Turkmenistan's Voodoo Economics: Cash-to-Card

UNCLAS SECTION 01 OF 02 ASHGABAT 000365

SIPDIS

SENSITIVE

SIPDIS

STATE FOR SCA/CEN (PERRY)

E.O. 12958: N/A
TAGS: PGOV ECON EFIN TX
SUBJECT: Turkmenistan's Voodoo Economics: Cash-to-Card
Society

Summary
--------------


1. (SBU) On March 23, President Niyazov signed a decree
directing monetary agencies to develop a national non-
cash payment system. The GOTX published a tender on
April 6 for the requisite software and hardware to
establish the system of credit/debit cards for use at
10,000 point of sale (POS) terminals and 300 banking
machines. Ostensibly, this program is being implemented
to reduce the flow of cash in the economy, reduce
corruption and increase tax collection oversight. The
GOTX juggernaut appears to be attempting to convert a
cash-only economy with few private bank account holders
into a cashless society without any formal transition
plan. Concurrently, and possibly related, the GOTX is
permitting certain entities limited near-market-rate
conversions of manat (22,000 - 23,000 per USD),when in
the past this privilege was given by presidential
permission to a few select businesses. The attempt to
monitor the transactions of several businesses could have
significant detrimental impact on many small businesses
and embassy program-implementing partners if they are
forced to operate within formal banking channels. End
Summary.

Two Sides to the Plastic Card Story
--------------


2. (SBU) European Bank for Reconstruction and
Development (EBRD) Turkmenistan Head of the Resident
Office Tony Myron told Emboffs that highly-placed sources
in two banks confirmed the GOTX plans to create debit
cards. All small and medium enterprises, entrepreneurs
and patent holders (private businesses) will be required
to buy POS card readers at the official rate of 5,200
manats per dollar from the GOTX entities. Myron said
that the plan will bring more manat into the banking
system, reduce cash on the streets, and aid in the
monitoring and collection of domestic private businesses'
revenue taxes (2%). Myron said that reducing the flow of
unmonitored cash in the informal sector could lead to a
more transparent economy.


3. (SBU) The Foreign Currency Operations Chief at the
privately-owned Senagat Bank confirmed to Econ Assistant
on April 3 the debit card plans, but added that the GOTX
will also add a credit feature to the plan and is
currently in discussions with Visa and Mastercard. The
Operations Chief added that the Central Bank of
Turkmenistan will oversee the 300 bank machines, but the
Ministry of Trade will be responsible for the
distribution of the POS terminals and bank machines. The
Operations Chief said there is much speculation regarding
the distribution network of the POS machines, but at this
time all GOTX stores and most likely the only "western-
style" Turkish grocery store Yimpas will make the short-
list of mandatory participants.

Cash Constricting Policy
--------------


4. (SBU) According to Myron, approximately $350,000
worth of manats from the Central Bank are dropped off
each day at several Ashgabat street-side exchange
offices. These "offices" function as the city's
unofficial moneychangers, and are openly used by clients
who exchange dollars for manats at the current unofficial
market rate of 24,100 per dollar. A select number of
international companies working in joint ventures with
the GOTX are officially granted foreign currency
conversion through the formal banking system. These
companies convert manats to dollars at the market rate.
Other international businesses with hard currency demands
must convert manats to dollars through formal channels
using the official rate of 5,200 manats to the dollar or

ASHGABAT 00000365 002 OF 002


on the black market. Myron confirmed to Emboffs that
Senagat Bank has been granting up to $100,000 manat to
dollar conversions each day at the near market rate of 22-
23,000 manats per dollar. Post could not confirm if
other banks are also granting these official conversions
and who is being given this privilege.

Comment
--------------


5. (SBU) In conjunction with the POS policy, the
extension of formal foreign currency conversion at the
market rate appears to be a GOTX attempt to exercise
control over the cash economy and reign in graft in the
black market. Even if the short-term GOTX purchase of
manats at the official rate indicate a GOTX move to a
single market-based currency rate, embassy doubts this
will happen any time soon. A move to a single (arguably
convertible) currency would require an entire overhaul of
not only the banking system and elimination of the
supporting culture of corruption. More likely the
purchase could be fueled by a GOTX desire to better
control the cash economy in order to address the serious
budget deficit and the need to make internal payments:
salaries, crops, and social welfare.


6. (SBU) The attempt to assert more control over the
general money supply by creating a false non-cash economy
is a poor attempt to treat the symptoms and not the
disease of an inefficient and non-transparent economy.
Universal implementation of the plan is impossible in an
economy where very few consumers even have private bank
accounts. The attempt to monitor the transactions of
several businesses could have significant detrimental
impact on many small businesses and embassy program-
implementing partners if they are forced to operate
within formal banking channels. End Comment.

JACOBSON