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08ASHGABAT794 2008-06-25 11:19:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Ashgabat
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1. (U) Sensitive but unclassified. Not for public Internet.

2. (U) SUMMARY. Local employees for foreign companies and
organizations working in Turkmenistan, most of who are paid in
dollars, effectively lost 40% value of their salaries since
Turkmenistan's government started unifying the dual currency
exchange rate in January. While acknowledging the hit that their
employees have taken, however, most employers have been cautious
about offering their personnel more than token increases. Limited
labor market and uncertainties with the 2009 redenomination prevent
employers from making rushed decisions. END SUMMARY.

3. (U) The U.S dollar has been the dominant foreign currency in
circulation since early 1990s, as well as the currency of choice for
consumer savings. Due to the weakness of the manat, the dollar was
also the means of remuneration for most foreign companies operating
in Turkmenistan. (NOTE: Domestic and foreign businesses have been
the main suppliers of dollars to the parallel market. END NOTE.)


4. (U) Rapid foreign exchange policy reforms since January 1, and
especially the quick jolt on May 1 to further eliminate the dual
exchange rate, led to a 40% percent depreciation of the parallel
dollar rate against the Turkmen manat. Although the parallel market
rate fell from around 24,000 manats per dollar to 14,250 per dollar
in the first four months of the year, most consumer prices have
risen, some substantially. The dollar depreciation and sharp
inflation substantially reduced the effective dollar income of once
well-off local employees of international companies and


5. (SBU) Foreign firms that generate revenue in manats, particularly
in construction, retail trade, and services, have not raised their
employees' salaries. Companies like Coca-Cola Bottlers and
British-American Tobacco feel that the current salaries are still
adequate for their personnel.


6. (SBU) Foreign petroleum production and service companies have
raised their staff pay by an average of 10-15%, however some of them
told an embassy FSN that these raises had been planned before the
changes in the exchange rate. A small informal survey conducted by
post revealed that only French construction company Bouygues raised
its salaries by 40% -- and only after a wave of mass resignations of
personnel earlier this spring. Post is not aware of any other
similar cases in the private sector.

7. (SBU) In general, international organizations and some diplomatic
missions -- concerned that they could lose their employees to the
private sector -- have provided larger salary raises than those in
the private sector. The UK Embassy and the European Bank for
Reconstruction and Development have, for example, raised the
salaries of their staff by 25% and 40% since the beginning of the
year. However, both have a limited number of personnel. The UK
Embassy has also considered an additional 15% raise, which would
take the total to 40%, but has not made a final decision.

8. (SBU) COMMENT: Most international employers are wary of indexing
their current payroll expenses to the changes in the dollar exchange
rate. Uncertainty about the impact of the upcoming 2009
redenomination of Turkmenistan's currency and current exchange-rate
policies are acting as a disincentive for making immediate pay
adjustments. Further adding to foreign companies' confusion, it is
not yet clear whether President Berdimuhamedov's May 22 call for pay
equality between Turkmen nationals and their in-country foreign

ASHGABAT 00000794 002 OF 002

counterparts will become statutory. Even if Turkmenistan decides
not to write the equal-pay requirement into law, wages almost
certainly will begin to increase as more companies expand their
presence in Turkmenistan. In the meantime, while the current
limitations of the labor market have ensured that most firms'
employees are adopting a wait-and-see attitude and have not yet
begun jumping ship despite the decrease in their purchasing power,
many of the most skilled workforce personnel have begun seeking
employment with firms that can -- and do -- offer higher pay. We
expect this trend to accelerate. END COMMENT.