VZCZCXRO6027
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #0098/01 0181156
ZNR UUUUU ZZH
P 181156Z JAN 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0109
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 3270
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1085
RUEHKO/AMEMBASSY TOKYO PRIORITY 0956
RUEHIT/AMCONSUL ISTANBUL PRIORITY 1525
RUEHVEN/USMISSION USOSCE PRIORITY 2126
RHMFIUU/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 ASHGABAT 000098 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN AND EEB 
TREASURY FOR JEFFREY BAKER AND TOM LANIER 
 
E.O. 12958: N/A 
TAGS: PREL ECON EAID EFIN EINV TX
SUBJECT:  TURKMENISTAN:  WHY DEPARTMENT OF TREASURY SHOULD 
BECOME INVOLVED 
 
REF: A. 07 ASHGABAT 0975 
 
     ¶B. 07 ASHGABAT 1124 
     ¶C. 07 ASHGABAT 1230 
     ¶D. 07 ASHGABAT 1403 
     ¶E. ASHGABAT 0060 
     ¶F. 07 ASHGABAT 1308 
     ¶G. 07 ASHGABAT 1129 
     ¶H. ASHGABAT 0076 
     ¶I. 07 ASHGABAT 1239 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  In response to strong encouragement from 
the West and international financial institutions, the 
Government of Turkmenistan is finally beginning to pursue a 
much-needed course of economic and financial reform. 
President Gurbanguly Berdimuhamedov has shown he is committed 
to this course and is ordering at-times reluctant officials 
to move forward as quickly as possible.  However, 
Turkmenistan's officials -- while well-meaning -- have 
already demonstrated that they, in many cases, lack the 
capacity to implement potentially complex reforms, and why 
they should not necessarily "move forward quickly."  It is 
clear that Turkmenistan needs the assistance of the donor 
community in this process.  While EU-Tacis, the World Bank, 
UNDP, IMF, and USAID are responding to this need, the Embassy 
also believes that the stakes are high enough -- and the need 
great enough -- for Department of Treasury involvement as 
well.  A visit by a narrowly focused Treasury assessment team 
that could spend time at the expert level (more than one day) 
discussing and agreeing on areas where Treasury assistance 
might be most needed would be a useful next step.  END 
SUMMARY. 
 
¶3.  (SBU) Almost a year ago, Turkmenistan's new president, 
Gurbanguly Berdimuhamedov, made a commitment to U.S. 
officials -- and to his own people -- to begin reforming his 
country, including in the economic, financial, and commercial 
sectors.  While it was not clear how quickly or how far the 
president would be willing to take reform efforts, the United 
States government reached a consensus that there are 
compelling strategic reasons to assist Turkmenistan in its 
efforts to transform:  Turkmenistan is a hydrocarbon-rich 
state that shares borders with Iran and Afghanistan.  It 
occupies a strategic location in the War on Terrorism and has 
provided critical support for Operation Enduring Freedom by 
granting overflight rights to humanitarian airfcraft. 
Commercially, Turkmenistan's hydrocarbons revenue could make 
it a lucrative new market for U.S. business, if it improves 
its dismal foreign investment climate.  However, maintaining 
Turkmenistan's economic stability while encouraging and 
promoting its transformation to a more market-oriented 
economy remains a top priority. 
 
¶4.  (SBU) Largely in response to Berdimuhamedov's commitment, 
two Department of Treasury officials visited Ashgabat 
September 10, 2007, to explore areas where Treasury 
assistance might be helpful (ref A).  While their talks 
revealed a number of areas where fiscal policy reform was 
needed and Treasury assistance could be valuable, the 
Treasury delegation left Turkmenistan uncertain that the will 
exists within the government to begin implementing reform. 
The group's meeting with the Central Bank Governor, 
Geldimurat Abilov, was especially discouraging, with Abilov 
resisting advice to unify the dual exchange rate and 
aggressively defending Turkmenistan's extensive system of 
subsidies. 
 
THE PRESIDENT RESOLVES TO BEGIN REFORMS 
 
 
ASHGABAT 00000098  002 OF 003 
 
 
¶5.  (SBU) That situation has already begun to change. 
President Berdimuhamedov has made attracting foreign business 
investment, especially in the hydrocarbon and construction 
sectors, a cornerstone of his development policy.  However, 
it took his trips to New York in September 2007 and to 
Brussels in October, as well as the visits of a number of 
influential international financial institutions throughout 
the fall, to spur him to action.  The message he heard in all 
his meetings -- that reform is a prerequisite for 
Turkmenistan's economic development and for attracting 
outside investment -- seems to have convinced him of the need 
to act. 
 
