ECONOMICS IN TURKMENISTAN

ECONOMICS IN TURKMENISTAN

Turkmenistan has a largely poor and traditional economy. It should be rich. It has abundant supplies of oil and gas and has a small population. But much of the population is desperately poor, and doesn’t have access to things like good health care and education primarily due to the misguided policies of its presidents Saparmurat Niyazov and Gurbanguly Berdymukhammedov.

Turkmenistan was more dependent on the Soviet Union than other former Soviet republics for markets and goods it couldn’t good it couldn’t produce for itself. Virtually all of its raw materials — namely cotton and natural gas — went to other Soviet republics.

Saparmurad Ovezberdiyev, a correspondent in Ashgabat for Radio Free Europe/ Radio Liberty’s Turkmen Service, wrote in the Washington Post: Niyazov “ Despite abundant resources, Turkmenistan’s people are increasingly impoverished while a coterie of courtiers gorges itself on pilfered wealth.” On Western diplomat told the Washington Post, “They practice African economics here. They build palaces, build airports, build parks—and then declare the people happy.”

Turkmenistan is largely a desert country with intensive agriculture in irrigated oases and significant natural gas and some oil resources. The two largest crops are cotton, most of which is produced for export, and wheat, which is domestically consumed. Although agriculture accounts for roughly 14 percent of GDP, it continues to employ nearly half of the country's workforce. Turkmenistan's authoritarian regime has taken a cautious approach to economic reform, hoping to use gas and cotton export revenues to sustain its inefficient and highly corrupt economy. The government introduced a privatization plan in 2012. While some small- and medium-size enterprises were privatized since 2013, the implementation of this initiative has been slow, and privatization goals remain limited. [Source: CIA World Factbook =]

As in the Soviet era, central planning and state control pervade the system, and the Niyazov government (in power 1991–2006) consistently rejected market reform programs. The state subsidizes a wide variety of commodities and services. Economic planning is done in long- term programs, the latest of which is the Strategy for Turkmenistan’s Economic, Political, and Cultural Development for the Period to 2020. Privatization has been minimal, particularly in larger enterprises. Corruption is common, and the business and legal systems are poorly developed. Based on Turkmenistan’s oil and gas deposits, industry is the dominant sector. Because official economic statistics are unreliable and a dual exchange rate is used, the most accurate economic figures are estimates by international organizations. [Source: Library of Congress, February 2007 **]

Overall prospects in the near future are discouraging because of endemic corruption, a poor educational system, government misuse of oil and gas revenues, and Ashgabat's reluctance to adopt market-oriented reforms. The majority of Turkmenistan's economic statistics are state secrets. The GDP numbers and other figures that the government makes public are subject to wide margins of error. Based on government-provided data, the International Monetary Fund (IMF) reported 10.3 percent GDP growth in 2014. Since his election, President Berdimuhamedov unified the country's dual currency exchange rate, ordered the redenomination of the manat, reduced state subsidies for gasoline, electricity, natural gas, and transportation services, and initiated development of a special tourism zone on the Caspian Sea. Although foreign investment is encouraged, and some improvements in macroeconomic policy have been made, numerous bureaucratic obstacles impede international business activity. In January 2015, Turkmenistan devalued its local currency, the manat, by 19 percent. =

Economic Statistics for Turkmenistan

GDP (official exchange rate): $43.5 billion (2014 est.). GDP - r GDP (purchasing power parity):$82.29 billion (2014 est.), $74.6 billion (2013 est.), $67.67 billion (2012 est.), country comparison to the world: 87. [Source: CIA World Factbook =]

Real growth rate: 10.3 percent (2014 est.), 10.2 percent (2013 est.), 11.1 percent (2012 est.), country comparison to the world: 3. =

GDP - per capita (PPP): $15,500 (2014 est.), $14,000 (2013 est.), $12,700 (2012 est.), country comparison to the world: 108. =

GDP - composition, by sector of origin: agriculture: 13.2 percent, industry: 49.3 percent, services: 37.4 percent (2014 est.). GDP - composition, by end use: household consumption: 50 percent; government consumption: 12.9 percent; investment in fixed capital: 44.3 percent; investment in inventories: 0 percent; exports of goods and services: 45.5 percent; imports of goods and services: -38.2 percent (2014 est.). =

Inflation rate (consumer prices): 6 percent (2014 est.), 6.8 percent (2013 est.). In 2005 Turkmenistan’s inflation rate was estimated at 10.5 percent. In 1995 estimated at more than 1,000 percent, about same rate as previous years. Increased entitlements and loose government lending policy caused repeated increases in early 1990s.

