Trouble in Turkmenistan

Trouble in Turkmenistan

Turkmenistan’s economic indicators that appeared during the first phase of their transition from a centrally planned state, over a decade ago, to a more liberalised economy, seem to have created enough stability to put this country on the map as one of the only economies without any foreign debt. However, that does not mean Turkmenistan is exempt from their own unique set of economic and social issues, which  may well be considered as risk factors in the near to medium term future.

It is predicted that Mr Berdymukhamedov, the president of Turkmenistan, is unlikely to face a challenge to his rule this year.  Yet, same as with his predecessor Mr Niyazov, the administration appears to be considering making the country more welcoming to foreign investment, while keeping political liberalisation to a minimum. However, the administration's task will be made more difficult in the medium term by external economic factors, which are expected to be much weaker than in recent years. The multitude of bureaucratic obstacles will hamper international business activity, despite a deep desire to actively encourage foreign investments, ensuring a continued influx of foreign capital. Turkmenistan is forecast to recover from a contraction in real GDP by 6% in 2009, to a growth of 9% in 2010 and a further 6% in 2011.  The country has a considerable agricultural force as the world’s 6th largest cotton producer, after having lost their previous position of being the 10th, due to several years of bad harvests. As a unique source of natural wealth, Turkmenistan’s flourishing export of abundant natural resources had hit an all time low during last year as a result of the global economic recession, as well as the severe dispute over gas supplies with Russia. It would be realistic to state that President Berdymukhamedov's survival in office throughout 2010 and 2011 will depend on his success in rewarding officials and balancing competing interests within the country, ensuring the continuation of gas exports to achieving this goal,  which means a steady inflow of foreign currencies.

The dispute with Russia over gas in 2009 initially stemmed from the shutdown of the main gas export pipeline following an explosion in early April 2009. This incident hastily developed into an open row about the price of Turkmen gas exports to Russia. The situation halted most Turkmen gas exports for most of 2009, but a deal allowing gas flows to resume in early January 2010 was agreed upon in December; though in lower volumes and prices than previously agreed. Thus, gas exports appear to be among the predicted positive economic outcomes for 2010 in Turkmenistan. As well as the newly re-opened gas lines to Russia and Belarus, gas exports to China are expected to begin in 2010, which enable experts to predict a surge in further foreign investments. The current account is expected to retain a large surplus in 2010-11, albeit smaller than in 2008.

Turkmenistan’s initial political system change was based on policies which aimed to give a low priority to economic reforms, yet emphasised the country’s neutrality and minimised internal political changes. This approach may have been seen as a dubious choice at times, but it has ultimately resulted in the achievement of external and internal political goals, stability and solid economic reserves. However others may still argue that the extremely limited liberalisation is eventually going to backfire and trigger a downturn for their economy.

As an internally complex political and economic system, the government has had to accommodate for a social structure, which is not only founded on tribal notions, but also has a deeply embedded history of depending on a strictly centralised communist system.

A list of possible future risks for the economy of Turkmenistan could be their continuing authoritarian ex-Communist regime, increasing internal poverty, widespread corruption, weak education system, limited privatisation goals and a stubborn reluctance to adopt market-oriented reforms. He is not expected to significantly liberalise the authoritarian political system of his predecessor Saparmurad Niyazov, and is in fact expected to preserve most of Mr Niyazov's statist economic policies; he does however show a greater willingness to consider minor reforms. He has already implemented changes, considered substantial for Turkmenistan, such as; a unified dual currency exchange rate, redenomination of the Manat, reduction in the amount of state subsidies for gasoline, designation of the coastal regions of the Caspian Sea  as a special tourism zone, which are all positive indicators for the future economic and social welfare of Turkmenistan.  Foreign policy is expected to diversify away from Russia over 2010 as stronger ties with other countries are pursued in the interests of developing the hydrocarbons sector and diversifying export routes. Authorities have also started talks about diversifying the economy away from energy after the budget of 2010 cut expenditure by 15.4% from 2009 and revenue by 18%.

Turkmenistan, while seeing the need for economic liberalization, still remains under the Soviet era attitude of a statist government.  The coming year will be an important year for Turkmenistan as this attitude may be forced to end.  The strength of Russia and China in the region are forcing protectionist regimes to open their economies to outside forces.  One can only wonder if foreign investment will flow into Turkmenistan as surely as the Turkmen gas flows out.

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