The manat has collapsed for all intented purposes as the Turkmenistan (‘Turkmen’) government has been paying bills by printing money hereby steadily debasing the value of the national currency since its inception in late 1993. Over the last thirteen years, Turkmenistan with its 4.8 million citizens has struggled largely due to its eccentric cult leader, President Niyazov. Turkmenistan’s economy and economic future depends heavily on new developments of energy resources in the region including the Caspian Sea pipeline project. Positive announcements have started to take place on new energy agreements although much change is required particularly with backward nationalistic policies that is not in tune with the majority of the world. Today, the globalalization and integration of world economies via trade & foreign direct investment ‘FDI’ is happening at lightening speed, Turkmenistan with its rich energy resources does not want to be left behind.
POLITICS: obtained independence in 1991 from the former Soviet Union, the capital is Ashgabat. Nationalistic political leadership is currently in control with former communist leader President Saparmurat Niyazov in power of the Democratic Party of Turkmenistan ‘DPT’ since October 1990. The personality cult of its President including statues and political posters has a firm tight grisp control of Turkmenistan. President Niyazov declared himself President for Life on December 28, 1999 and he has adopted the title of ‘Turkmenbashi’ meaning “Father of All Turkmen”. It is also reported that President Niyazov renamed the month of January after himself to ‘Turkmenbashi’. It is an authoritarian ex-communist regime that rules this resource rich nation. Opposition parties are outlawed as President Niyazov has complete control, government basically follows that of a dictatorship. Elements of the opposition have gone underground and/or exiled in foreign countries. The net result, domestic political and stability risk is very high. The unstable situation is reflected in a November 2002 assasination attempt on President Niyazov although he survived the attack from gunmen. Some of Niyazov’ more nationalistic policies include forcing Russian ethnic minorities living in Turkmen to give up dual Russian-Turkmen citizenship, this is sending a strong negative signal to Russia and to foreign investors. This action hereby has collapsed certain property markets in Turkmen. By ignoring the world community and isolating Turkmen, several Western energy congolomerates have pulled out of Turkmen. Nationalism is killing foreign investment thus killing economic development thereby keeping the people materially poor of which 35 percent live below the poverty line. Other radical nationalist policies include not allowing students to study abroad.
ECONOMY: bureaucratic nightmare, inefficient state controlled economy, serious economic difficulties remain as the country is governed for the most part by following that of the proven ill-flawed central planning economic model. The current authoritarian regime is unwilling to establish market reforms and accordingly, the economy crashed in the mid 1990’s. Any attempts at privatization and market reforms are met with hesitance and if any, they are slow to be implemented. President Niyazov has been accused of being a big spender, paying his way by printing money as was the case during the 1990’s. Many observers say he spent lavishly on public monuments rather than investing into productive wealth creation industries that will pay future dividends particularly with policies in place that discourage foreigners. The Turkmen economy declined massively during the 1990’s as by year 2001, the economy was only 70 percent of its 1990 level. Political disputes with other leaders including Russia over the years has cost Turkmenistan dearly. In 1994, Russia refused Turkmensistan’s energy resulting in financial chaos for Turkmen. By 1997, GDP fell 26 percent from this gas pipeline network closure. In addition to political mismanagement and its outdated ideology, the Turkmen economy is held back with an inadequate legal system. The laws change too frequently attributing to its low investor confidence. The politicians and its bureaucracy have discouraged foreign investment although they are attempting to reduce restrictions on FDI but much regulation remains in place. The tourism industry is hampered by extensive expensive paper work and regulations to enter Turkmen resulting in a neglible tourism industry. Consequently, Turkmen will not advance until it decides to change its view on allowing foreign monies. The country needs a competent banking system, honest regulators and a currency that is not in a free fall in order to develop industries to profit such as its rich energy industry including oil, coal in addition to other resource exports of sulfur, salt. By year 1999, Russia resumed the sale of Turkmen energy. The cotton industry is the nation’s second largest earning upwards of $250 million USD/year representing 20 percent of exports. Immediate challenges include Turkmenistan’s foreign debt burden and short term external debt position. One of Turkmen’s difficulties is that it was not receiving market prices and/or hard currency for gas and cotton as their clients are fellow CIS states. The future maybe brighter if Turkmen can realize world market prices for their exports.
Oil & Natural Gas
Turkmenistan is number five in the world for natural gas reserves measured at 100 trillion cubic feet and the world’s number four producer in year 2000. Year 2001 gas production came in 1.64 Tcf against consumption of only 0.26Tcf. Proven oil reserves are at 550 million barrels plus undeveloped offshore areas in the Caspian Sea equal to 1.7 billion barrels. Year 2001 oil production at 163,000 b/p/d while domestic consumption was measured at 52,000 b/p/d. The authorities have an ambitious goal of increasing oil production to 1 million b/p/d by year 2010 although this would require a $25 billion USD in foreign investment to develop. A significant challenge for the industry over the years has been the lack of pipelines to export these energy resources coupled with previous buyers who themselves were relatively poor nations of former Soviet states (ie. Azerbaijan) with little hard currency to pay for energy. Consequently, Turkmen is owed billions USD equivalent in energy debts by other bankrupt countries. Negotiations for export routes for Turkmenistan’s energy resources and its development are in active progress. State-run energy companies for Turkemnistan include Turkmen Gaz and Turkmenneft. The Caspian Sea oil joint venture with the United States and Turkmenistan to supply Turkey and Southern Europe is still in the works. However, disputes and difficulties with extraction and its delivery may delay building the Caspian Sea pipeline for sometime. For one, the cost is very expensive plus the line would run over a major earthquake zone. Turkmen is banking on the development of new delivery pipelines for future wealth including the Central Asia pipeline which itself is long delayed. This route would connect gas fields in Turkmen to central Pakistan. It is here in the energy sector where there is tremendous abilty to provide this national prosperity.