Unemployment rate: 11 percent (2014 est.), 10.6 percent (2013), country comparison to the world: 198.

Gross national saving: 19.9 percent of GDP (2014 est.), 11.5 percent of GDP (2013 est.) 13.2 percent of GDP (2012 est.), country comparison to the world: 81. =

In the early 2000s, Turkmenistan’s GDP has risen annually. At current prices, the GDP for the years 2001–4 has been estimated at US$3.2 billion, US$3.7 billion, US$4.5 billion, and US$5.3 billion, respectively. In 2005 the World Bank estimated the GDP at US$6.8 billion, or US$1,350 per capita. According to estimates for 2005, the industrial sector contributed 38 percent of GDP; services, 41.1 percent; and agriculture, 20.9 percent. By comparison, for 2004 the respective shares were 42.7 percent for industry, 28.8 percent for services, and 28.5 percent for agriculture. The private sector’s share of GDP was estimated at 25 percent in 2005. [Source: Library of Congress, February 2007 **]

Fiscal Year: Calendar year.

Traditional Turkmen Economy

Traditionally women earned money or its equivalent by making carpets and men earned money from trading, raiding and breeding and selling horses, camels, sheep and goats.Tradesmen were often organized into medieval-style guilds. Each guild— for example, for weavers, blacksmiths, coppersmith and carders — had its own street in the main market. Merchants traditionally worked with scales, abacuses and thick accounting books.

Traditionally pastures and natural water sources were held in common by an oba (clan or tribal group), whereas plowed fields and dug wells were considered private property. . After they became settled, Turkmen tribes developed a system known as sanshik in which there existed an division of land and water between tribes and tribal subdivisions. All married males were considered eligible landowners and land was often redistributed on an annual basis between them. Under the Soviets all land was declared property of the state.

Horses and silver jewelry have traditionally been objects of wealth. Families have traditionally kept much of their wealth in the form of silver jewelry often hidden somewhere in the house and traditionally only brought it out when women wore it at weddings and other events. Silver has traditionally been purchased with money made from selling carpets. Under Muslim law it is the property of the woman.

The underground market is still very large. It is run mainly by Turkmen women. Even during the Soviet era, bazaars and outdoor markets were active. They offered a wide selection of fruit and vegetables from private plots and meat from privately held livestock. The choice of products was generally much better than what was available in state stores.

Economies of Central Asia

There are hopes that Central Asia could reemerge as the crossroads for a new Silk Road, providing transportation links for a variety of goods between Asia, the Middle East and Europe. Nations with oil and gas need pipelines to get them out. Those without oil and gas hope to profit by having pipelines cross their territory.

As a result of merely being cogs in the centrally-planned Soviet economy, all the Central Asian nations have economies that are too specialized and too dependent on Russia for markets and supplies to make a real go of it on their own without some serious changes.

Unemployment rates are very high in all five Central Asian countries but there are no reliable figures on exactly how high. Young people have difficulty getting jobs without connections. The streets are full of idle young men. There are concerns that these young men will be recruited by terrorists.

