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. MILES