Mon, 09 Dec 2019

Turkmenistan: Cart before horse

Eurasianet
20 Nov 2019, 04:49 GMT+10

When International Monetary Fund staff missions wrap up visits to Turkmenistan, it invariably plays out the same way.

The mission issues a dull statement, partly on the basis of a face-value interpretation of bogus government data, but it also adds a muted note of caution. State outlets and friendly regional media then cherry pick the findings to convey only the upbeat news.

The visit that concluded on November 12 was no exception.

The truism outlined by the IMF is that Ashgabat's economic agenda consists of a handful of policy ingredients: investment, import substitution, the active promotion of exports, preferential lending and strict control over the national currency.

There are several, IMF-unfriendly areas lurking in that list. The IMF mission advises, for example, that the government phase out "directed cheap credit" to "help steer financial resources to the most productive use" and "create a market-based, more efficient financial system." Translated into English, this means that the government should stop lending money at giveaway rates to regime cronies who pocket hefty wedges of cash or spend it on clearly bogus vanity projects.

An investment-led growth strategy sounds like it should be a positive thing. But when the IMF talks about how "increasing healthcare and education spending ... is essential for nurturing talent and creating opportunities for all citizens," it almost suggests that they think splurging billions on ill-considered industrial enterprises - the doomed Garlyk fertilizer plant being a prime example - might not be a top priority. Not that the IMF writes in such usefully lucid terms.

For all its veiled nods to deep systemic problems, the IMF does Turkmenistan a disservice by parroting economic growth figures instead of opting for admonitory advice in the relevant field. So it is that gross domestic product, or GDP, is seen by the IMF expanding this year by 6.3 percent. Doing the number-crunching, Vienna-based Chronicles of Turkmenistan explains how these growth figures are little more than the statistical version of a three-card trick that relies on Ashgabat's manipulation of the manually set exchange rate for the Turkmen manat.

And there is no attempt at subtlety in the coordination. On November 15, one day after the IMF statement was issued, Gochmyrat Myradov, the deputy prime minister with the economics and finance portfolio, informed the Cabinet that GDP had grown by 6.3 percent in the first 10 months of 2019. That represents an uptick in performance from the year before. And this is the same Myradov, by the way, who only four days before that Cabinet meeting was severely reprimanded for his "improper performance of official duties" and "shortcomings in his work."

For all this fake good news, President Gurbanguly Berdymukhamedov is hungry for more. At the same Cabinet meeting, he expressed disappointment over the performance of the oil and gas sector. Berdymukhamedov complained that the adoption of advanced technologies has been too slow and that there is excessive "passivity in the placement of high-quality oil products ... on the international market."

This last point looks at least in part to be a reference to output from the $1.7 billion gas-to-liquids plant inaugurated with much fanfare in June. This plant is by all accounts a world-class facility, built for Ashgabat by Japan's Kawasaki Heavy Industries and Ankara-based Renaissance Construction, but it is not clear that Berdymukhamedov or any of his consiglieres ever gave a lot of practical thought to who would buy the product.

Undeterred by prior experiences of putting horses before carts, Berdymukhamedov insisted that more modern technology must be sourced and that this should in part be funded by foreign investors.

Turkmenistan is all about import substitution - a policy that has generated a boom in the production of knock-off copies of all manner of consumer, usually edible, goods. When it comes to major projects, however, the foreigner is still king.

TDH state news agency reported on November 11 that construction is nearing completion at a new gas-fired power plant in the eastern Lebap province. When the construction deal was signed with Japan's Sumitomo Corporation in 2015, it was said to be worth $300 million. The Turkmen government anticipates that the 400-plus megawatt plant, which will only go into operation in 2021, will take overall annual electricity production to 33 billion kilowatt hours, enabling the country to export yet more power. Since funds for this project were provided by Japanese banks, however, it is not immediately obvious when Turkmenistan will see any significant income.

Borrowing from Uzbekistan's largely failed efforts on this front, Turkmenistan is trying to nudge more of its population into making the switch from using cash to cards. The head of the Supreme Audit Chamber, Gadyrgeldi Mushshikov, this week provided an update on proposals to introduce a cashback system at local banks. As implemented elsewhere, the system is supposed to incentivize cashless transactions by offering small refunds on card-based expenditures and other loyalty-boosting inducements. Reports on Mushshikov's investigation into the feasibility of such an initiative in Turkmenistan, where people traditionally prefer liquid cash and ideally in a foreign currency, provided no indication of whether this is likely to get the green light, however.

In another banking novelty, Rysgal Bank, Turkmenistan's only private lender, has announced that it is bracing to offer its commercial customers online banking. There is a kink though. There will be two versions of the system: a "lite mode," wherein the customer may view their financial information but will not be able to effect transactions, and then a more useful "full mode." Who will be entitled to which mode, it is not said.

Ashgabat-based news website Orient and Baku-based news agency Trend, both outlets especially active in relaying sympathetic regional energy news, have been aflutter this week with optimistic content about the Trans-Caspian Gas Pipeline, or TCGP. This is as good an indication as any that the respective countries' TCGP lobbyists are gaining confidence.

Trend led the way with some upbeat interviews with foreign analysts, including Fitch Group analyst Richard Taylor, Francis Perrin, a senior fellow at the Paris-based French Institute for International and Strategic Affairs, and Ariel Cohen, a senior fellow at the Atlantic Council.

Orient, which relies more on in-house analysis, ran a mild-mannered takedown of Russian energy analyst Alexei Grivach, who spoke at a recent conference about what he described as Europe's "failed" bid to turn Central Asia into an alternative supplier of natural gas. Grivach, the piece argues, is failing to take the long view.

"What, is world history coming to a halt tomorrow? And will natural gas not be needed by anybody the day after tomorrow? And will competition just disappear? And will Europe cease its efforts to diversify gas supplies?" asks the author of the article.

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