VZCZCXRO4272
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDBU RUEHDF RUEHIK RUEHLH RUEHLN
RUEHLZ RUEHNEH RUEHPW RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHAH #0617/01 1341205
ZNR UUUUU ZZH
P 141205Z MAY 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2818
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 5193
RUEHBJ/AMEMBASSY BEIJING 2937
RUEHKO/AMEMBASSY TOKYO 2802
RUEHIT/AMCONSUL ISTANBUL 3437
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 3553

UNCLAS SECTION 01 OF 03 ASHGABAT 000617 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
 
E.O. 12958: N/A 
TAGS: PGOV EAGR EFIN EIND EINV EPET ETRD SOCI TX
AORC 
SUBJECT: TURKMENISTAN:  IMF ARTICLE IV REVIEW CAPTURES HALF 
OF THE ECONOMIC PICTURE 
 
REF: A. 08 ASHGABAT 1493 
     ¶B. ASHGABAT 462 
     ¶C. 08 ASHGABAT 1394 
     ¶D. ASHGABAT 423 
 
¶1.  (SBU) Sensitive but unclassified.  Not for public 
Internet. 
 
¶2.  (SBU) SUMMARY:  A team from the International Monetary 
Fund (IMF) confirmed that the international financial crisis 
has not affected Turkmenistan because of the country's 
limited integration in international financial markets. 
Declining oil and gas prices and a reduction in demand for 
these products on the world market have so far only had a 
slight affect on Turkmenistan's economy.  Increased 
efficiency due to infrastructure improvements in 
Turkmenistan's petrochemicals sector have made up for some 
losses.  Turkmenistan's textile sector will likely feel the 
effects at some point in the future, and Turkmenistan is 
committed to supporting this industry.  The team was 
complementary about the progress of currency reform, both 
unification of the exchange rate and redenomination, and 
recommends maintaining a fixed exchange rate for at least a 
year to build up public confidence in the redenominated 
currency.  Turkmenistan may need to appreciate its currency 
in the future due to the strength of its oil and gas sector. 
However, the exclusion of a macroeconomic point of view 
limits the value of the International Monetary Fund Article 
IV Review report because it offers an incomplete picture of 
Turkmenistan's economic climate, particularly for private 
sector companies considering entering the market.  END 
SUMMARY. 
 
¶3.  (SBU) International Monetary Fund Article IV Consultation 
Mission team members, Middle East and Central Asia Department 
Deputy Division Chief, Valeria Fichera, and Economist, Anna 
Bordon, briefed donors on May 12 regarding their 
consultations with the Government of Turkmenistan.  As part 
of the Fund's annual Article IV review process, this team 
reviewed development and progress of reforms and public 
finance management with the Central Bank, Ministry of 
Finance, Ministry of Economy and Development, and the State 
Statistics Committee over two weeks.  This review also 
focused on the impact of the global financial crisis in 
Turkmenistan, and looked at progress on exchange rate 
unification and redenomination. 
 
IMF CONFIRMS MINIMAL EFFECTS OF GLOBAL FINANCIAL CRISIS 
 
¶4.  (SBU) The IMF team agreed with Post's previous reporting 
on minimal local effects of the global financial crisis (Ref. 
A) due to Turkmenistan's limited integration in international 
financial markets.  Fichera said that the recession has had 
only some moderate impact, in spite of sharply declining oil 
and gas prices, because price reductions have not yet caught 
up to Turkmenistan. (NOTE:  The price that customers are now 
paying for Turkmenistan's oil and gas exports will change in 
accordance with the terms of pricing section of the contract. 
 For gas going to Russia, this should happen in June.  END 
NOTE.)  Turkmenistan is feeling some effects due to the 
dropping demand for oil and gas on the world market, but oil 
and gas sector infrastructure improvements as well as the 
very high income from the first quarter of 2009 which will 
help compensate for income loss during this period.  The 
Rural Development Program is stimulating the local economy, 
which is growing at a rate of 11 percent, and the government 
is accelerating program projects in order to take advantage 
of low international construction material and equipment 
costs.  Turkmenistan expects further economic growth in 2010 
-- estimated at 8.5 percent -- because of the commencement of 
gas exports to China which should begin at the end of 2009. 
Turkmenistan is aware that the global financial crisis will 
 
ASHGABAT 00000617  002 OF 003 
 
 
affect the textile sector, but is committed to supporting its 
industry throughout this period.  The IMF recommended that 
the private sector implement reforms in the agricultural 
sector which the government envisaged implementing itself. 
 
