in the midst of an 
historic political transition.  The unexpected death of 
President Niyazov on December 21, 2006, ended the 
authoritarian, one-man dictatorship that by the end of his 
life had made Turkmenistan's government among the most 
repressive in the world.  The peaceful transfer of power 
following Niyazov's death confounded many who had predicted 
instability because the former president had no succession 
plan.  President Berdimuhamedov quickly assumed power 
following Niyazov's death with the assistance of the "power 
ministries" -- including the Ministries of National Security 
and Defense, and the Presidential Guard.  His position was 
subsequently confirmed through a public election in which the 
population eagerly participated, even though it did not meet 
international standards. 
 
NIYAZOV'S LEGACY 
 
¶7.  (SBU) Berdimuhamedov inherited a country that former 
President Niyazov had come close to running into the ground. 
Niyazov siphoned off much of Turkmenistan's hydrocarbon 
proceeds into non-transparent slush funds used, in part, to 
finance his massive construction program in Ashgabat at the 
expense of the country's education and health-care systems. 
Politically, his increasing paranoia -- particularly after 
the 2002 armed attack on his motorcade -- led to high-speed 
revolving-door personnel changes at the provincial and 
national level, and an obsessive inclination to micro-manage 
the details of government.  Criticizing or questioning 
Niyazov's decisions was treated as disloyalty, and could be 
grounds for removal from jobs, if not worse.  Niyazov's 
"neutral" foreign policy led to Turkmenistan's political and 
economic isolation from the rest of the world, and his 
policies calling for mandatory increases in cotton and wheat 
production led to destructive agricultural and water-use 
policies that left some of Turkmenistan's arable land salty 
and played-out. 
 
EDUCATION -- "DIMMER PEOPLE EASIER TO RULE" 
 
¶8.  (SBU) Niyazov's attacks on the educational system grew 
increasingly destructive in his later years.  The Soviet-era 
educational system was broadly turned into a system designed 
to isolate students from the outside world and to mold them 
into loyal Turkmen-speaking presidential Thralls.  President 
Niyazov famously defended this policy when, in 2004, he told 
a fellow Central Asian president, "Dimmer people are easier 
to rule."  Niyazov's destruction of his country's education 
system included cutting the Soviet standard of ten years of 
compulsory education to nine, firing large numbers of 
teachers, and introducing his own works as core curriculum at 
 
ASHGABAT 00000930  003 OF 005 
 
 
the expense of the traditional building blocks of a basic 
education.  He slashed higher education to two years of study 
and discouraged foreign study by refusing to recognize 
foreign academic degrees.  Taken together, these steps 
created a "lost generation" of under-educated youth 
ill-equipped to help Turkmenistan take its place on the world 
stage. 
 
RULE OF LAW -- A LOW BAR 
 
¶9.  (SBU) Niyazov seriously harmed Turkmenistan's political 
system.  His capricious authoritarianism left a legacy of 
corrupt officials lacking initiative, accountability, and -- 
in many cases -- the expertise needed to do their jobs. 
Young officials who came of age after Niyazov's destructive 
changes to the education system are particularly deficient in 
skills and broader world vision needed to facilitate 
Turkmenistan's entry into the international community.  Many 
laws lack transparency and provision for oversight and 
recourse.  The population's lack of understand of the meaning 
of rule of law has left the bar low in terms of citizens' 
expectations of their government. 
 
BERDIMUHAMEDOV BEGINS TO REBUILD THE SYSTEM 
 
¶10.  (SBU) Berdimuhamedov still speaks of maintaining his 
predecessor's policies, but he has started reversing many of 
the most destructive, especially in the areas of education, 
health, and social welfare.  He has restored -- and in many 
cases -- increased old-age pensions that Niyazov had largely 
eliminated.  The president is embarking on a course of 
hospital-building, with the main focus on improving medical 
facilities in Turkmenistan's five provinces.  To this end, he 
has already authorized construction of five provincial 
mother-and-children (maternity) hospitals.  He has also 
publicly committed to improve rural infrastructure and to 
ensure that every village has communications, electricity and 
running water. 
 
¶11.  (SBU) In education, Berdimuhamedov is reversing many of 
the policies Niyazov ordered him to implement while he served 
as Deputy Chairman of the Cabinet of Ministers for Education. 
 Since his inauguration, Berdimuhamedov has ordered a return 
to the compulsory standard of ten years' education, a return 
of universities to five years of classroom study, and a new 
emphasis on exchange programs and the hard sciences.  On July 
13, he called for recognition of foreign academic degrees, a 
major step which would allow exchange students to receive 
credit for their overseas study.  The goal is to repair 
Turkmenistan's broken education system as quickly as possible 
and to give the country the educated workforce that it needs 
to compete commercially.  These efforts, however, are 
hampered by old-thinking bureaucrats, especially in the 
Ministry of Education, who sometimes block or otherwise 
impede foreign assistance programs.  This may perhaps be a 
legacy of the culture of xenophobia Niyazov had encourage. 
 
