TURKMENISTAN: NATIONAL BANK OF PAKISTAN REP ON

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000366 SIPDIS SIPDIS STATE FOR SCA/CEN, EEB TREASURY FOR BAKER/LANIER USAID/W FOR EE/AA E.O. 12958: DECL: 07/20/2017 TAGS: PGOV ECON EFIN TX SUBJECT: TURKMENISTAN: NATIONAL BANK OF PAKISTAN REP ON ECONOMIC DEVELOPMENTS REF: ASHGABAT 0060 Classified By: CDA Richard E. Hoagland: 1.4 (B),(D). ¶1. (C) SUMMARY: Redenomination of Turkmenistan's manat could happen earlier than January 1, 2009, according to General Manager of the National Bank of Pakistan representational office M. Rizwan Khan. He suggested that there is some disagreement within Turkmenistan's financial circles over the value of the manat, with one group suggesting that the current commercial exchange rate of 19,800 manat to the dollar is close to the market rate, and another group suggesting that the unified exchange rate should be 7500 manat to the dollar. However, most government officials seem to believe that the rate will end up somewhere between 12,000-15,000 manat to the dollar. Khan also reported that Central Bank employees were fired over the panic that occurred when the manat wildly fluctuated in October. As the manager of one of two joint venture banks that do business in Turkmenistan, Khan frequently talks to his counterparts in Turkmenistan's financial bodies and seems to have a fairly reliable handle on developments. END SUMMARY. WHAT COULD HAPPEN WITH REVALUATION AND THE EXCHANGE RATE ¶2. (C) During a wide-ranging conversation on March 19, General Manager of the National Bank of Pakistan representative office M. Rizwan Khan said that, in his view -- and that of some of his contacts within the government -- the current commercial exchange rate of 19,800 manat/$1 is close to the market rate. At the other extreme, another group wielding significantly more influence believes that the manat is very strong due to Turkmenistan's high foreign currency reserves, and has urged that the unified exchange rate should end up somewhere around 7,500 manat/$1. However, the majority of his interlocutors, including those from financial institutions, think that the rate will end up somewhere between 12,000 to 15,000/$1. Khan added that one or two Central Bank employees were sacked in retaliation for what happened during the exchange rate fluctuations in October, but would not name names. ¶3. (C) Khan is not at all pleased that "local authorities are not concerned about the effect devaluation will have" on locals earning salary in hard currency as well as expatriates, adding that the Government of Pakistan would need six months to one year to adjust his salary to changes in economic conditions in Turkmenistan. INSIGHTS INTO THE TURKMEN MINDSET ¶4. (C) According to Khan, European Bank for Reconstruction and Development President Jean Lemieur, who recently visited Ashgabat, said high-level discussions with Turkmenistan's government "revolve around it deciding if proposals are an opportunity or a threat." Khan observed that this mindset extends to the business level and explains to some extent the government's hesitancy to introduce a new policies to promote the private sector. ¶5. (C) Khan said that French Ambassador Christian Lechervy told him a French communications company participated in tenders "as a Chinese company," using its registration in China. This company won some tenders and Lechervy hinted that this outcome was due to the fact that China is preferred as a business partner over European companies. NATIONAL BANK OF PAKISTAN POSSIBLE EXPANSION PLANS ¶6. (C) To capitalize on the National Bank of Pakistan's ASHGABAT 00000366 002 OF 002 status as one of the largest bank networks in Central Asia, the Bank is considering expanding operations to Moscow to support the significant Central Asian-Russian trade. Ashgabat could also be upgraded from a representative office to a branch in the future. ¶7. (C) COMMENT: We are intrigued that there is some discussion within the Turkmenistan government about what the unified exchange rate should be. Since almost no one working on economic issues has an academic background in market economics or has worked abroad in "normal" economies, few really have any real idea what it should be. We hope they will listen to advice from the IFIs and others as they move toward exchange-rate unification, but their tendency is to make decisions without detailed consultation and assistance. END COMMENT. HOAGLAND