U.S. ASSISTANCE GROUP MEETING WITH CENTRAL BANK ACTING

UNCLAS SECTION 01 OF 03 ASHGABAT 000158

SIPDIS

SENSITIVE

SIPDIS

STATE FOR SCA/CEN (PERRY),SCA/PPD, EUR/ACE

E.O. 12958: N/A
TAGS: EAID EFIN PGOV PINR EAGR ECON ETRD TX
SUBJECT: U.S. ASSISTANCE GROUP MEETING WITH CENTRAL BANK ACTING
CHAIRMAN ABYLOV

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


1. (SBU) Under the umbrella of EUR/ACE Coordinator Adams' visit,
USAID Regional Director Crowley raised program implementation issues
with Central Bank of Turkmenistan (CBT) Chairman Geldymurad Abylov
on January 30. Abylov stated that the CBT was working to prepare
for introduction of national accounting standards in conformity with
International Financial Reporting Standards (IFRS),and had already
trained its own staff to these standards. To Crowley's offer of
exchange opportunities on micro-credit and agricultural financing,
Abylov replied matter-of-factly that Turkmenistan already sent a
stream of personnel abroad for such training. In response to
concerns raised by Crowley, Abylov contentiously denied that the CBT
had taken any steps to cause local banks to restrict USAID's
implementers' ability to make hard-currency withdrawals. End
Summary.

Abylov: CBT Does Not Need USAID Training Assistance
-------------- --------------


2. (U) Abylov was flanked during the meeting by his main deputies.
Crowley noted that USAID wanted to continue its support for IFRS
training for CBT staff and other professionals, but the Ministry of
Education recently refused to approve the curriculum for training
courses because there was no current IFRS legislation. (Note: The
Ministry of Economy and Finance also declined to become involved in
this issue in a January 31 septel meeting with the delegation. End
Note.) Abylov noted that CBT already trained its staff to IFRS
without external assistance.


3. (U) Crowley said that USAID was also eager for cooperation in
increasing access to credit for farmers. USAID recently designed a
"Community Connection" program on this subject and hoped for
participation by CBT staff. After a CBT staffer had told USAID the
day before that CBT staff would not participate in the program,
Abylov surprisingly announced that a participant would, in fact,
join the trip. The participant he referred to was not actually a
CBT employee, but rather the head of the credit department in the
state agricultural bank, Dayhan Bank.


4. (U) Abylov offered a quick overview of Turkmenistan's bank
sector: 11 banks, of which 5 were state, 3 joint-stock ventures, 2
foreign-owned private, and 1 that worked solely with commercial
mortgages. He noted that "we are currently preparing our employees
to take the test on IFRS." (Note: This reference is to a
USAID-funded testing and certification program. CBT staff sits for
the exams, but do not receive certification due to current
legislation that prohibits state employees from joining professional
associations, a criterion for certification. End Note.) "Thank you
for your invitation (for such training); if we have the need, we
will contact you," he then said with deliberate politeness. As for
agricultural financing, 50 of the nation's total 121 bank branches
occupied themselves by giving credit to farmers; agricultural
lending mechanisms were well-practiced. The CBT had already sent
the chief of its credit operations to the United States. Likewise,
its banking and supervision department was due to travel to the U.S.
"soon." (Note: On February 2, the Ministry of Foreign Affairs
advised Embassy that three CBT employees would participate in the
August 2007 International Visitors program on Banking Supervision/
Intellectual Property Rights and U.S. Financial Security. End Note.)
Additionally, each year four or five personnel received training in
Switzerland. Microcredit featured in virtually all these meetings,
trips and courses, and the CBT worked with the International
Monetary Fund (IMF),World Bank, and European Bank for
Reconstruction and Development (EBRD) on these issues. In all,
maybe a hundred specialists went abroad for training over the past
year, in areas like cashier operations, legal functions, and bank
supervision, Abylov reiterated.

Abylov Denies Dollar Withdrawal Limits
--------------


5. (SBU) Crowley referred to recent financial "difficulties" that
several USAID implementers recently had encountered. These

ASHGABAT 00000158 002 OF 003


implementers had reported that, since late 2006, their local bank,
the National Bank of Pakistan, limited cash withdrawals to $10,000 a
month, plus unlimited amounts for salaries and travel expenses.
(Note: These limits mostly affect implementers providing grants to
local organizations. End Note.) In implementing these limits, the
bank had cited a new instruction from the Central Bank. Crowley
asked whether the bank perhaps was misinterpreting regulations.
Abylov looked surprised, then indignant. He vehemently claimed that
there was never any such CBT resolution or instruction about a
limit, and the bank management in question had never asked him about
it. Nor, Abylov continued without prompting, was there a question
of dollars being in limited supply. "Whenever a bank wants to get
money, we give it. If you wanted three billion, we could give it to
you." (Note: Abylov's unprompted comments on liquidity follow his
castigation by Acting President Berdimuhammedov in a January 27
Cabinet of Ministers meeting for failing to pay state employees on
time. End Note.)

