VZCZCXRO4205
RR RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #0732/01 1610618
ZNR UUUUU ZZH
R 090618Z JUN 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 0959
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAK/AMEMBASSY ANKARA 3879
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RUEHKO/AMEMBASSY TOKYO 1563
RUEHIT/AMCONSUL ISTANBUL 2132
RUEHVEN/USMISSION USOSCE 2583
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RHEHNSC/NSC WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
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RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHDC

UNCLAS SECTION 01 OF 03 ASHGABAT 000732 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR SCA/CEN, NEA/SCA/EX, HR, EUR/ACE, EEB 
TREASURY FOR BAKER 
AID/W FOR EE/EA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL AMGT ECON EFIN EAID TX
SUBJECT:  TURKMENISTAN:  EBRD DIRECTOR DETAILS MAJOR BREAKTHROUGH IN 
FINANCIAL SECTOR 
 
REF: ASHGABAT 0699 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
(SBU) SUMMARY: In a June 4 lunch with visiting European Bank for 
Reconstruction and Development (EBRD) Central Asia Director, Masaru 
Honma, and new EBRD Resident Representative, Neil McKain, told USAID 
that as a result of a recent breakthrough in its internal 
guidelines, it now can begin working with state banks through its 
small and medium enterprise financing facility, instead of only 
majority private banks as before.  Deputy Prime Minister for Economy 
and Finance Hojamyrat Geldymuradov and Central Bank Chairman Guvanch 
Geklenov asked the EBRD to support a new "greenfield" private 
microfinance bank, which they wanted to see opened "yesterday." 
EBRD is also interested in reactivating its Trade Facilitation 
Program, which supports banks through providing credit guarantees. 
This would be critical for Turkmen banks involved in issuing Letters 
of Credit, since they are not known outside of Turkmenistan, but 
depends on local banks' ability to re-establish correspondent bank 
relations.  In a meeting with Halk Bank Chairman Begmuradov, the 
chairman spoke very positively of the Certified Accounting 
Practitioner accounting training program supported by USAID.  The 
chairman told Honma that Halk Bank was considering requiring its 
staff to obtain Certified Accounting Practitioner certification, 
which reflects the growing recognition of this program in the labor 
market.  This is a major positive development in Turkmenistan's 
nascent economic and financial reform effort. 
 
SUMMARY CONTINUED:  Both the EBRD and World Bank are considering 
salary increases for local staff of approximately 40% to compensate 
for the recent radical devaluation of the U.S. dollar due to the 
exchange-rate unification that has hit embassies and international 
organization local employees like a ton of bricks.  If we do not act 
to remedy this one-off situation, we will see a significant - and 
debilitating - exodus of highly experienced and trusted Locally 
Engaged Staff.  END SUMMARY. 
 
BREAKTHROUGH OPENS DOOR TO WIDER POTENTIAL COOPERATION 
 
¶3.  (SBU) Visiting European Bank for Reconstruction and Development 
(EBRD) Central Asia Director Masaru Honman said in a June 4 working 
lunch that a recent breakthrough now allows it to work with state 
banks for SME financing facility.  Previously EBRD could work only 
with majority private banks, which limited its ability to work with 
most banks in Turkmenistan because they are state-owned.  A major 
potential obstacle to wider cooperation for EBRD remains the status 
of the Foreign Exchange Reserve Fund (FERF).  If it is reformed to 
allow more transparency, EBRD might be able to expand it activities 
to include the oil & gas sector. 
 
STRONG INTEREST IN NEW PRIVATE MICROFINACE BANK 
 
¶4.  (SBU) Deputy Chairman for Economy and Finance Hojamurat 
Geldymuradov and Central Bank Chairman Guvanch Geklenov asked Honma 
to support a new "greenfield" private microfinance bank.  The World 
Bank's Operations Officer confirmed that an International Finance 
Corporation (IFC) delegation in Ashgabat last week also received a 
similar request.  The government officials expressed to EBRD that 
they hoped to move very quickly on these plans -- in fact, they 
wanted it opened "yesterday." 
 