Regional economic cooperation, another type of unity that has received substantial lip service in the 1990s, has failed to materialize on a large scale. All five republics joined the Economic Cooperation Organization (ECO) shortly after independence, and Kazakstan, Kyrgyzstan, and Uzbekistan established a limited common market in 1994. But Uzbekistan vetoed the membership of unstable Tajikistan, and Turkmenistan refused to join. Existing arrangements within the free-trade zone have not significantly promoted large-scale commerce within the group of three. For all five republics, Russia remains the top trading partner because much of the emphasis in their agricultural and industrial infrastructures remains the same as when the republics had assigned roles in supplying Moscow. Those roles and dependence on Russian trade are changing slowly in the mid-1990s, however, as diversification occurs. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]

Several factors encourage economic rivalry rather than cooperation. Water, a crucial resource for agriculture and power generation, has been the object of bitter bilateral and multilateral disputes both before and after independence. In the 1990s, the republics at the headwaters of major rivers, Kyrgyzstan and Tajikistan, have chafed at apportionment of water consumption favoring downstream consumers Turkmenistan and Uzbekistan, and Turkmenistan has complained about excessive water consumption by the Uzbekistanis upstream. Kyrgyzstan and Uzbekistan have come close to conflict over water in the Fergana Valley, where vital agricultural reform and land privatization programs are endangered by unresolved water disputes.*

The republics still offer a similar range of commodities for trade. Their common emphasis on cotton, natural gas, and oil limits the potential for advantageous commerce within the group and fosters rivalry in trade with outside customers. Some of the commercial relationships that have developed--such as the sale of fuels to Kyrgyzstan and Tajikistan by the other three fuel-rich republics--have been one-sided and subject to shutdown in response to nonpayment or in attempts to gain economic and political leverage.*

Economic Problems in Central Asia

The five republics have several major problems in common. All remain in the economic, military, and political shadow of their giant neighbor to the north. In the mid-1990s, Russian policy makers, encouraged by a very vocal nationalist faction in the federation, speak openly of recapturing influence in the "near abroad"; Central Asia usually is the first region cited as an example. In the first two years of independence, the five republics remained in the ruble zone , their monetary activities restricted by the nonconvertibility of the old Soviet ruble that remained the currency of that grouping. In 1993 all but Tajikistan introduced new currencies with limited convertibility. Russia had attempted to keep Kazakstan and Uzbekistan in a new Russian ruble zone, but ruble distribution problems and harsh conversion conditions forced those republics to follow the independent course of Kyrgyzstan and Turkmenistan. The Tajikistani ruble (for value of the Tajikistani ruble) introduced in 1995 remained closely connected with its Russian counterpart. In 1996 Kazakstan and Kyrgyzstan established a new customs union and other economic ties with Russia and Belarus, hoping to gain selected advantages while avoiding large-scale concessions that would increase Russian influence. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]

The Soviet legacy includes an economic infrastructure in which all republics depend heavily on other republics for vital inputs. A complex Soviet-designed system of pipelines and electric cables connects the five republics. Pending completion of Turkmenistan's new line to Iran, only one railroad line leading out of Central Asia connects the region with a destination other than Russia (the one line goes only to the Xinjiang Uygur Autonomous Region in China). Heavy industry in all five republics also has depended heavily on local Russian skilled labor.*

The Central Asian republics also suffer common geographic disadvantages. All are landlocked and located far from potential markets outside the Commonwealth of Independent States (CIS) and the Middle East. Nations such as Azerbaijan and Afghanistan, through which goods must travel overland to reach Western markets, still are quite unstable, and others such as China and Russia are powerful neighbors with a history of taking advantage of weaker nations that need commercial favors. Kazakstan and Turkmenistan, both in need of a route to move oil and gas to Western customers, have been especially frustrated by Russia's failure to support new pipelines. The landlocked position also presents a national security obstacle.*

Although the region is blessed with ample arable land, most of that land becomes useful only when irrigated. Large-scale irrigation, in turn, has taken a huge toll on the hydrological systems of the region--in the most obvious case, the system that feeds the fast-disappearing Aral Sea. Regional cooperation on the Aral Sea problem, recognized as one of the most serious environmental crises in the world, received much lip service and little action in the first half of the 1990s. By 1995 an estimated 36,000 square kilometers of the sea's bed had been exposed, and an estimated 3 million inhabitants of nearby Turkmenistan, Uzbekistan, and Kazakstan had developed chronic health problems associated with that process. In October 1995, a United Nations (UN)-sponsored regional conference produced the Nukus Declaration, which resulted in the promise of intensified joint efforts to stabilize the sea and a pledge of US$200 million from the UN and the World Bank for regional development and aid. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]

Turkmenistan Economy Under Niyazov

Independence for Turkmenistan was supposed to unleash economic reforms, privatization and prosperity. Since the country was rich in resources and had a relatively small population everyone was supposed to prosper. This has not happened. Instead economic reforms have not taken place and only the well connected have gotten rich while the general population has gotten poorer.

