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