TURKMENISTAN: TAKING STEPS TOWARD A MARKET ECONOMY

UNCLAS SECTION 01 OF 02 ASHGABAT 000370

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB
COMMERCE FOR HUEPER
TREASURY FOR BAKER/LANIER
USAID/W FOR EE/AA

E.O. 12958: N/A
TAGS: PGOV ECON EINV TX
SUBJECT: TURKMENISTAN: TAKING STEPS TOWARD A MARKET ECONOMY

REF: ASHGABAT 0369


1. (U) Sensitive but unclassified. Not for public Internet.


2. (U) SUMMARY: On March 17 President Berdimuhamedov delivered a
policy statement on the Government of Turkmenistan's support of
advancing entrepreneurship and foreign investment. To solidify his
statements on improving the business climate, the president adopted
the new "Law on Foreign Investment" (reftel) and amendments to the
existing Tax Code of Turkmenistan. He also signed a decree
authorizing three commercial banks of Turkmenistan to issue credit
lines for prospective private-investment projects. Turkmenistan's
intentions are indisputably right. We remind that Berdimuhamedov
said in Summer 2007, "The debate is over. We have chosen to be a
market economy." But ex-Soviet governments tend to rely too heavily
on presidential decrees and the power of law-on-paper. The
longer-term monumental task will be to change a century of national
political psychology, the entrenched bureaucracy, and the culture of
rent-seeking. END SUMMARY.

PRESIDENT EXPLAINS WHY TO ENCOURAGE THE PRIVATE SECTOR


3. (U) During an extended Cabinet of Ministers meeting on March 17,
2008, President Berdimuhamedov gave a policy speech in support of a
flourishing private sector at an extended Cabinet of Ministers
meeting held at the National Exhibition Hall. Leading Turkmen
entrepreneurs attended, in addition to ministers and heads of
government organizations. Berdimuhamedov said that empowered
entrepreneurship was the fundamental factor for a gradual transition
to an economy based on market principles. In his speech, he
constantly referred to the value and practice of entrepreneurship
worldwide, saying that it was "the main driving force of reforms," a
significant factor for job creation, a boost to personal income, and
a catalyst to increase the middle class, which Berdimuhamedov said
was an indicator of the country's prosperity.

LIFTING IMPEDING BARRIERS


4. (U) Berdimuhamedov said that the government should make a
comprehensive inventory of relevant legislation in order to
eliminate "needless administrative barriers" impeding licensing and
registration procedures. He also wants to reduce bureaucracy
regarding foreign investment, privatization, and reducing state
involvement. Berdimuhamedov signed a number of laws and decrees
that support the private sector and foreign investment, such as a
new version of the Law on Foreign Investment and various amendments
to the existing Tax Code (septel). In addition, he signed a new
decree appointing an ad-hoc state commission to review business
plans and investment project proposals submitted by private
entrepreneurs to determine eligibility for credit lines that have
been established specifically to promote private business. The
ten-year credit line carries an annual percentage rate of five per
cent. Three banks may issue such credit loans: Dayhanbank (state
commercial bank for agricultural projects); Senagatbank (commercial
joint-stock bank) and Garagumbank (international joint-stock bank
for industrial business, such as transportation, communications,
services, information technology, and innovation).

HAPPY MARRIAGE BETWEEN GOVERNMENT AND PRIVATE BUSINESS


5. (U) Minister of Economy and Development Gurbanmuradov stated
that the private sector contributes roughly 40 per cent of
Turkmenistan's GDP. The president said that this number should
increase to 70 per cent by 2020. Berdimuhamedov said that support
for private business will eventually resolve a number of state
economic issues. The privately owned "Poultry Complex" is an
example of a private company that brings significant benefit to the
government. Berdimuhamedov said that when performing at its fullest
capacity, this agribusiness farm supplies the domestic market with
fresh eggs and chicken meat, and also frees "the government from

ASHGABAT 00000370 002 OF 002


spending money to import those foodstuffs from abroad." Thus, all
ministries and other government entities were instructed to find
ways to increase the level of cooperation with and assistance to
local businesses.

REALITY CHECK FOR ENTREPRENEURS


6. (SBU) A handful of private business owners from all regions of
Turkmenistan and representing a wide range of industries, such as
agriculture, food processing, poultry, carpet and textile
manufacturing made presentations at the extended Cabinet of
Ministers meeting. (NOTE: The presence of private business owners
at a high-level government meeting is unprecedented. Two Cochran
Program alumni attended this meeting: cheese producer Dadebay
Chowdurbayev and poultry producer Ahmed Charyev. END NOTE.)
Berdimuhamedov instructed the relevant officials to include input
and proposals from the private sector into the new National
Entrepreneurship Development until 2020 Program, which the
Government of Turkmenistan will finalize in the near future.
Interviews with entrepreneurs who participated in the meeting that
appeared in the official Russian-language government newspaper
"Neytral'niy Turkmenistan" reflected their optimistic opinions on
government initiatives supporting the private sector. However, a
few small- and medium-enterprise (SME) owners told PolEcon staff
that these reforms, including changes to the legislation and the SME
incentives "are not substantive enough to make an impact on their
business."


7. (SBU) The resident EBRD representative told EconOff that while
this reform "superficially" sounds good, the real challenge will be
with implementation. He believed bureaucracy will weigh down the
lending program as the deputy heads of various ministries, the
deputy head of the Central Bank, and the heads of Senagat, Karakum,
and Dayhan Banks will all be responsible for the lending program for
entrepreneurs. He saw tremendous potential for corruption with the
lack of experience in lending and no independent auditor involved.



8. (SBU) COMMENT: Turkmenistan's intentions are indisputably
right. We recall that Berdimuhamedov said in Summer 2007, "The
debate is over. We have chosen to be a market economy." The
Government of Turkmenistan clearly sees that encouragement of the
private sector will have a positive effect on the country's economy,
and we are certain the private sector is more than eager to play its
role. But ex-Soviet governments tend to rely too heavily on
presidential decrees and the power of law-on-paper. The longer-term
monumental task will be to change a century of national political
psychology, the entrenched bureaucracy, and the culture of
corruption. Breaking old habits and ways of thinking and building
confidence among lower-ranked officials to try something new will
take time, effort, and monumental patience. END COMMENT.

HOAGLAND