Turkmenistan President Saparmurat Niyazov promised to make Turkmenistan the "Kuwait of Central Asia" with free bread and Mercedes for every family. This hasn't happen either. Niyazov had no business sense or grasp of market economic fundamentals. He called entrepreneurial activity “rent-seeking situations” and gave out free food in the streets of Ashgabat.

The Turkmenistan economy declined in the years after independence. In 1995, it shrunk by 25 percent. In 1996, it shrunk 15 percent, despite projections of 17 percent growth, and inflation was 150 percent. In 1997 Turkmenistan’s GDP was 65 percent of the 1990 level, compared to 85 percent in Uzbekistan, 45 percent in Kazakhstan and 62 percent in Russia. In the late 1990s, the economy began improving but few benefits were passed down to ordinary people. Average change in GDP in 1999 was 16 percent. In 2003 it was estimated that a quarter of the population was unemployed and ever more were underemployed. Water shortages and even food shortages were a fact of everyday life.

The economy of Turkmenistan remains centrally controlled. Although food prices are often determined by the market, things like water, gasoline and electricity are heavily subsidized and virtually free. This has resulted in some wasteful practices. Some people leave their water taps on all the time so they are ready when the water comes one. Others leave their gas burners burning so they don’t have to waste money on matches. [Source: Lonely Planet]

The elite that occupy high positions in the government enrich themselves with the windfall profits from natural gas and cotton exports. As of 2003, Niyazov is believed to have squirreled away between $1.4 billion and $2 billion into foreign accounts.

See Agriculture

Energy and the Turkmenistan Economy

Turkmenistan is self-sufficient in natural gas and oil, with major untapped deposits expected to sustain supply in foreseeable future. Natural gas dominates domestic energy consumption and energy exports. However, decaying infrastructure and state subsidies hinder efficient distribution and discourage conservation. In the early 2000s, gas output increased sharply because of export agreements with Russia, Ukraine, and Uzbekistan. In that same period, Russia and Ukraine have made substantial investments in Turkmenistan’s fuel industries. [Source: Library of Congress, February 2007 **]

From 1998-2005, Turkmenistan suffered from the continued lack of adequate export routes for natural gas and from obligations on extensive short-term external debt. At the same time, however, total exports rose by an average of roughly 15 percent per year from 2003-08, largely because of higher international oil and gas prices. Additional pipelines to China, that began operation in early 2010, and increased pipeline capacity to Iran, have expanded Turkmenistan's export routes for its gas. Two other export initiatives—a trans-Caspian pipeline that would carry gas to Europe and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline— are not likely to be realized any time soon. [Source: CIA World Factbook =]

In 2001 natural gas output was estimated at 48.2 billion cubic meters, and oil output was estimated at 162,000 barrels per day. In 2003 gas output increased by 8 percent and oil refinery output by 19 percent compared with 2002. Discovery of the large Iolotan gas and oil field in southeastern Turkmenistan in 2006 promised to further improve the country’s position as a fuels exporter. **

Despite its vast oil and natural gas resource base, Turkmenistan is not a major player in energy markets because of the lack of infrastructure, limiting its exporting capabilities. In the past few years, the country is increasing investments to develop its reserves and export more natural gas to countries such as China. Total primary energy consumption in Turkmenistan was 1.242 quadrillion British thermal units in 2014 and has risen about 60 percent over the past decade, according to BP's Statistical Review of World Energy. Natural gas consumption accounted for approximately 80 percent, and consumption of petroleum products represented the remaining 20 percent. [Source: U.S. Energy Information Administration (EIA) <=>]

The government practically gives away electricity, natural gas and oil products. Gasoline cost only a few cents a gallon or is given out free. Electricity, which is generated by gas is free. In the early 2000s, a one-way domestic airlines ticket cost less as little as $1.50. Some people leave their gas burners burning so they don’t have to waste money on matches.

