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Turkmenistan
Fiscal and Monetary Conditions
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.
Banking System
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.
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.
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 (for value of the manat--see
Glossary). 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.
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."
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.
Fiscal Policy
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--see Glossary) 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.
Data as of March 1996
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