TURKMENISTAN: NEW STATE ORDER GIVES FARMERS FAVORABLE

UNCLAS SECTION 01 OF 02 ASHGABAT 000135 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN ANKARA FOR AGRICULTURAL COUNSELLOR E.O. 12958: N/A TAGS: PGOV EAGR EFIN ECON ETRD TX SUBJECT: TURKMENISTAN: NEW STATE ORDER GIVES FARMERS FAVORABLE LOANS FOR GROWING WHEAT AND COTTON ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: On January 11, President Berdimuhamedov decreed that Dayhan Bank will offer loans with favorable terms to the Farmers' Union for purchasing agricultural equipment, fertilizers, and chemicals. This in effect will force the unions to purchase their own equipment and agricultural products currently provided free-of-charge by the government. This measure will decrease corruption by government officials formerly involved in the procurement process, thereby bringing Berdimuhamedov short-term political dividends. However, to really achieve an increase in agricultural production, the government needs to carry out fundamental reforms, including land privatization and deregulation of the banking sector. END SUMMARY. ¶3. (U) At the Cabinet of Ministers meeting on January 11, President Berdimuhamedov signed a decree allowing state-owned Dayhan (Farmers) Bank to offer low-interest (i.e., 1%) loans at favorable terms to the Farmers' Union for agricultural equipment. The Union must repay the loans in equal annual installments within ten years. The Union also has the option of borrowing funds for one year for the purchase of seed, fertilizers, and chemicals. ¶4. (SBU) Turkmenistan's Farmers' Union is the successor of the Soviet-era kolkhoz ("collective farm") system. According to the law, "On the Farmers' Union," the Union is a legal entity with characteristics of both public and private organizations, and specializes in agricultural production, including wheat, cotton, fruits and vegetables, and livestock. The Farmer Union's assets include state-owned land provided to farmers' unions for long-term use, production facilities and machinery, and funds earned from selling crops. ¶5. (SBU) Until this year, the state agricultural machinery company, Turkmenobahyzmat, provided services on a fee basis for activities such as land leveling, tilling, planting, and harvesting. Farms also received a carefully calculated amount of fertilizer and chemicals from the state fertilizer company, based on requirements for a particular crop. In both cases, the service and product costs were significantly subsidized, inviting corruption by government officials responsible for these areas. The president's latest decree is meant to decrease the opportunity for official corruption, and to make the Farmers' Union self-sufficient in regard to sourcing of equipment, fertilizers, and chemicals. The government of Turkmenistan believes that this measure will also allow farmers to increase their yields and enable the Farmers' Union to pay off its loans. ¶6. (SBU) In addition to wheat and cotton grown by the Farmers' Union for the state on a contract basis, the Farmers' Union can produce fruit, vegetables, meat, and dairy products for the market. However, because of the state's focus on wheat and cotton production, which result in provincial quotas for those crops, the Union is required to allocate all available irrigated lands for wheat and cotton. This leaves it with no choice but to grow wheat and cotton. ¶7. (SBU) Although the decree did not specify what type of production the loan can be used for, a local agricultural economist believes that the loan will be provided only to grow wheat and cotton, which the Farmers' Union is required by law to sell to the state at fixed prices. The economist firmly believes that until the state allows the Farmers' Union to sell its wheat and cotton on the open market, it will not be able to generate enough funds to pay off its loans. In her opinion, this will lead to the Niyazov-era practice of writing off debts for state farms and unprofitable enterprises. ¶8. (SBU) COMMENT: The decree reflects President Berdimuhamedov's genuine desire to improve production of wheat and cotton, and increase farmers' salaries. However, most experts here agree that to achieve this goal, the government must carry out fundamental ASHGABAT 00000135 002 OF 002 reforms, including land privatization and deregulation of the banking sector. Until this happens, the president's loans to the state agricultural sector will result in wasted resources, inflation, and a decline in production in the state agricultural sector, the exact opposite effect envisioned by the president. END COMMENT. HOAGLAND