VZCZCXRO0965
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHNEH RUEHPW RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHAH #0017/01 0070435
ZNR UUUUU ZZH
P 070435Z JAN 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 2068
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
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RUEHAK/AMEMBASSY ANKARA 4641
RUEHBJ/AMEMBASSY BEIJING 2445
RUEHKO/AMEMBASSY TOKYO 2310
RUEHIT/AMCONSUL ISTANBUL 2889
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHVEN/USMISSION USOSCE 3184
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 03 ASHGABAT 000017 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/CEN 
STATE FOR NEA/SCA/EX, OBO/OM/AM/SCA, SCA/CEN 
BANGKOK FOR USDO 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EFIN AMGT AFIN TX
SUBJECT: REDENOMINATION OF NATIONAL CURRENCY IN TURKMENISTAN 
 
REF: (A) 08 ASHGABAT 1083  (B) 08 ASHGABAT 551 
 
¶1.  (SBU) SUMMARY: On January 1, 2009 the Government of Turkmenistan 
began a redenomination of its national currency, the Manat (TM). 
The new currency, or Denominated Turkmen Manat (DTM), maintains the 
U.S. dollar exchange rate established in the summer of 2008 (Ref. 
A).  Current USD-TM exchange rates are as follows:  1 USD = 14,250 
TM, 1 USD = 2.85 DTM.  Both currencies are to remain in circulation 
until January 1, 2010.  All vendors, both government and 
independent, appear to accept either currency.  One source said that 
the government distributed 30-35 million DTM in preparation for the 
rollout of the new currency.  While it is still too early to asses 
the true effect of the redenomination on the local economy, Post 
expects short-term inflationary pressure to impact its already tight 
operating budget.  END SUMMARY. 
 
TWO CURRENCIES IN CIRCULATION 
 
¶2.  (SBU) On January 1, 2009 the Government of Turkmenistan began a 
redenomination of its national currency, the Turkmen Manat (TM). The 
new currency, or Denominated Turkmen Manat (DTM), maintains the U.S. 
dollar exchange rate established in the summer of 2008 (1 USD = 
14,250 TM, 1 USD = 2.85 DTM).  Both currencies are to remain in 
circulation until January 1, 2010.  Contrary to generally accepted 
redenomination practice, Turkmenistan did not simply drop zeros from 
its currency and reprint.  Instead, under the new system 1 TM in the 
new currency is equal to 5,000 TM in the old currency. 
 
¶3.  (SBU) The new currency notes are issued in seven denominations: 
1, 5, 10, 20, 50, 100, and 500 Manat.  The new coin denominations 
are: 1, 2, 5, 10, 20, and 50 tenge.  As opposed to the old bills, 
all of which portrayed the now diseased "President for Life" and 
"Father of All Turkmen" Saparmurat Niyazov Turkmenbashy, the new 
bills depict various national heroes.  Only the largest 
denomination, 500 Manat, still carries the portrait of 
Turkmenbashy. 
 
IMPLEMENTATION ON THE GROUND 
 
¶4.  (SBU) An Embassy employee noted on January 6 that various 
exchange points in Ashgabat exchanged 2.8429 DTM for $1.  These 
exchange points will not give old Manat in exchange for dollars, or 
old Manat for new Manat -- but will accept old Manat if the customer 
wants to buy dollars.  The exchange points all made available to 
clients free brochures with full-color portrayals of the new bills 
and coins -- and including an explanation of the old-to-new Manat 
exchange rate -- under the official redenomination slogan "New 
Manat, New Life." 
 
THE REALITY IN BAZAARS:  ROLLING OUT AS PLANNED 
 
¶5.  (SBU) Items for sale in bazaars are marked with two price tags, 
in TM and DTM.  Vendors are quoting prices in TM when asked for a 
price, but are accepting both TM and DTM and give change in either 
TM or DTM, depending on the customer's preference and the vendor's 
DTM availability.  Small privately-owned kiosks are currently 
displaying prices in TM only, but will accept payment in DTM.  These 
kiosks do not all have a sufficient supply of DTM on hand in order 
to give change yet. 
 