Natural Gas Exports and the Turkmenistan Economy

China, the world's biggest energy consumer, buys around 30 billion cubic meters of Turkmen gas annually and plans to double that volume by 2020. According to Bloomberg, China pays Turkmenistan $350 per 1,000 cubic meters.The Central Asia-China pipeline opened in late 2009, a second line was added in 2010 and a third began construction in 2012. China has invested billions of dollars into Turkmenistan and fully financed the construction of the Turkmenistan-China gas pipeline. [Source: Catherine Putz, The Diplomat, July 28, 2015 *|*]

Russia's state-run gas monopoly, Gazprom, has been the main customer for Turkmen gas, which it purchases at prices far below world market rates. Until fairly recently most of Turkmenistan's gas was exported through Russian pipelines controlled by Gazprom. Turkmengaz — the Turkmenistan natural gas company — was for a time an important component of Gazprom's ability to meet customer demand at home and abroad. Gazprom's imports of Turkmen peaked in 2008 when it bought more than 40 billion cubic meters of the fuel. In 2009-2014, Russia's annual gas imports from Turkmenistan stood at 10-11 billion cubic meters.

Bruce Pannier of Radio Free Europe wrote: “Russia remained the biggest purchaser of Turkmen gas until a suspicious explosion along the pipeline connecting the two countries occurred in April 2009, amid tense negotiations between the two over the price for Turkmen gas. The ruptured pipeline cut off gas flows entirely for months. Supplies of Turkmen gas to Russia were eventually renewed, but in greatly diminished volumes, leaving Iran the No. 2 customer for Turkmen gas, after China. Iran then became for a brief time the main buyer of Turkmen gas, until the new pipeline from Turkmenistan to China started operation at the end of 2009. [Source: Bruce Pannier, Radio Free Europe, August 14, 2014 *+*]

Turkmenistan Economic Indicators in the 1990s

Turkmenistan's economy is predominantly agricultural. Agriculture accounts for almost half of the gross domestic product (GDP) and more than two-fifths of total employment, whereas industry accounts for about one-fifth of GDP and slightly more than one-tenth of total employment. In 1988 the per capita net material product (NMP) output was 61 percent of the Soviet average, fourth lowest of the Soviet republics. In 1991, 17.2 percent of the work force was engaged in private-sector occupations such as farming, individual endeavors, and employment on agreement; 0.7 percent worked in rented enterprises, and the rest worked for state enterprises, social organizations, and collective farms. [Source: Library of Congress, March 1996 *]

Macroeconomic indicators of the performance of Turkmenistan's national economy differed widely in the late Soviet and early independence years, making precise assessment difficult. According to one source, the per capita GDP was US$2,509 in 1992, placing it higher than Tajikistan and Uzbekistan, but lower than Kazakstan and much lower than some of the other former Soviet republics. Another source lists a 17 percent increase in industrial output between 1991 and 1992. On the other hand, several sources agree that the NMP aggregate figure for 1992 was a 15 percent decline from the previous year. One source claims that GDP in Turkmenistan increased by 8.5 percent in 1993, while another regards as suspect the statistical methods applied to the data on which this figure is based. Gross National Product (GNP): 1994 estimate US$4.3 billion, or US$1,049 per capita. Real growth rate estimated at -24 percent, 1994. *

Soviet Economy in Central Asia

The Russians and Soviet traditionally viewed Central Asia as a place to produce cotton and grain and fruits and vegetables that needed a warm climate. Cotton production has left a terrible legacy of pollution and environmental damages but still remains an important sector the economy.

