Identifier
Created
Classification
Origin
07ASHGABAT1239
2007-11-16 07:26:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

TURKMENISTAN: SUDDEN DROP IN UNOFFICIAL DOLLAR

Tags:  PGOV PREL EFIN ECON TX 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001239 

SIPDIS

SIPDIS

STATE FOR SCA/CEN

E.O. 12958: DECL: 11/15/2017
TAGS: PGOV PREL EFIN ECON TX
SUBJECT: TURKMENISTAN: SUDDEN DROP IN UNOFFICIAL DOLLAR
EXCHANGE RATE LEADS TO PANIC TRADING DURING TIOGE

REF: ASHGABAT 1230

Classified By: Charge Richard E. Hoagland for reasons 1.4(B) and (D).

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001239

SIPDIS

SIPDIS

STATE FOR SCA/CEN

E.O. 12958: DECL: 11/15/2017
TAGS: PGOV PREL EFIN ECON TX
SUBJECT: TURKMENISTAN: SUDDEN DROP IN UNOFFICIAL DOLLAR
EXCHANGE RATE LEADS TO PANIC TRADING DURING TIOGE

REF: ASHGABAT 1230

Classified By: Charge Richard E. Hoagland for reasons 1.4(B) and (D).


1. (C) SUMMARY: The unofficial exchange rate for the U.S.
dollar in Ashgabat suddenly dropped sharply -- around 40% --
November 13 and 14, leading to panic in the city as
individuals who had been exchanging their manat savings into
dollars for more convenient storage in their homes (nobody
here trusts banks) sought to pay off outstanding debts before
the dollar dropped too low. Nobody knows for sure what
caused the dollar's sudden drop, although few attributed it
to the dollar's declining value in world markets. Whether
the cause was an inept government effort to begin to respond
to IMF recommendations made the previous week, would-be
speculators seeking to make some money by manipulating the
dollar market, or the result of a panic that grew out of
control by dollar savers, it raised questions about
Turkmenistan's fiscal stability during one of Turkmenistan's
biggest international events ever -- the November 13-15 oil
and gas exhibition. Although the exchange rate had moved
closer to its previous level by November 16, there may be
repercussions within the government, with Central Bank
Chairman Abilov possibly one of the first to go. END SUMMARY.


2. (SBU) Following the president's televised November 12
instruction to the Central Bank and Ministry of Economy and
Finance to begin drafting a plan to unify Turkmenistan's dual
currency exchange rate (the official rate is approximately
5000 manat to $1, while the unofficial rate up to now has
been largely stable at approximately 23,800 manat to $1)
(reftel),the unofficial rate unexpectedly began to move the
afternoon of November 13. By the close of business November
13, the rate was approximately 22,500 manat to $1. By
approximately 11:00 am November 14, the rate had risen even
further to 18,000 manat to $1, and by 2:00 pm unofficial
exchange vendors closed their facilities as the exchange rate

hit 12,000 manat per dollar. Police directed people and cars
out of the usually quiet money changing block as heated
exchanges among confused citizens took place on sidewalks.
As of 4:00 pm, the unofficial vendors had reopened, and were
selling at a rate of 17,000 manat to the dollar. Vnesheconom
bank contacts told post they expected the rate to drop to
15,000 manat per dollar over the coming week or two, then to
climb back. Notably, the Euro exchange rate remained roughly
stable through November 14, but there is little or no
currency exchange activity in Ashgabat using Euros (and there
is only one Euro exchange rate - the official one). Equally
notable, the panic in Ashgabat did not take place elsewhere
in Turkmenistan.


3. (SBU) On November 15, the unofficial exchange vendors
reopened, with the dollar selling at a rate of 18,000-20,000
manat per dollar. On November 16, the dollar increased to
22,000. However, vendors are continuing only to buy dollars
at these rates; they have not yet started selling dollars to
individuals wanting to get rid of their manat.

THE EFFECT ON PRICES


4. (C) Prices in the markets started jumping November 14
amid panic buying, and many shop owners responded to these
most recent events by closing early. Embassy employees also
saw Turkmenistani citizens flooding into banks in order to
pay off their private loans (calculated in manat),panicking
that the dollars they had been storing in their mattresses
were losing their value. When the markets reopened on
November 15, goods were again selling at "normal" prices,
though Embassy staff reported fewer shoppers than usual.
Those who went out shopping November 15 were all talking
about the previous day's events, and all believed the dollar
would return to nearly its pre-November 14 exchange rate.

ASHGABAT 00001239 002 OF 002



GOVERNMENT INVOLVEMENT?


5. (C) Nobody knows for sure the reasons for the manat's
sudden rise. The European Bank for Reconstruction and
Development (EBRD) country director believes that the Central
Bank of Turkmenistan (CBT) and the Ministry of Economy and
Finance (MOEF) engineered this event because an International
Monetary Fund (IMF) delegation which had visited Turkmenistan
the previous week had emphasized the ridiculousness of
pegging an "unofficial" exchange rate of 23,600 manat to an
ever-falling dollar. (NOTE: EBRD insists that the
unofficial exchange rate actually is an official exchange
rate controlled by the MOEF and CBT. END NOTE.) The IMF
reportedly also told the MOEF and CBT that the unofficial
exchange rate had caused recent inflation, as shown by the
estimated 25 percent rise in food prices from September to
September. The EBRD country manager said that the danger of
giving advice in this country is the possibility of a
too-literal interpretation.


6. (C) EBRD also acknowledges the possibility that the MOEF
and the CBT may have interpreted President Berdimuhamedov's
request for a plan to unify the exchange rates by 2009 as a
specific plan followed by a specific action. In any case,
EBRD does not believe that the actions of individual
speculators instigated the rapid change, as a sharp change
such as this would only occur after taking a massive amount
of manat off of the market, which only the Central Bank has
access to. To illustrate the scale implied by "massive,"
EBRD mentioned that while expatriate residents in
Turkmenistan usually exchange $100 at a time, Turkmenistanis
exchange $10 or $20 at a time. Adding that while significant
amounts of dollars are exchanged in Ashgabat every day, it is
a completely different story in other areas of Turkmenistan.
In Turkmenbashy, a request to exchange $5,000 would cause
"hysterics," because no money changer would have that amount
of manat at the ready. In short, there is no way that a
depreciation of 25 percent -- hyperinflation -- could have
occurred overnight without direct market intervention by
state financial institutions, he argued. If the rate falls
to 15,000 manat to the dollar, the dollar depreciation will
hit 36 percent.


7. (C) An employee at the World Bank (please protect)
suggested that the fall might have been the result of some
individuals -- possibly high-level government officials --
seeking to take advantage of both the president's
announcement and the presence of many foreign guests (see
para 8) to make money. If the drop was the result of an
opening effort to begin to unify the exchange rate, he added,
it was very poorly handled.


8. (C) COMMENT: While some may have made a fortune off of
the events of November 14, the many more who sought to pay
off their loans or to change their dollar savings into manat
were badly hurt. With consumers still shaky about the events
of the last few days, people will likely resist making major
new financial commitments. All agree that the government's
actions over the coming days will help to shed some light on
what happened. And, at least on November 15, it appeared
that the Central Bank may indeed have intervened to stabilize
the situation. However, the bank's intervention may have
been too late to avoid any possible repercussions for the
individual most likely to be blamed for this debacle:
Central Bank Chairman Abilov. Whether it also will take the
edge off of the president's enthusiasm for currency
unification remains to be seen.
HOAGLAND