MODES OF PUBLIC TRANSPORTATION ACCEPT BOTH CURRENCIES, TOO 
 
¶6.  (SBU) Tickets for all modes of public transportation, including 
buses, trains, and airplanes are marked in TM and DTM and payment is 
accepted in either currency.  Many Turkmen visited exchange points 
around the city in the two weeks leading up to January 1, with the 
goal of exchanging TM for dollars, apparently believing that keeping 
money in dollars was more secure than TM.  As of January 6, private 
taxi drivers prefer to charge clients in TM but will accept DTM when 
asked. 
 
ASHGABAT 00000017  002 OF 003 
 
 
 
GOVERNMENT MAKES SOCIAL PAYMENTS IN NEW CURRENCY 
 
¶7.  (SBU) Locally engaged staff at Post report that all government 
agencies paid wages, pensions, stipends, and other social payments 
for the months of December in DTM, beginning January 1, 2009. 
 
SOME COMPLICATIONS BUT LOCAL EXPERT SAYS IT'S "NORMAL" 
 
¶8.  (SBU) A member of the international financial community in 
Ashgabat said that his offices worked through the New Year's holiday 
weekend in order to be prepared to open for business on January 4. 
He noted that although the government distributed 30-35 million DTM 
to government shops in preparation for redenomination, a lack of 
sufficient supply of tenge coins has forced consumers to either 
leave a store without the change or to buy small unwanted objects 
(such as chewing gum).  This expert predicted that both currencies 
will remain in circulation throughout 2009 as the presidential 
decree mandates. Nevertheless, he claimed that the government has 
accepted, in theory, his suggestion that it remove old currency from 
circulation as soon as possible.  In general, he felt that the 
transition has been smooth, apart from some confusion on prices when 
cashiers have to convert from DTM to TM in shops, which he called 
"normal."  He also predicted that the government may adjust the 
DTM-dollar exchange rate in the next few months, to an even 2 or 3 
DTM per $1.  He noted that Turkmen government employees are 
expecting that the President will announce a new salary raise 
package soon. 
 
OLD CURRENCY PROBLEMS 
 
¶9.  (SBU) Turkmenistan remains a cash only society.  The country's 
still underdeveloped banking system does not yet share the full 
faith and trust of the majority of the citizenry.  Most local 
nationals do not have bank accounts or credit cards.  Antiquated and 
sometimes capricious banking laws and regulations discourage the use 
of local bank accounts by business.  Prior to the redenomination, 
Manat were issued in paper notes and coins, with the largest 
available being the 10,000 TM printed note.  The old currency 
exchange rate is 1 USD to 14,215 TM, meaning that the largest bill 
circulating in the old currency is equal to 0.70 USD.  With the old 
currency, even small purchases require literal piles of notes. 
Larger purchases and regular or reoccurring business expenses are 
impossible to conduct in old Manat, necessitating the routine use of 
U.S. dollars by all businesses and government agencies. 
 
IMPACT ON POST OPERATIONS 
 
¶10.  (SBU) Although the prospect of no longer carrying large bags of 
money to the market appears appealing, there is widespread anxiety 
over the implementation of the redenomination and the potential for 
inflation.  LE Staff, vendors, and contractors have all expressed a 
fear that the nonstandard conversion rate will lead to confusion at 
the cash register and in the bazaars, creating an opportunity for 
cheating customers.  Such behavior would only add to an already 
inflationary economic climate where vendors and contractors 
routinely approach Post's Procurement Unit to renegotiate or 
unilaterally raise prices, despite valid contracts and agreements. 
 
¶11.  (SBU) COMMENT:  Under the most transparent of conditions, 
redenominations are difficult to implement, often resulting in 
significant short-term inflation.  The international financial 
expert Post spoke with said that effects of the new currency on the 
inflation rate will be known in 15-20 days.  Given the Government of 
Turkmenistan's decision to complicate the redenomination process by 
not simply dropping zeros, and the likelihood of inflation, Post 
management expects pressure to renegotiate contracts with local 
vendors and landlords to increase.  Previous periods of sharp 
inflation surrounding moments of uncertainty in the local currency 
(Ref. B) have shown that vendors and landlords have little respect 
 
ASHGABAT 00000017  003 OF 003 
 
 
for agreements.  As Post has little realistic recourse through the 
local justice system and few options in Turkmenistan's limited 
marketplace, it is likely that we will be forced to acquiesce to 
vendor demands.  END COMMENT. 
 
MILES