TURKMENISTAN: CREEPING FORWARD ON BANKING REFORM

UNCLAS SECTION 01 OF 02 ASHGABAT 001308 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB TREASURY FOR JEFFERY BAKER E.O. 12958: N/A TAGS: PGOV ECON EFIN TX SUBJECT: TURKMENISTAN: CREEPING FORWARD ON BANKING REFORM REF: A. ASHGABAT 1253 ¶B. ASHGABAT 1230 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: At a meeting that President Berdimuhamedov held with senior bank officials on November 28, Central Bank (CBT) Chairman Geldimyrat Abylov reported that the CBT is continuing to study available options regarding financial sector reform and reviewing current international practices. Berdimuhamedov then fired the chairmen of Halk Bank and Garagum Bank (both government entities) and reiterated a previous directive to the Dayhan Bank chairman to work out a better payment structure for cotton farmers (Ref. A). The meeting also included discussions related to uniting the dual exchange rates (Ref. B). These discussions appear to be a step in the right direction, but the minor proposals discussed thus far are unlikely to have much impact. Closer technical cooperation with international organizations, international financial institutions, and foreign missions that would foster real reform is still in a nascent stage. END SUMMARY. ¶3. (U) On November 28, President Berdimuhamedov held a meeting with the country's bankers, banking regulators, Minister of Economy and Finance Hojamyrat Geldimyradov, and Director of the Institute of Strategic Planning and Economic Development Ashyr Gubanguliyev. The president said that banks should be in charge of bringing the country's financial system in line with current economic reforms. Central Bank (CBT) Chairman Geldimyrat Abylov reported that the CBT is continuing to study international financial practices, and that it is currently engaged in dialog with international financial institutions. ¶4. (U) Berdimuhamedov fired the chairmen of Halk Bank and Garagum Bank for incompetence, and appointed Gurbanmyrat Begmyradov and Akmyrat Mammedov as the new chairmen respectively. The president cited professionalism as the top criteria for appointing top bank executives. Berdimuhamedov instructed the Chairman of Dayhan Bank to work out a better payment mechanism for cotton producers (Ref. A). ¶5. (U) The group discussed reform goals in the Turkmen financial sector and options for determining the value of ruble deposits that had been made before the introduction of the manat. (NOTE: No other information was provided regarding the nature of these deposits, but post assesses that these were private deposits, left in place in 1993 in the hope that the abysmal exchange rate would improve. It did not. END NOTE.) Meeting participants also discussed potential measures to unify the official and "market" exchange rates (Ref. B). Berdimuhamedov ordered an increase in the number of Automatic Teller Machines (ATMs) and asked the banking sector to support private sector development by issuing more loans. (NOTE: The only ATMs in Turkmenistan support cards from Turkmen Bank and Vneshekonombank and are used only for cash withdrawals in manat. END NOTE.) ¶6. (SBU) COMMENT: What appears to be another standard meeting on the financial sector is chockablock with commentary on Turkmenistan's leadership style and financial management. It is astounding that 14 years after the country's conversion to the manat, Turkmenistan has not yet converted private ruble accounts to manat. Nevertheless, international financial experts are likely pressuring Turkmenistan's banks to resolve these old accounting issues in order to bring the banks into conformance with international banking standards. It will not be an easy or painless task. The directive to install ATMs is not surprising, as technology is absolutely a fad in Turkmenistan. However, perhaps the government should focus first on building peoples' trust in banks before taking the ASHGABAT 00001308 002 OF 002 next higher step. ¶7. (SBU) COMMENT, CONTINUED: Overall, Turkmenistan's approach to banking sector reform thus far has been very tentative. While the fact that they are discussing it is notable, the Turkmen government needs to make some concrete decisions about how to work with experts from the many international organizations, international financial institutions, and foreign missions, establish a serious timeline, and finally choose a path forward. END COMMENT. CURRAN