VZCZCXRO9494
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHNEH RUEHPW RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHAH #0003/01 0050619
ZNR UUUUU ZZH
P 050619Z JAN 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2060
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 4635
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2439
RUEHKO/AMEMBASSY TOKYO PRIORITY 2304
RUEHIT/AMCONSUL ISTANBUL PRIORITY 2883
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
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ASHGABAT 000003 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB 
ANKARA FOR AGRICULTURAL COUNSELLOR 
 
E.O. 12958: N/A 
TAGS: EAGR EFIN ECON ETRD PGOV TX
SUBJECT: CORRUPTION IN TURKMENISTAN'S BUSINESS CIRCLES - THE MORE 
THINGS CHANGE... 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  President Berdimuhamedov's decrees promising 
support for small and medium businesses appear so far to have 
benefited only a select group of business people, mostly those with 
a familial relationship or close connections with the President. 
Small businesses without such ties continue to face widespread 
corruption and bribe taking, despite measures by the government to 
improve the business climate.  END SUMMARY. 
 
UNION OF ENTREPRENEURS AND INDUSTRIALISTS: ONE YEAR LATER 
 
¶3.  (SBU) President Berdimuhamedov's establishment of the Union of 
Entrepreneurs and Industrialists in March 2007 automatically 
resulted in the disbanding of the Union of Entrepreneurs which 
former President Niyazov had formed in the early 1990's.  Kakabai 
Sopiyev, head of the disbanded union, won a legal case contesting 
the disbandment, but surrendered his efforts against the government 
under pressure from the President's office.  Although Niyazov had 
dismissed Aleksandr Dadayev from a previous government position for 
corruption, Dadayev now heads the newly-established organization. 
 
¶4. (SBU) A local entrepreneur and member of the Union told a local 
Embassy employee that the new union's profile is larger than that of 
the previous union because of Presidential support and interest. 
According to the contact, the Entrepreneurs Union lobbies in the 
parliament on behalf of entrepreneurs to ensure that legislation 
reflects their interests.  He cited a recent change in a law that 
will nowallow local private construction firms to compete in 
tenders for residential construction projects as an example of the 
Union's success at lobbying.  The revised law stipulates that local 
construction firms receive the same compensation as foreign 
contractors.  In addition to lobbying efforts, the Entrepreneurs 
Union assists members in preparing loan applications and advancing 
the process.  The contact added that members of the Union's board 
have also applied for loans.  The involvement of board members 
increased the Union's interest in the loan application process, also 
a positive development.  The new Union, which started with 60 
members at the beginning, today has 200 full members. 
 
SHARING THE WEALTH WITHIN THE FAMILY 
 
¶5.  (SBU) In March 2008, Berdimuhamedov authorized three banks -- 
Dayhan Bank (for farmers), Senagat Bank (industrial bank) and 
Garagum Bank (development and reconstruction bank) -- to make loans 
directed towards investment projects in their respective areas.  The 
President's decree stipulated that banks would provide loans at a 
five percent interest rate for ten years, with a two year grace 
period.  However, according to the word on the street, the 
President's extended family members, who have private businesses, 
and entrepreneurs, who demonstrate loyalty to the President, are the 
main beneficiaries of the President's support of these banks.  For 
example, in March 2008, President Berdimuhamedov announced that 
establishing a new poultry farm would be a state priority. 
Entrepreneurs Union head Dadayev received an unprecedented 70 
billion manat (about USD 4,375,000 at the current exchange rate) 
loan for a poultry complex to produce three thousand tons of chicken 
per year.  People assume that this process was not competitive. 
Rumors in Ashgabat also allege that Berdimuhamedov gave a contract 
for reconstruction of a youth cultural center in downtown Ashgabat 
to his relative, who turned it into a banquet hall. 
Berdimuhamedov's extended family members run this complex. 
 
¶6. (SBU) An entrepreneur from Lebap province, who is not a member of 
the new Union, characterized it as "discriminatory" and referred to 
it as an exclusive group that lobbies only for their own business 
interests and do not care about the average entrepreneur.  Another 
contact said that after Berdimuhamedov became President, he 
rearranged economic players and installed his own people to control 
the economy -- most notably by making his friend Nokerguly Atagulyev 
the Minister of Trade and Foreign Economic Relations.  (NOTE:  This 
 
ASHGABAT 00000003  002 OF 002 
 
 
Ministry controls all consumer product and food markets in the 
country.  END NOTE.) 
 
SUCCESSFUL LOANS REQUIRE PAY-OFFS 
 
¶7.  (SBU) In January 2008 President Berdimuhamedov announced that 
Dayhan Bank will offer loans with favorable terms to the farmers' 
union (the new name for collective farms) to purchase agricultural 
equipment, fertilizers, and chemicals.  In effect, this move forced 
farming entities to purchase their own equipment and agricultural 
products, which the government had provided until then free of 
charge.  This measure was originally meant to eliminate corruption 
of government officials by cutting off their access to the 
procurement process, and it did bring Berdimuhamedov short-term 
political dividends.  Paying bribes continues to thrive as a 
practice, however.  For example, an Embassy contact from Mary 
Province reported that a successful loan applicant is required to 
surrender five percent of the loan amount to a bank's official for 
expediting the loan process, and a bribe of five percent to the 
chairman of the bank regardless of the speed of the issuance of the 
loan. 
 
ARRANGING KEY MEETINGS HAS A PRICE TAG 
 
¶8.  (SBU) On December 22, a private seed distributor from Ahal 
province told a local Embassy employee that he discussed an 
application for a license to import pesticides, herbicides and 
mineral fertilizers with a Ministry of Agriculture official in 
November.  The official asked for USD 10,000 in order to arrange a 
meeting with the Minister, which included a guaranteed positive 
outcome.  Another contact said that in order to get an appointment 
with a mid-level local official such as a district governor, one 
must pay USD 50-100 -- depending on the issue.  According to a 
contact who works in a foreign company, a foreign firm can receive a 
meeting with a cabinet-level Deputy Chairman -- with a guaranteed 
positive outcome, for example, winning a tender contract -- for a 
USD 50,000 payment. 
 
¶9.  (SBU) COMMENT: While the President's business-related decrees 
sent a message that the government wants to develop Turkmenistan's 
private sector, the flawed implementation of these decrees signals 
that change will come slowly.  It appears that the President is 
partial to allowing his influence to make sure his relatives and 
friends profit from the private sector.  END COMMENT. 
 
MILES