TURKMENISTAN: DOLLARS NOT WANTED

UNCLAS SECTION 01 OF 02 ASHGABAT 000431 SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: N/A TAGS: ECON PGOV SOCI EFIN TX SUBJECT: TURKMENISTAN: DOLLARS NOT WANTED REFS: A) 08 ASHGABAT 17; B) 08 ASHGABAT 60; C) 08 ASHGABAT 485; C) 08 ASHGABAT 551 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: Problems exchanging US dollars for Turkmen manat have been observed for the past week, due to the rumors that the Government plans to depreciate the official exchange rate to an even one manat for one dollar. (NOTE: The current rate is 2.84 DTM (Denominated Turkmen Manat) per one US Dollar. END NOTE.) It is unclear what is causing this problem, although there may be a shortage of new banknotes. There is no proof of an impending devaluation. Currency exchange points are overcrowded with long lines of people waiting to convert their saved dollars into manats. Some private vendors have stopped accepting dollars for payment. END SUMMARY. ¶3. (SBU) Rumors spread at the end of March that the Government would set a new exchange rate of one US dollar equal to one DTM effective April 1st. The local population, who experienced the overnight depreciation of the dollar last spring, tend to believe word of mouth rather than the government's silence regarding its exchange policy. As a result, those who prefer to keep their savings in cash, "under their mattresses," rushed to the exchange points to change dollars before their value "collapsed." People with thousands of dollars in cash were observed at the exchange points wishing to get rid of their dollars. According to post's local staff who visited the exchange points, at some locations they were not able to actually exchange dollars because of the long lines, while at some smaller exchange points, like the one at Yimpash Trade Center, belonging to the Turkmen Turkish JV Bank, there was an exchange limit of 50 dollars per customer. ¶4. (SBU) An Embassy contact at the Forex Department of the Central Bank of Turkmenistan said that no changes in the exchange rate are anticipated. Nonetheless, bankers are apparently not sure themselves of the government's exchange policy and also prefer to be on the safe side by exchanging their dollar savings into manats. The chairwoman of a provincial bank said that she opted to exchange all her dollars that she had saved for her daughter's college education into manats. "Of course, I will loose fifty or hundred dollars when I buy the dollars back if the exchange rate remains the same, but that is still better then losing thousands if the rate falls" the Chairwoman said. ¶5. (SBU) Even the private traders and small businesses that need dollars for trading goods from Turkey, China and UAE have not been buying dollars, but as all others rushed to exchange their dollars to manats. The "Bedew" shopkeepers (the line of shops supplying construction materials, plumbing fixtures, and home appliances located on the outskirts of Ashgabat),retailers at the "Tolkuchka" bazaar as well as most of the private kiosks and mini-markets around Ashgabat have been refusing to accept dollars for payment from customers. Some Embassy local staff confirmed that they couldn't pay dollars for the shopping they regularly do at any of these places for the past week. The vendors were asking for payments in manat cash only, although previously they used to accept dollars. ¶6. (SBU) The depreciation has also been observed at the so-called "Daiza-Bank" (NOTE: "Daiza" means "aunt" in Turkmen; a common way to address an older woman. Daiza-Bank, refers to the money changers standing on the sidewalks, most of whom are women dressed in traditional Turkmen national dress. END NOTE.) The Daiza-Bank's rate dropped from 2.85 (which used to be higher then the official rate of 2.84) to 2.60 DTMs per dollar during March 31 to April 2, then increased back to 2.80. People who didn't want to stand in long lines at the exchange points, had no other option but to sell dollars at a lower rate at Daiza Bank. ¶7. (SBU) COMMENT: It's not clear what's causing the long lines at the exchange points, and there is no concrete proof of an impending devaluation. We've also heard that as the old manat banknotes are ASHGABAT 00000431 002 OF 002 being withdrawn from circulation and destroyed, not enough new banknotes have been put into circulation to make up the difference, creating a manat shortage. In fact, one contact saw bags of new banknotes being off-loaded on one international flight (They are printed in the UK.) Still, many people remember what happened to their savings last year when the opaque government policy on foreign exchange and the forex rate unification resulted in overnight depreciation of the dollar, with many ordinary people losing out as a result (reftels). While ordinary citizens try to save their under-the-mattress savings, the Daiza Bank appears to be gaining the most from this forex game. END COMMENT. MILES