During the Soviet-era, the Central Asian republics were cogs in the centrally-planned Soviet economy. Their economic sectors—such as cotton production— were very specialized. Uzbekistan was dependent on the rest of the Soviet Union for markets, goods and supplies. Industry and mining didn't really get cranked up until after World War II. Much of the development of the oil industry has taken place since the break up of the Soviet Union

The Central Asian republics were the poorest republics in the Soviet Union. Those without oil wealth remained that way after independence. The Soviets opened stores and cooperatives but the majority of business continued to be carried out in open air markets and bazaars.

Post-Soviet Economy in Central Asia

The economies of Central Asia declined in the years after independence. Their leaders had little business sense or grasp of market economic fundamentals. There were shortages, production declines, negative growth, high inflation, declining standards of living, unpaid workers, starving pensioners and professors driving taxis. Because the economies of Central Asia had traditionally been were very specialized and were dependent on Russia for markets, goods and supplies, they have had difficulty making goods of their own.

Unemployment rates are high, especially among young men. High unemployment has been blamed on outbreaks of ethnic violence such as that that occurred in 1989 and 1990 between Uzbek and Meshketian Turks and between Uzbeks and Kyrgyz.

The currency plunged 100 percent in the months that followed the Russia currency crisis in August, 1998.

Inflation averaged over 80 percent between independence and 1994. The economy shrunk less in Uzbekistan less than the economies of other former Soviet republics. In 1997 the GDP was 85 percent of 1990 level compared to 45 percent in Kazakhstan and 62 percent in Russia.

Living Standards in Turkmenistan

Under the conditions of independence in the early 1990s, the standard of living in Turkmenistan did not drop as dramatically as it did in other former Soviet republics. Thus, the relatively small population of the nation of Turkmenistan did not require extensive state investment for the basic requirements of survival as the nation attempted the transition to a market economy. [Source: Library of Congress, March 1996 *]

Although living standards have not declined as sharply in Turkmenistan as in many other former Soviet republics, they have dropped in absolute terms for most citizens since 1991. Availability of food and consumer goods also has declined at the same time that prices have generally risen. The difference between living conditions and standards in the city and the village is immense. Aside from material differences such as the prevalence of paved streets, electricity, plumbing, and natural gas in the cities, there are also many disparities in terms of culture and way of life. Thanks to the rebirth of national culture, however, the village has assumed a more prominent role in society as a valuable repository of Turkmen language and traditional culture.

Wages and Prices in Turkmenistan

Most families in Turkmenistan derive the bulk of their income from state employment of some sort. As they were under the Soviet system, wage differences among various types of employment are relatively small. Industry, construction, transportation, and science have offered the highest wages; health, education, and services, the lowest. Since 1990 direct employment in government administration has offered relatively high wages. Agricultural workers, especially those on collective farms, earn very low salaries, and the standard of living in rural areas is far below that in Turkmen cities, contributing to a widening cultural difference between the two segments of the population.

In 1990 nearly half the population earned wages below the official poverty line, which was 100 rubles per month at that time. Only 3.4 percent of the population received more than 300 rubles per month in 1990. In the three years after the onset of inflation in 1991, real wages dropped by 47.6 percent, meaning a decline in the standard of living for most citizens (see Labor).

Prices of all commodities rose sharply in 1991 when the Soviet Union removed the pervasive state controls that had limited inflation in the 1980s. Retail prices rose by an average of 90 percent in 1991, and then they rose by more than 800 percent when the new national government freed most prices completely in 1992. The average rate for the first nine months of 1994 was 605 percent. As world market prices rise and currency fluctuations affect prices and purchasing power, consumer price increases continue to outstrip rises in per capita incomes. In 1989 the average worker spent about two-thirds of his or her salary on food, fuel, clothing, and durable goods, but that ratio increased sharply in the years that followed. As prices rose, the supply of almost all food and many consumer goods was curtailed. The introduction of the manat as the national currency in November 1993 likely worsened the already deteriorating consumer purchasing power. The prices of forty basic commodities immediately rose 900 percent, and wages were raised only 200 percent to compensate.

