Identifier
Created
Classification
Origin
08ASHGABAT551
2008-05-01 12:36:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

AT LONG LAST, A UNIFIED EXCHANGE RATE IN

Tags:  PGOV PREL EIND ETRD EPET SOCI TX 
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VZCZCXRO3072
PP RUEHAG RUEHBI RUEHCI RUEHLH RUEHPW RUEHROV
DE RUEHAH #0551/01 1221236
ZNY CCCCC ZZH
P 011236Z MAY 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0717
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 3711
RUEHBJ/AMEMBASSY BEIJING 1529
RUEHKO/AMEMBASSY TOKYO 1396
RUEHIT/AMCONSUL ISTANBUL 1965
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 2475
C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000551 

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EEB
STATE PLEASE PASS TO USTDA DAN STEIN
COMMERCE FOR HUEPER
TREASURY FOR BAKER/LANIER

E.O. 12958: DECL: 05/01/2017
TAGS: PGOV PREL EIND ETRD EPET SOCI TX
SUBJECT: AT LONG LAST, A UNIFIED EXCHANGE RATE IN
TURKMENISTAN -- BUT LOCALS FEEL THE PAIN

REF: A. ASHGABAT 523

B. ASHGABAT 366

Classified By: CDA Sylvia Reed Curran for reasons 1.4 (B) and (D).

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000551

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EEB
STATE PLEASE PASS TO USTDA DAN STEIN
COMMERCE FOR HUEPER
TREASURY FOR BAKER/LANIER

E.O. 12958: DECL: 05/01/2017
TAGS: PGOV PREL EIND ETRD EPET SOCI TX
SUBJECT: AT LONG LAST, A UNIFIED EXCHANGE RATE IN
TURKMENISTAN -- BUT LOCALS FEEL THE PAIN

REF: A. ASHGABAT 523

B. ASHGABAT 366

Classified By: CDA Sylvia Reed Curran for reasons 1.4 (B) and (D).


1. (SBU) SUMMARY: On May 1, the Central Bank of
Turkmenistan announced a unified exchange rate of 14,250
manat per $1. The final impact of the four-month process for
unifying the dual exchange rate is yet unclear. Immediately
evident is the fact that the arbitrary devaluation of the
dollar has caused significant disturbances throughout the
economy. However, the substantial appreciation of the manat
-- about 40 percent in the last six months -- is felt by many
average citizens, including those paid in dollars, those who
trade and do business in dollars, those who own real estate,
and those who keep savings "under the mattress" in dollars.
Since practically everyone in Turkmenistan does not trust
banks, this means the entire country is feeling the pinch of
this change. While one foreign businessman feels that the
unified rate is a very positive step in terms of making the
business climate more welcoming to foreign investors, and
some locals are thrilled that the devaluation of the dollar
is not as low as it could have been, it may very well be that
no real change has taken place. There is a strong
possibility that the new unified rate -- which many feel is
unrealistically high versus the value of the dollar -- will
prove unsustainable for the marketplace and that continued
prevalence of government corruption will allow for the
emergence of a black market. END SUMMARY.

AS OF MAY 1, A UNIFIED EXCHANGE RATE


2. (C) Following two devaluations in the past 12 days -- and
as predicted by post sources (Refs. A and B) -- the Central
Bank of Turkmenistan devalued the dollar and unified the

commercial and the official exchange rates on May 1.
Official currency exchange points are buying $1 for 14,250
manats, and are selling $1 for 14,000 manat. The short
article in official government Russian-language newspaper
"Neytralniy Turkmenistan" did not specifically state if
exchange rate changes were coming to a halt, but did mention
that the Central Bank is able to satisfy the demand for
foreign currency and that it can maintain this rate in the
future. The World Bank representative in Turkmenistan
(please protect) believes that the government wants to
maintain the current exchange rate until the end of the year.

