TURKMENISTAN ANNOUNCES NEW CURRENCY DENOMINATION PLAN

UNCLAS ASHGABAT 001214 SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB PLEASE PASS TO USTDA DAN STEIN E.O. 12958: N/A TAGS: PREL PGOV EFIN ECON TX SUBJECT: TURKMENISTAN ANNOUNCES NEW CURRENCY DENOMINATION PLAN ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. Summary: A new currency denomination plan to take effect in the new year creates a new manat equal in value to 5000 of the manats currently in circulation. Approximately 3 of the new manats will equal one USD, as opposed to the current rate of 14,000 per USD. The EBRD head of Mission believes that Turkmenistan has enough foreign reserves to successfully defend a 3 manat/dollar exchange rate for awhile. End Summary. ¶3. (U) The GOTX has announced a new currency denomination plan effective January 1, 2009. Under it, one new manat will be equal in value to 5000 currently circulated manats. The dollar/manat exchange rate will go from roughly 14,000 manats to one USD to nearly 3 manats per USD. The new currency will be issued in 1, 5, 10, 20, 50, 100 and 200-manat banknotes, as well as 1, 2, 5, 10, 20 and 50-tenge coins. According to a Central Bank official, the plan will strengthen the manat's buying power, making it "one of the strongest currencies in the region". ¶4. (U) The new plan, made public on September 8, differs with the one first announced in April 2008 by an earlier decree. That plan envisaged a redenomination in which 1000 currently circulated manats would equal one new manat. The new decree requires commercial entities, including all retail commodity and service providers, to place price tags on goods in both the old and redenominated currencies. There will be a two-year transition period, during which both the old and new currencies will be accepted. ¶5. (SBU) EBRD Head of Mission Neil McKain said this decision was positive and had certain practical benefits. They will have a "big" currency, like the dollar, pound, or Euro. Central Bank officials had told him that they wanted a comparable currency. In addition, there would be "less room" for the government to manipulate the currency. And, after a big spike in inflation following the redenomination, McKain predicted that prices would settle down. ¶6. (SBU) McKain believed there would be at least one more shift in the exchange rate between now and the end of the year, and that it would be a shift down (there would be even fewer manat equal to the dollar). Nevertheless, unless the government changed rules on access to the money in one's own bank account (e.g., businesses can only take out the amount of money equal to a bill they need to pay) or makes electronic and bank transfers easier, Turkmenistan will still have a cash economy. ¶7. (SBU) Regarding the value of the new manat, McKain believed that Turkmenistan had enough foreign reserves to successfully defend an exchange rate of 3/dollar (or even 1:1),for awhile. Gas exports this year have increased 40%. One thing to watch, however, he said, is if the population continues to maintain savings in dollars. That will mean that they still have no faith in the national currency. ¶8. (SBU) COMMENT: According to our local staff, the announcement has raised concern among the local population that in anticipation of the redenomination, vendors will begin raising the price of food and consumer goods between now and the end of the year. Historically, any instability in the currency market or system has led to increased inflation in the broader marketplace. END COMMENT. CURRAN