CBT Hints at Suspicions
--------------


6. (SBU) Abylov then admitted that the CBT had indeed temporarily
stopped dollar withdrawals at the very end of 2006 "because of the
mourning period (for Niyazov's death)." But, he added, this was
purely a short-lived measure taken in the interests of stability and
seasonal monetary control. Then he and his deputy commented that
the amounts being requested by the implementers during the mourning
period were remarkably high -- more than 10 times the typical
monthly pattern, they claimed. "Why do you need withdrawal in
dollars (as opposed to manat)?" they asked. With the exception of
salaries for program staff, why should USAID not simply pay its
expenses via standard electronic transfers, the deputy queried. The
Chairman's advisor also stated that the CBT did not have full
information on the grants provided by USAID's implementers,
implicitly suggesting something improper in their requests for
cash.


7. (SBU) USAID Country Representative Moretz clarified that all
grants made by USAID's partners were previously registered with the
State Agency for Foreign Investment and currently at the Ministry of
Economy and Finance. As a result, all information about the
objectives and funding levels was on record with the Government of
Turkmenistan. After the Chairman excused himself for a phone call,
Moretz clarified that USAID's partners' difficulties began well
before the mourning period and added that the National Bank of
Pakistan referred to a Central Bank decree of November 20 -- a month
before Niyazov's death -- as the reason for restricting withdrawals.


"Everyone Knows What Everyone Else Is Doing"
--------------


8. (SBU) Growing animated, Abylov again repeated that the bank
managers had not contacted him until very late December. He
heatedly offered to summon them "in five minutes" in order to thrash
out who was telling the truth. "You said we held up your money. We
never did." Referring to a separate regulation governing foreign
exchange operations by banks, Abylov insisted that the instructions
were only for individuals. (Note: This interpretation of
Instruction 5490 from 2002 is consistent with USAID's understanding,
but does not diminish the fact that the National Bank of Pakistan
continues to refer to this instruction to limit monthly withdrawals
by organizations. End Note.) It was necessary to be transparent,
Abylov went on, remaining agitated. "We should observe the rules of
the nations where we reside. I don't want to accuse you, but
Ashgabat is a small town where everyone knows what everyone else is
doing." Rather than resolve the issue on the spot, the USAID
Country Representative suggested that a future meeting to discuss
this issue further would be most productive. (Note: During the
heated exchange, the MFA Americas Desk Chief Bashimov made gestures
to the USAID Representative not to respond to Abylov's challenge for
an instant meeting. End Note.)

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

ASHGABAT 00000158 003 OF 003




9. (SBU) Although it was good that MFA facilitation of Coordinator
Adams' schedule produced this long-requested meeting with the CBT,
the tone and content of the meeting itself were not encouraging.
Judging from Abylov's forthright words, the CBT does not appear
interested in receiving USG technical assistance. His approach
mirrors that of past meetings and is consistent with a general
cooling of USAID's previously productive relations with the CBT
since the ouster of the then-Chairwoman in May 2005. Given Abylov's
adamant denial that the CBT had put limits on monthly cash-dollar
withdrawals and the confusing references to two separate
instructions to banks, post will review details of the bank
withdrawal issue with the implementers before meeting again with the
CBT.


10. (SBU) Abylov's comment about "knowing what everyone is doing"
was likely a reference to USAID contractors' use of dollar
withdrawals to gain access to the unofficial exchange rate,
currently around 24,000:1. The 1993 bilateral agreement allows for
funds conversion at the rate "providing the largest number of
units...lawful for any commercial or other transaction;" if the CBT
attempts to force USG implementers to use the official exchange rate
of 5,000:1, it would greatly reduce the level of assistance funds
that reach the people. Unsaid, but also implicit in the rather
intense questioning from the Chairman about December's alleged
withdrawal "spike" was a suspicion that the latter might have been
linked to post-Niyazov political plotting.


11. (SBU) Implementers' problems and Abylov's reputed competence
both aside, his almost complete lack of experience in modern banking
practices demonstrate both how low the banking bar is in
Turkmenistan and how far its banking system has to go to get
anywhere near accepted international norms.

BRUSH