Privatization in Turkmenistan

One of the most important reforms of Turkmenistan's economic plan is privatization. Article 9 of the 1992 constitution guarantees citizens the right to own capital, land, and other material or intellectual property, but no law has stipulated the source from which land could be acquired. No fund of land available for private purchase has been established. A law on land ownership allows every citizen the right to own and bequeath to heirs plots smaller than fifty hectares, so long as they are continuously cultivated, and to obtain a long-term lease on up to 500 hectares. Such land may not be bought or sold, however. In 1993 only about 100 peasant farms were privately run, and they were leased rather than owned. Nevertheless, after the government announced the 1993 law allowing fifty-hectare plots, it soon received more than 5,000 applications. [Source: Library of Congress, March 1996 *]

In February 1993, a State Committee on Land Reform was established, with a goal of privatizing 10 to 15 percent of all agricultural land. Beginning in May 1993, the state began leasing land on the condition that 35 percent of the state procurement for cotton be surrendered, with no monetary compensation, as payment of rent. Estimates of the irrigated land since leased or under private ownership range from 3 to 12 percent. The state also intends to privatize all unprofitable agricultural enterprises. *

The privatization process is managed by the Department of State Property and Privatization, which is part of the Ministry of Economy, Finance, and Banking. Short-term plans call for continued state control of the gas, oil, railway, communications, and energy industries and agriculture--sectors that combine to account for 80 percent of the economy. Laws on leasing, joint-stock companies, and entrepreneurship were adopted in the early 1990s. A general privatization law passed in 1992 describes the gradual denationalization of state property through a variety of methods. *

In 1992 only 2,600 small enterprises — mostly individual ventures such as trading outlets and home-worker operations — were privately owned. Through the end of 1993, only a few small trade and service enterprises had moved to private ownership, mostly sold to foreign buyers. Plans called for conversion of large manufacturing firms into joint-stock enterprises by the end of 1994, and private ownership of all trade and service-sector enterprises with fewer than 500 employees by the end of 1995. However, the state would maintain a "controlling interest" in businesses that become joint stock companies and would retain control over profitable larger concerns. *

A second important component of Turkmenistan's economic development plan is marketization. To promote this process, a decree was issued in March 1993 for the formation of a joint-stock bank, the granting of additional credits to the Agroindustrial Bank for the development of entrepreneurship, and the establishment of seven free economic zones. Agricultural entrepreneurs are to be granted special profits tax and land payment exemptions. Within free economic zones, companies with more than 30 percent foreign ownership are to receive special exemptions from profit tax and rental payments. *

Economic Structure

Although Turkmenistan's economic situation has deteriorated somewhat since 1990, the overall standard of living has not dropped as dramatically as it has in other former Soviet republics. Economic reforms have been modest, and the majority of businesses remain state-owned. Thanks to government subsidies, basic food products continue to be relatively affordable despite inflation. One of the most important modifications in economic policy took effect in early 1993 when President Niyazov decreed that natural gas, water, and electricity would be supplied virtually free of charge to all homes in Turkmenistan for an indefinite period. Gasoline and other fuels also remain cheap, relative to neighboring republics. Such economic stability has been possible because Turkmenistan has a comparatively small population and it is rich in important resources such as natural gas and oil. [Source: Library of Congress, March 1996 *]

The main blueprint for Turkmenistan's development is the Ten Years of Prosperity program, which was announced in December 1992. It calls for a ten-year transition to a market economy, with a first phase that maintains the Soviet system of planned management accompanied by extensive social protection programs. The program envisages development of Turkmenistan's natural resources and restructuring of industry to provide import substitution. *

Banking System in Turkmenistan

Until Turkmenistan became independent, its banks essentially functioned as accounting branches of the Soviet State Bank. Especially after introducing its own currency in November 1993, Turkmenistan experienced a need to develop a true banking system. The current structure, defined by the 1993 State Banking Law, includes a central bank (called by the Russian term Gosbank) that is responsible for the conduct of monetary policy and supervision of the banking system, a state-run savings bank (called by the Russian term Sberbank) and an external trade bank (called by the Russian term Vneshekonombank), and commercial banks such as the Turkmenistan International Bank for Reconstruction and Development. The latter institution is designed specifically to attract investments and promote exports in the gas and oil industries. [Source: Library of Congress, March 1996 *]

