CORRUPTION IN TURKMENISTAN'S BUSINESS CIRCLES - THE MORE

UNCLAS SECTION 01 OF 02 ASHGABAT 000003

SENSITIVE

SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB
ANKARA FOR AGRICULTURAL COUNSELLOR

E.O. 12958: N/A
TAGS: EAGR EFIN ECON ETRD PGOV TX
SUBJECT: CORRUPTION IN TURKMENISTAN'S BUSINESS CIRCLES - THE MORE
THINGS CHANGE...


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


2. (SBU) SUMMARY: President Berdimuhamedov's decrees promising
support for small and medium businesses appear so far to have
benefited only a select group of business people, mostly those with
a familial relationship or close connections with the President.
Small businesses without such ties continue to face widespread
corruption and bribe taking, despite measures by the government to
improve the business climate. END SUMMARY.

UNION OF ENTREPRENEURS AND INDUSTRIALISTS: ONE YEAR LATER


3. (SBU) President Berdimuhamedov's establishment of the Union of
Entrepreneurs and Industrialists in March 2007 automatically
resulted in the disbanding of the Union of Entrepreneurs which
former President Niyazov had formed in the early 1990's. Kakabai
Sopiyev, head of the disbanded union, won a legal case contesting
the disbandment, but surrendered his efforts against the government
under pressure from the President's office. Although Niyazov had
dismissed Aleksandr Dadayev from a previous government position for
corruption, Dadayev now heads the newly-established organization.


4. (SBU) A local entrepreneur and member of the Union told a local
Embassy employee that the new union's profile is larger than that of
the previous union because of Presidential support and interest.
According to the contact, the Entrepreneurs Union lobbies in the
parliament on behalf of entrepreneurs to ensure that legislation
reflects their interests. He cited a recent change in a law that
will nowallow local private construction firms to compete in
tenders for residential construction projects as an example of the
Union's success at lobbying. The revised law stipulates that local
construction firms receive the same compensation as foreign
contractors. In addition to lobbying efforts, the Entrepreneurs
Union assists members in preparing loan applications and advancing
the process. The contact added that members of the Union's board
have also applied for loans. The involvement of board members
increased the Union's interest in the loan application process, also
a positive development. The new Union, which started with 60
members at the beginning, today has 200 full members.

SHARING THE WEALTH WITHIN THE FAMILY


5. (SBU) In March 2008, Berdimuhamedov authorized three banks --
Dayhan Bank (for farmers),Senagat Bank (industrial bank) and
Garagum Bank (development and reconstruction bank) -- to make loans
directed towards investment projects in their respective areas. The
President's decree stipulated that banks would provide loans at a
five percent interest rate for ten years, with a two year grace
period. However, according to the word on the street, the
President's extended family members, who have private businesses,
and entrepreneurs, who demonstrate loyalty to the President, are the
main beneficiaries of the President's support of these banks. For
example, in March 2008, President Berdimuhamedov announced that
establishing a new poultry farm would be a state priority.
Entrepreneurs Union head Dadayev received an unprecedented 70
billion manat (about USD 4,375,000 at the current exchange rate)
loan for a poultry complex to produce three thousand tons of chicken
per year. People assume that this process was not competitive.
Rumors in Ashgabat also allege that Berdimuhamedov gave a contract
for reconstruction of a youth cultural center in downtown Ashgabat
to his relative, who turned it into a banquet hall.
Berdimuhamedov's extended family members run this complex.


6. (SBU) An entrepreneur from Lebap province, who is not a member of
the new Union, characterized it as "discriminatory" and referred to
it as an exclusive group that lobbies only for their own business
interests and do not care about the average entrepreneur. Another
contact said that after Berdimuhamedov became President, he
rearranged economic players and installed his own people to control
the economy -- most notably by making his friend Nokerguly Atagulyev
the Minister of Trade and Foreign Economic Relations. (NOTE: This

ASHGABAT 00000003 002 OF 002


Ministry controls all consumer product and food markets in the
country. END NOTE.)

SUCCESSFUL LOANS REQUIRE PAY-OFFS


7. (SBU) In January 2008 President Berdimuhamedov announced that
Dayhan Bank will offer loans with favorable terms to the farmers'
union (the new name for collective farms) to purchase agricultural
equipment, fertilizers, and chemicals. In effect, this move forced
farming entities to purchase their own equipment and agricultural
products, which the government had provided until then free of
charge. This measure was originally meant to eliminate corruption
of government officials by cutting off their access to the
procurement process, and it did bring Berdimuhamedov short-term
political dividends. Paying bribes continues to thrive as a
practice, however. For example, an Embassy contact from Mary
Province reported that a successful loan applicant is required to
surrender five percent of the loan amount to a bank's official for
expediting the loan process, and a bribe of five percent to the
chairman of the bank regardless of the speed of the issuance of the
loan.

ARRANGING KEY MEETINGS HAS A PRICE TAG


8. (SBU) On December 22, a private seed distributor from Ahal
province told a local Embassy employee that he discussed an
application for a license to import pesticides, herbicides and
mineral fertilizers with a Ministry of Agriculture official in
November. The official asked for USD 10,000 in order to arrange a
meeting with the Minister, which included a guaranteed positive
outcome. Another contact said that in order to get an appointment
with a mid-level local official such as a district governor, one
must pay USD 50-100 -- depending on the issue. According to a
contact who works in a foreign company, a foreign firm can receive a
meeting with a cabinet-level Deputy Chairman -- with a guaranteed
positive outcome, for example, winning a tender contract -- for a
USD 50,000 payment.


9. (SBU) COMMENT: While the President's business-related decrees
sent a message that the government wants to develop Turkmenistan's
private sector, the flawed implementation of these decrees signals
that change will come slowly. It appears that the President is
partial to allowing his influence to make sure his relatives and
friends profit from the private sector. END COMMENT.

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