ELIMINATING THE CULT OF PERSONALITY 
 
¶12.  (SBU) Berdimuhamedov has incrementally started 
dismantling Niyazov's cult of personality.  Huge posters of 
the deceased president are beginning to be removed from 
public buildings, and references to Niyazov's "literary" 
works, especially the Ruhnama, are less frequent and might 
fade away over time.  The new president has banned the huge 
stadium gatherings in his honor and the previous requirement 
for students and government workers to line the streets, 
often for hours, along presidential motorcade routes.  That 
said, in some places, Niyazov's picture has been replaced by 
Berdimuhamedov's, and the new president's quotes are now 
replacing Ruhnama quotations on newspaper mastheads. 
 
FIRST STAGES OF POLITICAL REFORM 
 
¶13.  (SBU) Berdimuhamedov has begun replacing the ministers 
he inherited from Niyazov.  His focus seems to be on finding 
 
ASHGABAT 00000930  004 OF 005 
 
 
better-qualified individuals.  On August 24, he established a 
"Human Rights Commission" to help bring the practices and 
policies of Turkmenistan's government agencies into line with 
international human rights standards and conventions.  He has 
established a state commission to review complaints of 
citizens against law enforcement agencies, which has become a 
mechanism for pardoning at least some of those imprisoned 
(including for complicity in the 2002 attack on the 
presidential motorcade) under Niyazov.  Berdimuhamedov 
pardoned 11 prisoners in early August, including the former 
Grand Mufti of Turkmenistan, Nasrullah ibn Ibadullah, and 
promised that he would pardon more.  Berdimuhamedov has also 
agreed to allow UNDP to provide human rights training to 
police. 
 
¶14.  (SBU) In addition, he has slowly begun to walk back some 
of the most restrictive controls on movement within the 
country, first removing police checkpoints on the roads 
between cities, then -- on July 13 -- eliminating the 
requirement for Turkmenistan's citizens to obtain permits to 
travel to border zones (however, the permit system remains in 
force for foreigners).  Although the president has been 
slower to strengthen the rule of law, and correct 
Turkmenistan's previous human rights and religious freedom 
record, he has told U.S. officials he wants to "turn the 
page" on the bilateral relationship and is willing to work on 
areas that hindered improved relations under Niyazov.  He has 
approved an unprecedented number of visits by U.S. 
delegations since he took office, including those directed 
toward promoting change. 
 
FOREIGN POLICY:  A NEW FOCUS ON ENGAGEMENT 
 
¶15.  (SBU) Notwithstanding his statements that he plans to 
continue the "neutrality" policies of his predecessor, 
Berdimuhamedov -- probably at the advice of Deputy Chairman 
of the Cabinet of Ministers and Foreign Minister Rashit 
Meredov -- has put an unprecedented emphasis on foreign 
affairs.  Indeed, Berdimuhamedov has met or spoken by 
telephone with all the leaders in the region -- including 
with President Aliyev of Azerbaijan, with whom Niyazov had 
maintained a running feud.  He has exchanged visits with 
Russia's President Putin, and held a high-profile gas summit 
with Putin and Kazakhstan's President Nazarbayev in 
Turkmenistan's Caspian seaside city of Turkmenbashy 
(Krasnovodsk).  China has a strong and growing commercial 
presence in Turkmenistan, and continues to court 
Berdimuhamedov through a series of high-level commercial and 
political visits.  In mid-July, Berdimuhamedov made a state 
visit to China, focused mainly on natural gas and pipeline 
deals.  While Turkey has given Berdimuhamedov top-level 
treatment, including an invitation to Ankara, its 
relationship with Turkmenistan continues to be colored more 
by the image of its lucrative trade and construction 
contracts, amounting to hundreds of millions of dollars, than 
by generous development assistance or fraternal support. 
Berdimuhamedov has also held positive meetings with 
high-level U.S. State Department officials and leaders of the 
Organization for Security and Cooperation in Europe (OSCE) 
and United Nations to discuss areas of potential assistance. 
He met with UN High Commissioner on Human Rights Louise 
Arbour in May, the Head of the OSCE's Office for Democratic 
Institutions and Human Rights (ODIHR), Christian Strohal, and 
agreed to a visit by the UN's Special Rapporteur on Religious 
Freedom at an as-yet undetermined date. 
 
U.S. POLICY 
 
¶16.  (SBU) U.S. policy in Turkmenistan is three-fold: 
 
-- Encourage democratic reform and increased respect for 
human rights and fundamental freedoms, including support for 
improvements in the education and health systems; 
 
-- Encourage economic reform and growth of a market economy 
and private-sector agriculture, as well as diversification of 
 
ASHGABAT 00000930  005 OF 005 
 
 
Turkmenistan's energy export options; and 
 
-- Promote security cooperation. 
 
In raising human rights concerns, the United States: 
 
-- Encourages further relaxation of Niyazov-era abuses and 
restrictions on freedom of movement; 
 
-- Promotes greater religious freedom, including registration 
of unrecognized groups like the Roman Catholic Church, and 
making legal provision for conscientious objectors; and 
 
-- Advocates the growth of civil society by urging the 
government to register Turkmenistani non-governmental 
organizations. 
HOAGLAND