VZCZCXRO3300
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #0370/01 0850444
ZNR UUUUU ZZH
P 250444Z MAR 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0479
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 3539
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1357
RUEHKO/AMEMBASSY TOKYO PRIORITY 1224
RUEHIT/AMCONSUL ISTANBUL PRIORITY 1793
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHMFIUU/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHVEN/USMISSION USOSCE 2344

UNCLAS SECTION 01 OF 02 ASHGABAT 000370 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
COMMERCE FOR HUEPER 
TREASURY FOR BAKER/LANIER 
USAID/W FOR EE/AA 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV TX
SUBJECT:  TURKMENISTAN:  TAKING STEPS TOWARD A MARKET ECONOMY 
 
REF:  ASHGABAT 0369 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (U) SUMMARY:  On March 17 President Berdimuhamedov delivered a 
policy statement on the Government of Turkmenistan's support of 
advancing entrepreneurship and foreign investment.  To solidify his 
statements on improving the business climate, the president adopted 
the new "Law on Foreign Investment" (reftel) and amendments to the 
existing Tax Code of Turkmenistan.  He also signed a decree 
authorizing three commercial banks of Turkmenistan to issue credit 
lines for prospective private-investment projects.  Turkmenistan's 
intentions are indisputably right.  We remind that Berdimuhamedov 
said in Summer 2007, "The debate is over.  We have chosen to be a 
market economy."  But ex-Soviet governments tend to rely too heavily 
on presidential decrees and the power of law-on-paper.  The 
longer-term monumental task will be to change a century of national 
political psychology, the entrenched bureaucracy, and the culture of 
rent-seeking.  END SUMMARY. 
 
PRESIDENT EXPLAINS WHY TO ENCOURAGE THE PRIVATE SECTOR 
 
¶3.  (U) During an extended Cabinet of Ministers meeting on March 17, 
2008, President Berdimuhamedov gave a policy speech in support of a 
flourishing private sector at an extended Cabinet of Ministers 
meeting held at the National Exhibition Hall.  Leading Turkmen 
entrepreneurs attended, in addition to ministers and heads of 
government organizations.  Berdimuhamedov said that empowered 
entrepreneurship was the fundamental factor for a gradual transition 
to an economy based on market principles.  In his speech, he 
constantly referred to the value and practice of entrepreneurship 
worldwide, saying that it was "the main driving force of reforms," a 
significant factor for job creation, a boost to personal income, and 
a catalyst to increase the middle class, which Berdimuhamedov said 
was an indicator of the country's prosperity. 
 
LIFTING IMPEDING BARRIERS 
 
¶4.  (U) Berdimuhamedov said that the government should make a 
comprehensive inventory of relevant legislation in order to 
eliminate "needless administrative barriers" impeding licensing and 
registration procedures.  He also wants to reduce bureaucracy 
regarding foreign investment, privatization, and reducing state 
involvement.  Berdimuhamedov signed a number of laws and decrees 
that support the private sector and foreign investment, such as a 
new version of the Law on Foreign Investment and various amendments 
to the existing Tax Code (septel).  In addition, he signed a new 
decree appointing an ad-hoc state commission to review business 
plans and investment project proposals submitted by private 
entrepreneurs to determine eligibility for credit lines that have 
been established specifically to promote private business.  The 
ten-year credit line carries an annual percentage rate of five per 
cent.  Three banks may issue such credit loans: Dayhanbank (state 
commercial bank for agricultural projects); Senagatbank (commercial 
joint-stock bank) and Garagumbank (international joint-stock bank 
for industrial business, such as transportation, communications, 
services, information technology, and innovation). 
 
HAPPY MARRIAGE BETWEEN GOVERNMENT AND PRIVATE BUSINESS 
 
¶5.  (U) Minister of Economy and Development Gurbanmuradov stated 
that the private sector contributes roughly 40 per cent of 
Turkmenistan's GDP.  The president said that this number should 
increase to 70 per cent by 2020.  Berdimuhamedov said that support 
for private business will eventually resolve a number of state 
economic issues.  The privately owned "Poultry Complex" is an 
example of a private company that brings significant benefit to the 
government.  Berdimuhamedov said that when performing at its fullest 
capacity, this agribusiness farm supplies the domestic market with 
fresh eggs and chicken meat, and also frees "the government from 
 
ASHGABAT 00000370  002 OF 002 
 
 
spending money to import those foodstuffs from abroad."  Thus, all 
ministries and other government entities were instructed to find 
ways to increase the level of cooperation with and assistance to 
local businesses. 
 
REALITY CHECK FOR ENTREPRENEURS 
 
¶6.  (SBU) A handful of private business owners from all regions of 
Turkmenistan and representing a wide range of industries, such as 
agriculture, food processing, poultry, carpet and textile 
manufacturing made presentations at the extended Cabinet of 
Ministers meeting.  (NOTE: The presence of private business owners 
at a high-level government meeting is unprecedented.  Two Cochran 
Program alumni attended this meeting:  cheese producer Dadebay 
Chowdurbayev and poultry producer Ahmed Charyev.  END NOTE.) 
Berdimuhamedov instructed the relevant officials to include input 
and proposals from the private sector into the new National 
Entrepreneurship Development until 2020 Program, which the 
Government of Turkmenistan will finalize in the near future. 
Interviews with entrepreneurs who participated in the meeting that 
appeared in the official Russian-language government newspaper 
"Neytral'niy Turkmenistan" reflected their optimistic opinions on 
government initiatives supporting the private sector.  However, a 
few small- and medium-enterprise (SME) owners told PolEcon staff 
that these reforms, including changes to the legislation and the SME 
incentives "are not substantive enough to make an impact on their 
business." 
 
¶7.  (SBU) The resident EBRD representative told EconOff that while 
this reform "superficially" sounds good, the real challenge will be 
with implementation.  He believed bureaucracy will weigh down the 
lending program as the deputy heads of various ministries, the 
deputy head of the Central Bank, and the heads of Senagat, Karakum, 
and Dayhan Banks will all be responsible for the lending program for 
entrepreneurs.  He saw tremendous potential for corruption with the 
lack of experience in lending and no independent auditor involved. 
 
 
¶8.  (SBU) COMMENT:  Turkmenistan's intentions are indisputably 
right.  We recall that Berdimuhamedov said in Summer 2007, "The 
debate is over.  We have chosen to be a market economy."  The 
Government of Turkmenistan clearly sees that encouragement of the 
private sector will have a positive effect on the country's economy, 
and we are certain the private sector is more than eager to play its 
role.  But ex-Soviet governments tend to rely too heavily on 
presidential decrees and the power of law-on-paper.  The longer-term 
monumental task will be to change a century of national political 
psychology, the entrenched bureaucracy, and the culture of 
corruption.  Breaking old habits and ways of thinking and building 
confidence among lower-ranked officials to try something new will 
take time, effort, and monumental patience.  END COMMENT. 
 
HOAGLAND