TURKMENISTAN: IMF INCREASES TECHNICAL ASSISTANCE

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001266 SIPDIS SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: DECL: 07/20/2017 TAGS: EFIN PGOV PREL TX SUBJECT: TURKMENISTAN: IMF INCREASES TECHNICAL ASSISTANCE AND ENGAGEMENT, PRESSES FOR CHANGE REF: A. ASHGABAT 1239 ¶B. ASHGABAT 1036 Classified By: Charge d'Affaires Sylvia Reed Curran for reasons 1.4 (B) and (D). ¶1. (SBU) SUMMARY: An International Monetary Fund (IMF) delegation visiting Turkmenistan in mid-November recommended that the government of Turkmenistan initiate step-by-step reforms to unify the dual exchange rate and increase transparency within government budgets, according to the IMF's representative in Ashgabat, Jennet Hojanazarova. Proposed and current IMF technical assistance for Turkmenistan includes the assistance of a regional advisor, due to arrive in early 2008, to work on budget and national accounts, transparency, and pricing theories. Hojanazarova characterized the visit as successful, adding that government officials asked many questions and were open to suggestions. The sudden collapse of the unofficial exchange rate November 14 demonstrates just how complex some of the financial reforms Turkmenistan is considering might be, and post is encouraged that Turkmenistan's President Berdimuhamedov on November 19 called on officials to work closely with the IMF in implementing currency rate unification. END SUMMARY. RECOMMENDATIONS FROM THE RECENT IMF MISSION ¶2. (C) On November 21, econoff met with Jennet Hojanazarova (strictly protect),Liaison/Research Officer at the International Monetary Fund's (IMF) Ashgabat office, to discuss the recent visit of an IMF delegation led by Peter Winglee. The delegation's recommendations to the government focused on step-by-step reforms toward exchange rate unification and more transparency in the government budget. Hojanazarova said IMF is emphasizing the need to bring more off-budget funds into the main budget, control fund flows, and institute a better pricing mechanism in order to fix problems in the national accounts. (NOTE: The government created the Supreme Auditing Chamber ostensibly to solve just these problems. END NOTE.) Turkmenistan also has requested help with developing a consumer price index and with increasing the government's understanding of issues such as purchasing power parity, and other economic pricing theories. Hojanazarova said that Central Bank (CBT) Chairman Geldimyrat Abylov asked many questions during the mission, and she speculated that Berdimuhamedov had made clear to Abylov his interest in engaging with the IMF on fiscal reform. ¶3. (C) Hojanazarova was hesitant to characterize the visit or discuss details of the delegation's recommendations or findings and urged the U.S. government to discuss these issues with Winglee. However, she said that Turkmenistan government officials were "very cooperative, interactive, and receptive to advice." She concluded that the government is concerned about its image abroad and in attracting investment. IMF'S TECHNICAL ASSISTANCE PROJECTS IN TURKMENISTAN ¶4. (C) The government of Turkmenistan requested training on anti-money laundering (AML) and terrorism financing for government employees. The IMF and the government are still negotiating the terms of this proposed project. Beginning sometime in January 2008, a regionally-based specialist will begin work on issues such as budget and national accounts, transparency, and pricing theories in Turkmenistan and elsewhere in Central Asia. ¶5. (C) The IMF sends officials to its headquarters in Washington, D.C. and to the IMF Joint Vienna Institute in Austria for training programs on topics such as "how to choose an exchange rate regime." In the past, few from Turkmenistan participated. However, since Hojanazarova started this job about two months ago, ten people have ASHGABAT 00001266 002 OF 002 applied online, three of whom will attend training with more acceptances possible. Hojanazarova said that the government acknowledges capacity constraints within its ranks. Since a limited number of officials speak English, participant numbers will remain small for the long term since many classes take place only in English. Hojanazarova attributes the rise in applications for this program and interest in IMF-offered technical assistance to President Berdimuhamedov's endorsement of both the need for fiscal reform and the benefits of foreign education and engagement with international financial institutions. ¶6. (C) Also, the IMF runs seminars at the CBT on banking sector reform and state budget issues, using other countries as case studies so that the government knows that fiscal reform is not an easy process. In response to a government request, the recent IMF delegation presented a seminar during its visit on unification of the exchange rate and budget sector reform in China, Vietnam and other Asian countries. Officials from the National Institute of Statistics also attended. VISIT PLANNED FOR SPRING 2008 ¶7. (C) Hojanazarova said that an IMF team intends to make its annual visit in March or April, 2008 and plans during that visit to thoroughly analyze the economy. Team members will use their findings to write a comprehensive report. She expects that they will closely look at developments in the exchange rate issue. ¶8. (C) COMMENT: Turkmenistan seems to be serious about getting down to business on unifying its dual currency exchange rate, and this in large part may be due to the IMF delegation's visit. Post has heard second-hand, through the local EBRD representative, about some of the details of the visit (Ref a). The sudden collapse of the unofficial exchange rate November 14 demonstrates just how complex some of the financial reforms Turkmenistan is considering might be. Given the government's lack of experience in implementing reforms with such potentially wide-ranging implications, post is encouraged by Turkmenistan's apparent willingness to work closely with the IMF on this project, evidenced by Berdimuhamedov's call on November 19 for officials to do that. An increased IMF imprint will require even more coordination between the donor community here. END COMMENT. SCURRAN