Turkmenistan's banks are expected to operate under a fractional reserve system that allows commercial banks to set interest rates based upon the increase or decline of their reserves in the state bank, giving them an incentive to allocate credit more easily or stringently as the market allows. However, in reality the republic's Ministry of Economy, Finance, and Banking determines the levels of bank access to central bank credit. *

The central bank favors credits to lower-level banks for supporting privatization, developing market infrastructures, expanding exports, and strengthening the banking structure. Generally, foreign companies are encouraged to seek external sources for financing projects in the republic. Banking policies include loans at significantly lower interest rates for agriculture than those granted to industrial enterprises. Goods purchased from state administrations can be paid for by checks that will be debited to accounts in the commercial banks. *

Turkmenistan Currency

Turkmenistan introduced its own currency, the manat, in November 1993, beginning at an exchange rate of two manat to one United States dollar and one manat to 500 rubles. Manat banknotes are printed in denominations of 1, 5, 10, 20, 50, 100, and 500, and tenge coins (100 tenge to 1 manat) are minted in denominations of 1, 5, 10, 20, and 50. [Source: Library of Congress, March 1996 *]

Procedures were devised to prevent a run on the currency and to stabilize the economy as much as possible during the introduction of the manat, including the closing of currency stores, posting of new prices that were to remain stable until an exchange rate had been reached, limiting the conversion of rubles to manat to a one-time 30,000 rubles exchange, and giving everybody sixty manat gratis. However, people began to produce false passports to get the free manat and to exceed the 30,000-ruble exchange limit. The state did not have enough stocks of the new currency to satisfy those who had "overcome their suspicions of the banking system." *

There are restrictions on access to foreign currency. Following the inauspicious introduction of the manat, Turkmenistan's government has not tried to artificially support official exchange rates, which have varied significantly from those in illegal money markets. By May 1994, the official rate was 60 manat to US$1, while in black markets it was 80-85 manat to US$1. In January 1996, the official rate was 200 manat per US$1. *

Niyazov’s images was on every denomination of the currency

Fiscal Policy of Turkmenistan

Turkmenistan has a highly centralized government policy, with no regional authority. Ministry of Economy and Finance has nominal control over public finance, but many extrabudgetary expenditures block effective control, incur deficits. Lack of experience hinders development of commercially oriented banking system. [Source: Library of Congress, March 1996 *]

In the first half of the 1990s, Turkmenistan slowly established independent fiscal and monetary institutions and policies to replace the centralized Soviet system upon which the republic had relied prior to independence. These innovations have included a separate national currency, an independent national bank, and mechanisms to control budgetary deficits. *

Turkmenistan was the only CIS country to have a balanced budget in 1992. Under the Interrepublican Memorandum of Understanding of October 1991, Turkmenistan's share of the Soviet Union's remaining international debt was fixed at 0.7 percent, or about US$420 million. An agreement with Russia in July 1992 erased this debt entirely when Turkmenistan renounced claims to former Soviet assets. This agreement virtually eliminated all of Turkmenistan's hard-currency debt. *

In 1993 increases in the minimum wage and social safety net strained fiscal discipline, but the government introduced a "sub-soil" tax on oil and gas exploration by Turkmengaz and other companies, as well as a value-added tax (VAT) of 20 percent and a profits tax of 30-45 percent to increase government revenues for its social programs. Despite this strategy, the 1993 deficit was estimated at 10 percent of GDP, far more than the 2-3 percent projected by the government. *

By the mid-1990s, increased entitlements such as free utilities had combined with careless monetary management to reduce investment and raise deficit spending and inflation. Until other gas pipelines are opened up to paying customers, experts predicted that Turkmenistan's hard currency reserves (estimated at US$500 million in 1993) would not remain at a high enough level to cover the government's undisciplined approach to budgeting. *

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© 2008 Jeffrey Hays

Last updated April 2016

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