The above graph shows the
steady increase in the value of the dollar compared with the manat.
There have been only two periods of significant decline in the last
--Saturday, January 16, 99--
Trying to understand Turkmenistan's budget and economy is no easy matter.
The newspaper says that the 1999 budget figures is 20,562 billion manats
in revenue and 20,839 billion manats in expenditures. At 5,200 manats
to the dollar, this represents $3.954 billion in revenues and $4.008 billion
in expenditures. But the manat is currently trading on the black market
at 15,000 to the dollar. What is the right figure to use?
Two make matters worse, the budget has two components, the cash and the
non-cash and this is where difficulties understanding the budget arise.
The treasury has only enough cash to give a portion (possibly about 1/3rd)
of a ministry's appropriation in cash. This is naturally reserved for
paying salaries. Nonetheless, major salary arrears occur and many people
go unpaid for months.
The economy here is also very unusual from out point of view. Eighty percent
of economic transactions are with government owned firms and agencies.
So when a government health clinic buys drugs, they buy it from a government-owned
pharmaceutical company and they don't pay cash but use some kind of non-cash
voucher. That pharmaceutical company also does business with other government-owned
firms so there are more non-cash transactions. And on and on it goes.
These non-cash transactions have the problem that there is no "market"
to set prices. Thus government officials have to decide what those drugs
should "cost" the health clinic. This is the "settlement
issue" that bedevils financial reporting. It has been demonstrated
(See "Russia's Virtual Economy" by Gaddy & Ickes in the
September/October issue of Foreign Affairs) that by jigging the "cost"
numbers, it is possible to turn a national deficit into a "surplus."
Of course, the government-owned pharmaceutical company has to pay its
employees as well as pay for heat, electricity, telephone etc. All the
utilities here are government owned so the "settlement issue"
I think it is Gresham's Law that says "bad money drives out good."
Here the "bad money" consists of the non-cash transactions so
government agencies are forever trying to avoid paying in cash -- in order
to try to pay their employees with the scarce cash. This, of course, tends
to increase the "settlement issue."
The above describes the rules of how the system is supposed to work, as
best as I can understand it. Then there are the violations of the rules.
The government-owned pharmaceutical company is supposed to pay various
taxes to the government (is this getting confusing?) and maybe it does
and maybe it doesn't. Why aren't they just shut down for non-payment of
taxes as we would do? Well, that would produce unemployment which the
government wants to avoid. Yet, without a genuine enforcement mechanism,
there is little or no incentive to pay.
There are other problems as well. Government-owned banks make loans to
government-owned activities and frequently the loans are not repaid. There
is no independent audit function here so there is no basis for believing
what limited financial information is provided. Does this sound chaotic?
The government's financial problems are further compounded because it
provides free gas, water, electricity, salt and flour (reduced price)
to the population. People tell me that salt is on the list so the list
will be longer and that Russian salt is better.
Needless to say, free goods are always wasted so there are endless stories
of families that leave gas stoves running all day all year regardless
of need, of faucets left running, etc. Natural gas this country has in
abundance but not water.
Then there is the issue of the external debt. The government has contracted
sovereign debt for a variety of purposes including the showcase projects
like the presidential palace, the Neutrality Arch, etc. Where will the
foreign currency come from to repay the loans? The major export items
are oil, natural gas, and cotton.
Very little oil is currently being exported due to the inability of Turkmenistan's
trading partners to pay in hard currency -- not to mention a general glut
on the world market. There was a recent announcement of a deal with Ukraine
to resume natural gas shipments through an existing pipeline. Payment
would be 40% in hard currency and could amount to as much as $300 million
this year. If it really happens it will be a major shot in the arm for
the government and should trickle in to the economy.
The cotton harvest was OK but it seems as though the government has not
sold it thinking that the price was too low. Prices on the international
cotton markets are depressed like the oil market but hard currency is
hard currency. Now Turkmenistan has warehouses bursting with cotton when
it could benefit from its sale.
Since I arrived the value of the manat has fallen by two-thirds with the
respect to the dollar. Very little of the goods consumed here are produced
internally so this converts into price inflation that has become very
noticeable to me. The Peace Corp people I meet who live a lot more like
the Turkmen than I do report that prices are moving up noticeably. Since
salaries will not move up until a scheduled pay scale increase in October,
the squeeze is on.
The government's response to all of the above has been slow and weak.
It has slashed health and education services but the savings in the big
picture are minor and the long-term damage possibly great. There is continued
talk about more showcase projects, hopefully neither as big nor as expensive
($64 million?) as the Neutrality Arch. They are continuing with a new
road to the airport that is completely unneeded.
Positive Things About the Turkmenistan Economy
There are positive things that can be said about Turkmenistan's economy
but they tend to be about the future rather than the present and there
are always a lot of "ifs" whenever the future is involved.
An announcement was made last month that natural gas sales to Ukraine
will resume with payment in hard currency being worth as much as $300
million this year. This would be a major plus for the economy -- if it
It is expected that the government will announce the consortium that will
build the Trans-Caspian pipeline next month. (No, just the announcement;
the pipeline will take years to construct.) The completion of the pipeline
will produce significant hard currency income though perhaps not equal
to the dreams of the government.
Turkmenistan was conquered by the Russians when it was just a collection
of five tribes so there never was a Turkmen Nation as we know the term.
The government has been trying hard to build a nation where none existed
and much of the ever present images of Turkmenbashi can be said to contribute
to that purpose. The efforts seems to be having some impact. How much?
There is no way I can tell.
The slowness of the government in privatizing has at least avoided the
mafia-ization of the economy which has happened in other countries so
it is a serious concern.
And finally, not all the signals from the government about economic reform
are negative. There is the occasional positive signal from high places
so it is very difficult to forecast what the government will actually
do in the future. A few right decisions could make all the difference.