¶6.  (SBU) Since October, the president has ordered a number 
of new measures.  These include introduction in 2009 of new 
currency (Ref B.), and unification of the currency exchange 
rate (Refs. C, D, and E).  He is calling on the banking 
sector to support private sector development by issuing more 
loans, ordering an increased number of automatic teller 
machines (ATMs), and calling on banks to work to determine 
the value of ruble deposits that had been made before the 
introduction of the manat (all discussed ref F).  The 
president is beginning to stress the need for greater 
professionalism within banks -- he fired two bank chairmen 
for incompetence.  In addition, he has put the individual the 
Embassy had identified as the Ministry of Economy and 
Finance's most impressive and dynamic deputy minister -- 
Tuvakmammet Japarov -- in charge of the Supreme Auditing 
Chamber, greatly increasing the credibility and activism of 
this Government Accountability Office-like body.  The 
president has ordered the Mejlis (Parliament) to speed up 
efforts to overhaul legislation, reportedly including a 
number of laws that could improve the investment climate. 
EU-Tacis has been told Turkmenistan hopes to finalize an 
international arbitration law soon and could ratify the 
Convention on the Recognition and Enforcement of Foreign 
Arbitral Awards (the New York Convention) by March 2008 (ref 
G).  Most recently, the president has also approved a move 
that could be a first step toward phasing out gasoline 
subsidies (ref H). 
 
EVEN REFORM-ADVERSE OFFICIALS MUST SIGN ONTO THE PROGRAM 
 
¶7.  (SBU) It is clear that not all officials uniformly 
support the president's reform agenda.  Post has found 
support for change among Central Bank officials below Abilov, 
for example, while Abilov himself seems to be reform-adverse. 
 With the president driving the changes, however, even 
unenthusiastic officials are being forced to sign onto the 
reform program or risk being fired for incompetence or 
insubordination. 
 
BUT HAVE SOUGHT TO DO SO IN A DO-IT-YOURSELF WAY 
 
¶8.  (SBU) Unfortunately, although the president has called on 
economic and financial agencies to work closely with experts 
and international financial institutions to implement these 
measures safely, there has been up to now a mindset that 
Turkmenistan should "consult" with would-be donors, but then 
seek to implement programs in its own way.  This way of 
thinking has been especially prevalent in those sectors where 
donor assistance has yet to be locked in place.  And, while 
there are good, capable, well-meaning people in 
Turkmenistan's legislative, economic, and finance sectors, 
there are not enough with sufficient knowledge of 
international best practices to prevent the government from 
implementing changes that do not actually improve the 
situation. 
 
¶9.  (SBU) The danger of Turkmenistan's do-it-yourself 
 
ASHGABAT 00000098  003 OF 003 
 
 
approach is that things could go badly wrong.  One such 
example is an apparent early effort in November to begin 
merging the official and unofficial exchange rates (ref I) 
that was insufficiently thought out.  The move spurred 
speculation and created a run to change dollars to manat that 
left the dollar at half its previous value against the manat 
in a matter of hours, and ended up hurting many panicked 
citizens, who decided to convert their dollar savings into 
manats and pay off loans at what turned out to be a 
substantially below-par exchange rate.  Unless the 
just-announced measure to establish a quota-based 
fuel-distribution system is implemented very carefully, it 
will further stoke the inflation which has become an 
increasingly painful reality here and will lead to further 
corruption.  The potential for a destabilizing disaster will 
increase as Turkmenistan seeks to increase the number of 
reforms that it is juggling. 
 
THE ARGUMENT FOR U.S. INVOLVEMENT 
 
¶10.  (SBU) Despite Turkmenistan's preference to manage its 
reform process on its own, officials' attitudes seem to be 
changing, and donors have been making progress in gaining 
agreement to implement those programs.  EU-Tacis, the World 
Bank, UNDP, and USAID, among others, are beginning to respond 
to this new spirit of cooperation by bringing new assistance 
programs.  Treasury can bring valuable skills in a number of 
areas of need to Turkmenistan, including budget, monetary and 
pension reform, anti-money laundering capacity building, 
development of a government debt strategy, and issuance of 
government securities.  Many donors have also suggested that 
the long-term (or even long TDY) assignment of an experienced 
Treasury official to work as an advisor at one of the three 
agencies -- the Central Bank, Ministry of Economy and Finance 
and/or the Mejlis (Parliament) -- central to Turkmenistan's 
economic transformation would offer the U.S. government a 
better chance to survey the overall situation, overcome 
suspicion, influence policy-making at an earlier stage, and 
more efficiently target training and assistance.  Although 
some in the government might be reluctant to agree to such a 
program (some might argue against having a "spy" in their 
midst), President Berdimuhamedov might agree to such a 
proposal on a trial basis if asked, and this could offer a 
foot in the door for the program's subsequent expansion. 
 
¶11.  (SBU) Of course, any Treasury programs would need to be 
complementary to, rather than duplicative of, existing and 
planned programs.  In particular, USAID hopes to introduce a 
new regional program this year, known as Economic Reforms to 
Enhance Competitiveness, focused on strengthening 
institutional capacity for fiscal management and regulatory 
and oversight capacity.  Yet all agree there is more work 
than can be handled by the handful of donors currently here, 
and Treasury's acknowledged reputation in the region for 
assisting with economic transitions could make it an 
invaluable partner in the reform process. 
 
¶12.  (SBU) COMMENT:  With compelling U.S. interests arguing 
in favor of assisting Turkmenistan with its reform process 
and Turkmenistan's government now increasingly focused on 
promoting economic change, post believes that now is a good 
time to reexamine the possibility of Treasury involvement.  A 
visit by a narrowly focused Treasury assessment team that 
could spend considerably more time at the expert level 
discussing and agreeing on areas where Treasury assistance 
might be most needed would be a useful next step.  END 
COMMENT. 
HOAGLAND