TURKMENISTAN: CENTRAL BANK CLAIMS REFORMS

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001223

SIPDIS

STATE FOR SCA/CEN; EEB; NEA/IR
ENERGY FOR EKIMOFF/BURPOE/COHEN
COMMERCE FOR EHOUSE

E.O. 12958: DECL: 09/25/2019
TAGS: EFIN ECON PGOV EIND TX
SUBJECT: TURKMENISTAN: CENTRAL BANK CLAIMS REFORMS
FORTHCOMING

REF: A. ASHGABAT 1206

B. ASHGABAT 1083

Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d).


1. (C) SUMMARY. The Turkmen Central Bank seems to be caught
between Presidential orders to increase banking reforms on
the one end, while receiving almost contradictory directives
to increase its control of the banking sector. Current
banking laws on the books date back to 1993. New banking
legislation will most likely give the Central Bank more
control. The Central Bank hailed its debit card and credit
card pilot programs as banking reforms, but will not approve
them country-wide before securing regulations to control
their use. Despite legislation designed to improve banking
services and provide more Turkmen citizens with more
opportunities to own homes and small businesses, huge down
payments continue to make these opportunities cost
prohibitive for most. END SUMMARY.


2. (C) On September 24, Economic Officer met with Turkmen
Central Bank Deputy Director Dovlet Ahatov and Head of the
Banking Supervision Department to discuss Turkmen financial
reforms. Ahatov stressed that Turkmenistan's unification of
its currency, the manat, in January 2009, was extremely
successful, and this one reform has stabilized the entire
Turkmen banking sector. He added that technical assistance
from the IMF, other international financial organizations,
and foreign embassies in Ashgabat was key in achieving this
reform ordered by President Berdimuhamedov. He underscored
the importance of additional reforms, while maintaining that
Turkmenistan's economy remained insulated from the global
economic crisis, and that Turkmenistan's monetary reserves
were healthy.

BANKING SERVICES REFORMS


3. (C) Head of the Banking Supervision Department at the
Turkmen Central Bank Halmurad Orayev was given the floor to
discuss current banking reforms. Orayev claimed that the
Turkmen President is paying a lot of attention to the Turkmen
banking sector, and has called for continued reforms. Among
these reforms, Orayev added, are increased services and
better customer service. He admitted that the presence of
more foreign businesses in Turkmenistan has generated
repeated calls for more Western banking services and training
for bank employees that included attention to customer
service etiquette.


4. (C) Orayev cited the pilot acceptance of visa debit cards
at select state-owned bank branches as proof that
Turkmenistan was open to providing new services. He also
stated that the GOTX was negotiating a contract with Visa
operations in Moscow which would provide debit cards to all
qualified customers. He did not elaborate on what
qualifications were, however. Orayev then told us that the
ability to use credit cards in Turkmenistan was also being
studied seriously by the Central Bank. He acknowledged the
shock many foreign companies go through when they realize
they cannot pay for expenses with a credit card in
Turkmenistan, adding that government regulations for the use
of debit and credit cards were near completion, and he
expected a pilot program for credit card use to be launched
after negotiations with Visa in Moscow were completed.

LAWS FIRST, REFORMS LATER


5. (C) Orayev asserted that there were many well-educated and
"sharp" decision makers at the Central Bank, who understood
the importance of modernizing Turkmenistan's archaic banking

ASHGABAT 00001223 002 OF 002


sector. At the same time, he explained that current banking
regulations date back to legislation passed in 1993. As a
result, he added, the Central Bank has spent several years
developing new banking legislation that will allow for
modernization and much-needed reforms. He then explained
that the new legislation would call for more regulation and
licensing of banks to combat corruption, giving the central
Bank more control over financial institutions. He opined
that increased government oversight would create more
confidence in Turkmen banks, and allow the Central Bank to
collect valuable data in order to suggest appropriate reforms
to the President. Orayev was uncertain when the new banking
legislation would be passed, but he hoped that the Parliament
would begin reviewing it by the end of the year.

LOANS FOR HOUSING AND SMALL AND MID-SIZED BUSINESSES


6. (C) Central Bank Deputy Chair Ahatov described
state-sponsored loans as a necessary component of the Turkmen
President's policy to provide quality housing to all Turkmen
citizens. He explained that the government owns apartment
buildings and priority for buying apartments is given to
government employees. In addition, he praised the Bank's
five percent interest rate for 30 years as one of the best
bargains in the world. He admitted that down payments for
such loans were 30 percent of the cost of the home, but he
did not think that was cost prohibitive for most Turkmen (ref
A). When asked why many new apartment buildings in Ashgabat
are reportedly empty, he stated that people are still
learning about loans, and if they do not work for the
government they have to wait longer for an apartment to
become available. He added that the government subsidizes
utilities for all Turkmen citizens, claiming that Turkmen pay
"pennies" for electricity, gas, and water, which allows
Turkmen home owners to afford the low interest mortgages.


7. (C) Ahatov also praised President Berdimuhamedov's push to
assist small and mid-sized businesses (SME),referring to
recent legislation passed on August 22, 2009 (ref B). He
stated that this legislation provides for increased
development of SMEs by 2010, adding that SMEs currently
represent 7 percent of Turkmen businesses, but the new SME
legislation is "sure to drive that percentage of SMEs up by
2010." When asked how much money SMEs were required to put
down to receive government subsidized loans, Ahatov stated it
was 30 percent of the project's total cost--the same
percentage homeowners have to pay.


8. (C) COMMENT. The meeting with Central Bank officials
underscored the GOTX's dilemma of trying to bring
Turkmenistan into the financial, modern world without having
to give up its tight control. Even though the government
hails SME and banking sector legislation as progressive, in
reality these reforms do little for the average Turkmen.
Nevertheless, if people in Ashgabat can begin using debit
cards and credit cards in the nearest future, it will be seen
as a big step in the right direction by many. END COMMENT.
CURRAN