In April 2003, Turkmen President Niyazov signed at 25-year natural gas contract with Russian President Putin worth an estimated $200 billion USD to Turkmenistan. The Russian buyer is large energy conglomerate Gazprom.
Economic Statistics * Note: statistics are unreliable as many of Turkmenistan’s numbers are state secrets, figures are difficult to obtain/unreliable*
GDP as measured by purchasing power parity is at $26 billion USD (2002). Year 2002 GDP growth rate came in at 6 percent. Year 2000 fiscal surplus came in at 0.43 percent of GDP. Very high inflation during the early to mid 1990’s with 1996 reaching 1000 percent or hyperinflation levels due to large budget deficits at the time and an economy imploding from the closure of a Russian pipeline. Although with an IMF program, by year 1998 inflation fell to 20 percent and more recently last year in 2002 inflation was low at 5 percent. Unemployment is at 14 percent. Ukraine is the largest export market.
POSITIVES: high literacy rate, member of the IMF, low violent crime rate. CONCERN: poor telephone service, no Internet, University education is difficult to obtain, few foreign visitors, high infant mortality rate.
BANKING SYSTEM: during year 2000, the government outlawed its citizens from having foreign bank accounts of which are now illegal. Not much known but it is reported that in 2002, a Central Bank employee stole $41 million USD equivalent from the State Central Bank of Turkmenistan. It has been reported that the banking system is tightly controlled as businesses have been forced to conduct transactions at the significantly more expensive government exchange rate rather than the market.
REGIONAL: Iran, Kazakhstan, Uzbekistan, Afghanistan
Iran is a country with the most influence on Turkmenistan. It is a logical partnership considering that most of the Turkmen population live near the border with Iran. Further, Iran may play a viable alternative for exporting Turkmen energy to the Gulf or Turkey.
Kazakhstan would like to use Turkmen as a transshipment centre for oil & natural gas exports to the Persian Gulf or Turkey. Uzbekistan is central Asia’s largest, richest and most populous state with economic & military superiority to Turkmen. Looking at regional stability, the rise of Taliban terrorist activities in rural Afghanistan is a cause for concern although Turkmenistan has successfully avoided this area of instability unlike other regional countries such as Uzbekistan.
KNOWLEDGE: the Aral Sea is today one of the world’s largest environmental catastrophes. In the early 1960’s, Russian bureaucrats under the former Soviet Union central planning model believed that Turkmen should become self sufficient in cotton production. The planners re-routed two main rivers (Amu Darya & Syr Darya) that supply the Aral Sea with fresh water, the re-routing of water has resulted in the Aral Sea not replenishing itself leaving a dry bed of toxic salts. The Aral Sea is now only 25 percent its original size as irrigation and evaporation have resulted in a massive ecological and environmental damage to the planet and to the region. As the water has disappeared, a mixture of pollution resulting from toxins consisting of fertilizers, DDT, salt, sand, etc. The result is a cruel deadly toxic dust taking form from the toxic saltbed from the former Aral Sea. Each year, over 100 million tons of toxic dust from the Aral Sea is swept up each year into the winds. This deadly dust is now moving to all parts of the globe, but the most devestating consequences are those who reside closest including the people of Turkmenistan. The net affect, the average lifespan in Turkmenistan has fallen sharply and is now at 61 years, only 57 years for males. Previous flawed water decisions under Soviet communist rule for irrigation has created one of the world’s biggest ecological disasters. Re-routing of water for Turkmenistan’s agricultural industy is still taking place, particularly for the cotton industry. Cotton production in Turkmenistan seems a little bizarre considering that desert accounts for 80 percent of the country’s geography, but it now ranks as the world’s tenth largest producer. Water shortages will be a significant economic disability for Turkmenistan plus the fact what remains of the Aral Sea is one very highly polluted water source.
CURRENCY: ISO Symbol ‘TMM’, Turkmen manat. At time of review on August 15, 2003, the manat had an exchange value of 5,148 TMM to 1 USD. Turkmenistan introduced its own national currency, the manat on November 1, 1993. It should be noted that the official rate of 5,200 TMM to 1 USD since 1999 differs in value from the market rate significantly. Recent quotes for the black market rate have the manat at over 21,000 TMM to 1 USD or upwards of four times the official rate. In lieu of the manat, a vibrant black market economy exists where barter and hard currencies are the currency of choice.
CURRENCY HISTORY: historical valuations include year 1998 at 4,890 TMM to 1 USD, January 1997 at 4,070, January 1996 at 2,400. In mid January 1996, the government unified the exchange rate. The currency has been in a steadily free fall since inception. The market rate collapsed in value by 70 percent in just a few short months from 1999-2000 even as many businesses are limited on the amount of US-dollars they are able to export. At inception in 1993, the exchange rate was set at 2 TMM to 1 USD, however it quickly fell to 10. In 1995, new 1000 TMM notes were issued and the smaller notes cancelled reflecting the continual debasing of the currency.
CURRENCY FORECAST: bankruptcy on horizon? Perhaps a short term risk but over the longer term,Turkemenistan may evolve into a moderately wealthy and prosperous society but this will happen only under that of a new government. The country is too rich in energy resources, its economic potential is tremendous if Turkemn had prudent leadership and sound laws. However, in the short term, the manat remains vulnerable to due heightened political risk. The collapse in value of the manat foreshadows trouble ahead, most likely in the political spectrum in the near future. Continued risks for assassination attempts, violence is a real threat.
UPDATED: August 15, 2003
