TURKMENISTAN: ECONOMIC REFORM TAKES CENTER STAGE

UNCLAS SECTION 01 OF 03 ASHGABAT 000230 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB TREASURY FOR BAKER/LANIER USAID/W FOR EE/AA E.O. 12958: N/A TAGS: PGOV PINR ECON EFIN TX SUBJECT: TURKMENISTAN: ECONOMIC REFORM TAKES CENTER STAGE AT LATEST CABINET OF MINISTERS MEETING REF: A. ASHGABAT 0077 ¶B. ASHGABAT 0213 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: In an extended Cabinet of Ministers meeting on February 8, President Berdimuhamedov said Turkmenistan's industrial sector should operate according to the principles of transparency, privatization, market diversity, and profit. He split the Ministry of Economy and Finance into two entities, the Ministry of Finance and the Ministry of Economy and Development, hoping better to achieve the ambitious goals he has set. In a notable development, the president announced that he was abolishing the opaque extra-budgetary funds that have been an annual target for misuse and corruption. Also notable, Berdimuhamedov said that Turkmenistan should aim for a yearly 8-10% growth in Gross Domestic Product, as opposed to the unrealistic figure of 10-20% that had been stated in the past. While all of this is encouraging, citizens will continue to receive free products such as automobile gas until 2030, and many key sectors will remain state-owned. This is a key time for advisors from the U.S. Department of Treasury to continue engaging Turkmenistan on these issues. END SUMMARY. ¶3. (U) The agenda for an extended Cabinet of Ministers meeting held on February 8 focused on introducing market principles to Turkmenistan's economy. Without mentioning specifics, the president announced that some state enterprises would be privatized. However, companies in "strategic" sectors like oil and gas, electricity, chemicals, petrochemicals, textiles, construction, transportation, and communications will remain state-owned. In addition, because non-tax state revenues from leases of state enterprises and payments for the use of state property are not used effectively, Berdimuhamedov said that Turkmenistan will enter into joint ventures with foreign companies to make better use of these profits. LEADERSHIP AND ROLE OF MINISTRY OF FINANCE ¶4. (U) President Berdimuhamedov appointed former Minister of Economy and Finance Hojamyrat Geldimyradov as the new Minister of Finance. Geldimyradov was born in Ahal province in 1965. He graduated from the Polytechnical Institute Turkmenistan in 1989 and from the Mudryi Law Academy in Ukraine in 2004. Since 2007, Geldimyradov has served as Turkmenistan's National Coordinator for International Technical Assistance from the European Union, while also Minister of Economy and Finance since February 2007. He was Deputy Minister of Economy and Finance June 2005-February ¶2007. During 1997-2005, Geldimyradov worked in local, provincial, and national-level positions of the State Tax Service, culminating in his role as Head of the National Tax Service Department 1990-2005. The Ministry of Finance will have responsibilities somewhat akin to those of the Federal Reserve Bank, such as controlling inflation and strengthening national currency, as well as taking the lead on exchange-rate unification. LEADERSHIP AND ROLE OF MINISTRY OF ECONOMY AND DEVELOPMENT ¶5. (U) Former Deputy Minister of Economy and Finance Gurbanmyrat Gurbanmyradov was appointed Minister of Economy and Development. Gurbanmyradov was born in 1978 in Ahal province. He graduated in 1999 from Turkmen State University with a major in International Economic Law. Gurbanmyradov began working at the Ministry of Economy and Finance in 2004, serving as Deputy Head of the Agricultural Industry Department, Head of the Methodology and Formulation of ASHGABAT 00000230 002 OF 003 Normative Documents Department, and Head of the Agricultural Industry Department. He has been Deputy Minister of Economy and Finance since February 2007. The Ministry of Economy and Development will coordinate with the Institute of Strategic Planning and Economic Development on promoting job growth in the private sector, especially in rural Turkmenistan. ECONOMIC AND FINANCE OBJECTIVES ¶6. (U) Berdimuhamedov ordered the closing of Turkmenistan's state funds. He is making yearly Gross Domestic Product (GDP) growth goals more realistic. (NOTE: Traditionally, Turkmenistan has aimed for an unrealistic GDP growth of 10-20%. END NOTE.) Berdimuhamedov directed the Parliament to draft legislation that will encourage private-sector growth. He said the State Statistics Committee should start using globally-used economic indicators as soon as possible. He also said Turkmenistan should have a "highly liquid stock market regulated by the state and integrated into the global securities markets." ¶7. (U) Berdimuhamedov said, without details, more tax benefits should be granted to certain types of entrepreneurial activities and new compensation for use of patents. AREAS OF STRENGTH AND GROWTH ¶8. (U) Emphasizing Turkmenistan's strategic geographic location, the president said the creation of transnational transportation links -- i.e., the North-South Railway Line (Ref. A) -- and free economic zones, international tourist zones, and economic and political institutions would strengthen the country's geopolitical position. TRANSPARENCY AND DIVERSITY IN THE HYDROCARBONS SECTOR ¶8. (U) Berdimuhamedov reiterated a major international audit of all hydrocarbon deposits in Turkmenistan will take place in 2008. He added that Turkmenistan's oil and gas sector should operate under the principles of transparency. He added Turkmenistan should export fuel via a diversified network of export routes, through large-scale international gas pipeline projects. The president announced that citizens would receive only limited quantities of free vehicle fuel beginning February 11 (Ref. B). OTHER SECTORS ¶9. (U) In other sectors, Berdimuhamedov made the following noteworthy comments: -- Citizens are encouraged to purchase voluntarily medical insurance, and Turkmenistan will continue to build high-tech medical centers. -- Turkmenistan should attract foreign specialists to work in its higher education institutions, and send hundreds of students abroad to study. -- The Ministry of Agriculture should identify profitable crops to grow in Turkmenistan, including ones that can be exported to earn hard currency revenues. -- The textile industry should also export more products and develop more private textile companies. OTHER FIRINGS AND HIRINGS ¶10. (U) Berdimuhamedov also fired several heads of ASHGABAT 00000230 003 OF 003 organizations, agencies, and educational institutions, and announced their replacements. -- Head of the Main State Tax Service Dovlet Hojayev was fired and replaced by Deputy Head of the Main State Tax Service Nurmuhammet Ashirov. -- Chairman of Turkmenistan Standards Bairam Hasanov was fired and replaced by Deputy Chairman of Turkmen Standards Ovezmuhammet Atayev. -- Aina Gurbanniyazova was appointed Rector of the Azadi National Institute of World Languages. ¶11. (SBU) COMMENT: Curiously, Central Bank Chairman Geldimyrat Abilov did not speak at this meeting, but it appears that the Central Bank will be in charge of banking supervision and monetary policy. Despite the high bar set by Berdimuhamedov to operate under market principles, he also said that Turkmenistan will continue to give its citizens free natural gas, electricity, water, and salt until 2030. It seems that Berdimuhamedov is hearing the need to privatize, open up markets, and make profits, but there is some distance to go until this will be fully realizable. This is a key time for U.S. advisors from the Department of the Treasury to continue engaging Turkmenistan on these issues. END COMMENT. HOAGLAND