VZCZCXRO0601
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #0485/01 1081142
ZNR UUUUU ZZH
P 171142Z APR 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0624
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 3647
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1465
RUEHKO/AMEMBASSY TOKYO PRIORITY 1332
RUEHIT/AMCONSUL ISTANBUL PRIORITY 1901
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHMFIUU/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
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RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ASHGABAT 000485 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
PLEASE PASS TO USTDA DAN STEIN 
COMMERCE FOR HUEPER 
TREASURY FOR BAKER/LANIER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV TX
SUBJECT:  TURKMENISTAN'S CURRENCY RE-DENOMINATION; EXCHANGE RATE 
UNEASE 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (U) SUMMARY: On April 14 President Berdimuhamedov signed a 
decree that spells out more details about the forthcoming 
re-denomination of Turkmenistan's currency -- the manat - first 
announced on September 11, 2007.  The re-denominated bills and the 
old bills will be accepted concurrently as legal tender from January 
1, 2009 through December 31, 2009.  The transition to the new 
currency progresses in parallel with activities on unifying the 
exchange rate.  However, the lack of information about the process 
creates nervousness among the population, and the president's 
announcement has set off a new run to exchange dollars for manats 
before a rumored change in the exchange rate kicks in.  END SUMMARY. 
 
 
THE MECHANICS 
 
¶3.  (U) An April 14 presidential decree orders that the face value 
of Turkmenistan's currency be re-denominated by a factor of 1,000. 
After the re-denomination was first announced on September 11, 2007, 
samples of the new currency were shown in the newspaper.  The 
highest denomination bill will be 500 new manats (about $25 at the 
current commercial exchange rate), versus the existing 10,000 manat 
bill (just under $0.50).  Turkmenistan's government is making this 
change in part because it believes that the re-denomination will 
increase money circulation and simplify cash and electronic 
transactions, accounting and statistical records. 
 
¶4.  (U) Throughout 2009 all price tags will have to list both old 
and re-denominated prices.  The Ministry of Economy and Development 
has been instructed to adjust state-regulated prices based on the 
re-denominated currency values.  The State Tax Service has been 
assigned to ensure that vendors use proper price tagging.  The State 
Tax Service jointly with the Ministry of Trade and Foreign Economic 
Affairs will also inspect whether vendor cash registers print new 
re-denominated prices. 
 
¶5. (U) The decree instructs the Central Bank of Turkmenistan to 
adjust the national payment system to the new currency values.  All 
Turkmenistani legal entities and private businessmen are to make 
accounting adjustments in their books and revalue their assets and 
prices by December 1, 2008. 
 
¶6.   (U) President Berdimuhamedov has given one month to the 
Ministry of Justice, Central Bank, Ministry of Finance and Ministry 
of Economy and Development to draft appropriate amendments to 
Turkmenistan's by-laws pertaining to the denomination of the 
national currency.  He also decreed that the Ministry of Culture and 
Broadcasting conduct in the national mass media a public information 
campaign on re-denomination of domestic currency and related 
government actions and orders. 
THE EXCHANGE RATE LINK 
 
¶7.  (U) The 2009 re-denomination is the first since the manat's 
introduction as the national currency on November 1, 1993.  The 
original exchange rate was set at $1 per 2 manats.  However, 
hyperinflation caused by dependence on imports and low foreign 
exchange reserves drove the exchange rate up until 1998, when the 
government set the official rate at 5,200 manat per dollar.  This 
rate remained unchanged until the Government officially announced on 
January 1, 2008 its plan to unify the official and commercial rates 
in 2009.  The official rate is currently set at 6,250 manats per 
dollar and the commercial rate at 19,800 manats. 
 
¶8.  (U) During the April 14 broadcast of the Cabinet of Ministers 
meeting on economic reforms, President Berdimuhamedov stated that 
Turkmenistan will start unifying the two existing exchange rates 
(the official and the "commercial") beginning May 1.  (This comment 
was not reprinted in the newspapers that came out the next day.) 
 
ASHGABAT 00000485  002 OF 002 
 
 
The President was not clear how the rate would change and when the 
new rate would be enforced.  The broadcast resulted in an immediate 
higher demand for manats at exchange points and banks in 
anticipation of a possible manat appreciation on May 1.  Embassy 
staff have heard numerous unofficial reports that exchange is 
limited to $100 per person per exchange transaction.  Banking 
officials are citing lack of adequate volume of manats as the reason 
for the limit.  It is not clear whether consumers are gradually 
switching to the manat as the currency of savings in anticipation of 
a possible appreciation of the commercial rate. 
 
¶9.  (U) Meanwhile, long lines are forming outside banks and official 
exchange points as panicky citizens are rushing to exchange dollars 
before a possible new adjustment.  As of 1400 hours on April 17, 
some exchange points reportedly have been closed, and manat are 
being exchanged at non-official exchange points for 16,000 manat per 
dollar. 
 
¶9.  (SBU) The government is doing a poor job in explaining to 
citizens its currency and exchange rate plans.  This uncertainty 
paired with monopolistic consumer markets helps to fuel growing 
inflation and keeps the population nervous. 
 
¶10.  (SBU) COMMENT:  Turkmenistan lacks substantial local production 
of goods and is still dependent on imports.  The government has not 
made any announcement about large scale-privatization or 
private-sector development plans and still counts on hydrocarbon 
revenue to support the exchange rate.  The so far poor job the 
government is doing in explaining to its citizens its currency and 
exchange rate plans is creating an uncertainty that, when paired 
with monopolistic consumer markets, helps to fuel growing inflation 
and keeps the population nervous.  END COMMENT. 
 
HOAGLAND