¶5.  (SBU) World Bank officer added that the IFC was told that the 
new microfinance bank is projected to have $5 million in starting 
capital, and that 51% of the shares would be retained by members of 
the newly established Union of Entrepreneurs and Industrialists. 
The remaining 49% could be split between EBRD and IFC.  EBRD was 
told that the new bank's director must be Turkmen.  EBRD has an 
experienced specialist in mind that it would like to bring in to 
 
ASHGABAT 00000732  002 OF 003 
 
 
support this effort, if it participates. 
 
TRADE FACILITATION PROGRAM RECONSIDERED 
 
¶6.  (SBU) EBRD is possibly interested in reactivating its Trade 
Facilitation Program, which supports banks through providing credit 
guarantees.  This would be critical for Turkmen banks involved in 
issuing Letters of Credit, since these banks are not known outside 
of Turkmenistan.  This depends, however, on local banks' ability to 
re-establish correspondent bank relations. 
 
HALK BANK PROMOTES USAID'S PROFESSIONAL ACCOUNTING TRAINING 
 
¶7.  (SBU) McKain said that Halk Bank Chairman Begmuradov spoke very 
positively of the accounting training offered through USAID's A/CIPA 
program.  He mentioned that Halk Bank was considering requiring its 
staff to obtain the Certified Accounting Practitioner certification 
offered through the Russian-language training and testing program 
started by USAID.  (COMMENT: Since there are currently only 
approximately 130 Certified Accounting Practitioner-certified 
accountants in Turkmenistan, compared to over 4,000 in Kazakhstan, 
such a step would provide a big boost to the program.  As it is, his 
comments are another sign of the growing market recognition and 
acceptance of this program. (reftel)  END COMMENT.) 
 
EBRD AND WORLD BANK EXPECT BIG SALARY INCREASES FOR STAFF 
 
¶8.  (SBU) Participants discussed the impact of recent exchange rate 
fluctuations and the potential remedies under consideration for 
local staffs' salaries.  McKain advised that EBRD/London recently 
rejected a proposed 25% increase for its Ashgabat staff because it 
was not high enough in light of the approximate 40% decrease in the 
U.S. dollar's value (and this might fall another 20%). Instead, 
McKain predicted that the approved level would be closer to 40%, and 
said it could be applied retroactively to April 2008.  (NOTE:  The 
Department has approved a 12% raise for LES that was planned to 
compensate for inflation before/before the exchange-rate assault on 
local salaries.  END NOTE.) 
 
¶9.  (SBU) World Bank (WB) Operations Officer Serdar Jepbarov (please 
protect) reported that the WB has agreed to review salaries 
beginning July 1, the start of its new fiscal year.  He indicated 
that the expected increase will be more than 40%, and that the WB is 
considering a move to manat-denominated salaries. 
 
¶10. (SBU) COMMENT: The opportunity for EBRD to work with state banks 
appears to open significant new avenues for cooperation in 
Turkmenistan.  The decision to grant additional latitude - while 
stopping short of developing a new strategy -- follows recent visits 
by EBRD's president and a delegation of EBRD board members that 
heard a collective message promoting expanded engagement in 
Turkmenistan from assembled donors. 
 
¶11.  (SBU) COMMENT CONTINUED: In light of the limited access to 
credit as reported by private firms in Turkmenistan, the opportunity 
to open a privately-owned microfinance bank is a very positive 
development, and is fully consonant with President Berdimuhamedov's 
declared policy to support entrepreneurs in the private sector. 
Inviting institutions like the EBRD and IFC to take ownership 
stakes, even minority shares, makes this move even more progressive 
and offers hope that it will introduce and implement transparent 
lending and management practices. 
 
¶12.  (SBU) COMMENT CONTINUED: The large potential salary increases 
for local staff acknowledged by both EBRD and WB highlight the 
importance these institutions place on retaining key staff in a 
period of uncertainty following the recent devaluation of the U.S. 
dollar.  Post recently received approval for a 12% increase for 
 
ASHGABAT 00000732  003 OF 003 
 
 
locally-employed staff that was calculated on inflation before the 
recent dramatic developments in the exchange-rate regime.  However, 
that alone will not be enough to remain competitive against other 
international organizations in Ashgabat.  We ask that the Department 
recognize the need to "take care of the troops" and work to bring 
LES salaries up to parity with other international organizations - 
before we begin to see a mass exodus of our valued and highly 
experienced LES.  END COMMENT. 
 
HOAGLAND