EXCHANGE RATE AND FINANCIAL SECTOR REFORM 
 
¶5.  (SBU) The team took a positive view of exchange rate 
reform, noting that the government was successful at keeping 
a steady supply of money in the marketplace, mounting a broad 
public information campaign, and enforcing continuation of 
acceptance of both currencies as the redenominated currency 
continues to circulate.  The new currency has impacted 
positively on inflation:  as a point of comparison, inflation 
was 10 percent in June and July of 2008, 8 percent during the 
rest of 2008, and has been gradually declining each month of 
¶2009.  Fichera said that the government has the means to 
survive shocks greater than those envisaged for the medium 
term as well as in 2010 and 2011.  Fichera also said that the 
government intends to implement any reforms in the financial 
sector gradually, and the IMF believes that the new currency 
will encourage deposit mobilization.  The IMF recommends 
maintaining a fixed exchange rate for at least one year in 
order to build trust in the new currency, Fichera said, 
adding that the authorities would like to maintain a fixed 
rate longer.  Turkmenistan is at risk for needing to 
appreciate the manat because of the strong oil and gas 
sector.  As a first step towards modernizing interbank money 
transfers, the IMF discussed the possibility of using 
certificates for transfers, which would also ensure liquidity. 
 
PUBLIC ACCOUNTS REFORM 
 
¶6.  (SBU) According to the team, Turkmenistan's budget 
surplus came from increased revenues due to higher prices on 
the world oil and gas market that occurred after the budget 
was written, as well as an increase of tax revenues from the 
official sector in the post-exchange rate unification period. 
 The team confirmed that the Stabilization Fund will 
initially use budget surpluses to finance public works 
projects (Ref. C) -- such as Rural Development Plan 
construction projects -- and therefore, the IMF told Turkmen 
officials that the Fund should be referred to as a 
Development Fund.  Fichera said that the government is 
actively working to learn about the experience of the IMF and 
European countries in setting up traditional Wealth 
Stabilization Funds and will pursue these avenues, especially 
in the next year as gas revenues increase with the opening of 
the pipeline to China.  Fichera mentioned that she criticized 
the lack of transparency of budgets.  She said that the 
country's financial situation is solid, aided by increased 
efficiency due to upgrades in the oil and gas infrastructure. 
 The government is not keeping any savings in foreign (hard) 
currency, and is looking at other countries' systems with the 
intention of improving its own. 
 
STATISTICAL METHODS WILL BE IMPROVED, BUT WHO WILL SEE THEM? 
 
¶7.  (SBU) Fichera said that Turkmenistan will run a consumer 
price index in the provinces beginning in 2010, but could not 
confirm if this information would be shared with donors. 
 
ANTI-MONEY LAUNDERING LEGISLATION 
 
¶8.  (SBU) Fichera said that Turkmenistan expects to pass 
anti-money laundering legislation -- currently in draft form 
-- in spring 2010.  The government told Fichera that it took 
IMF comments into account when reviewing the draft law, but 
the Fund has not seen the final version of the law and cannot 
confirm this fact or what changes have been made. 
 
¶9.  (SBU) COMMENT:  Without participation of the World Bank 
 
ASHGABAT 00000617  003 OF 003 
 
 
or another entity that could offer perspective on the 
macroeconomic level which would address the many challenges 
to private sector development -- Avaza (Ref. D), the banking 
system, poverty reduction, and lack of transparency and open 
sharing of statistics -- the IMF Article IV Review report 
gives an incomplete picture of Turkmenistan's economic 
climate and is of limited value, especially to private sector 
companies considering entering the market.  END COMMENT. 
MILES