EXPATRIATE VIEWS
EBRD


3. (C) European Bank for Reconstruction and Development
(EBRD) Ashgabat Office Head Tony Myron said that Deputy
Chairman for Economy and Finance Hojamurat Geldimuradov told
an EBRD delegation last week that the exchange rate would
land between 14,000-15,000 manat per $1 "before May 5." In
response to Myron's question about thin commercial margins,
Geldimuradov said that the Government of Turkmenistan would
provide subsidies to textile companies. Myron said the
dollar devaluation will most affect real estate owners,
shuttle traders, and foreign entities such as oil and gas
companies, other businesses, international organizations and
foreign missions.


4. (C) Myron agreed that the new exchange rate is completely
artificial. Since already high government revenues will
continue to increase -- especially because Iran recently
agreed to match the Russian price of $130 per thousand cubic
meter (septel) -- the government has the financial resources
to maintain the current exchange rate as long as it wants to.


ASHGABAT 00000551 002 OF 003


BRITISH PETROLEUM


5. (C) A foreign businessman whose company is in the process
of setting up and registering an office in Ashgabat, Dan
Bliss of BP, was extremely positive, stating that this was a
strong indication of the government's commitment to
attracting foreign investment. This, he said, will make
doing business less difficult, because foreign businessmen
are not being discriminated against. (One example is that
hotels that cater to foreigners are now doing the exchange
rate for incidental expenses at the new unified rate of
14,215 manat to the dollar, rather than the old official rate
of 6,250 manat to the dollar.) He noted that he was in
Uzbekistan during exchange rate unification there, when Uzbek
President Karimov used the unification and manipulation of
the exchange rate to get rich. Turkmenistan,s unification
process seems to be more focused on improving the foreign
investment climate.

DOMESTIC COMSUMER VIEWS


6. (SBU) At an MTS cellular phone service unit, a line of
people waited to top up their cell phones, despite the fact
that MTS raised its rate from 6,250 to 14,250 manat. MTS
raised the rate in reaction to the unification of the
official and commercial rates.


7. (C) It appears from spot checks that restaurants have
also been visibly less crowded in recent days. An Embassy
employee mentioned that sales of imported cars will also feel
adverse effects due to import taxes that were previously
calculated using the official rate, which is now doubled.
Also, the devalued dollar will also cause the manat price of
the vehicles to rise.

REPORTS FROM THE STREET: BLACK MARKET


8. (SBU) Throughout the four months of the unification
process and exchange rate instability, a healthy black market
for exchange has existed. Illicit traders have taken
advantage of the relative scarcity of manat by trading
dollars at a lower rate. For example, when the commercial
rate was 17,430, black marketers routinely sold manat at
14,000. The prevalence of such traders demonstrates a
continued willingness -- or inability -- of the local
government to stop unofficial trade in currency. All
indications are that, while today's unification was likely a
reaction to increasing currency speculation over recent days,
it will not bring the black market to an end. There is a
continued strong preference for holding savings in foreign
currency, the most prevalent of which remains dollars.


9. (C) Myron said that the extra manat being held by
individuals due to speculative activity over two weeks should
add to the inflation problem. He added that "everyone will
be watching the black market to watch for a gap." There is a
significant potential that the black market will offer more
attractive rates than the current rate of 14,250.


10. (U) So far, according to spot checks in markets, prices
for food products have not changed. Ticket prices on Western
airlines such as Lufthansa and Turkish Airlines have also
remained stable as their prices are pegged to the euro.


11. (C) COMMENT: If the current rate proves to be stable,
eliminating uncertainty in the marketplace, the reality that
dollars -- and thus imports -- are now cheaper should bring
consumer prices down in the long term. More importantly,
however, is the notion that 14,250 manat for $1 is completely
arbitrary. Should the dollar prove more valuable than

ASHGABAT 00000551 003 OF 003


Turkmen officials have guessed, it is likely that the same
corrupt government officials who previously benefited from a
black market in exchange will do so again -- begging the
question, has anything changed? END COMMENT.
CURRAN