Other State Department Archive Sites

The State Department web site below is a permanent electronic archive of information released online from January 1, 1997 to January 20, 2001. Please see www.state.gov for current material from the Department of State. Or visit http://2001-2009.state.gov for information from that period. Archive sites are not updated, so external links may no longer function. Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

Country Commercial Guides for FY 2000: Turkmenistan Report prepared by U.S. Embassy Ashgabet, Released July 1999 Note*

CHAPTER II: ECONOMIC TRENDS AND OUTLOOK

Turkmenistan gained its independence in October 1991 following the break up of the Soviet Union. A colonial provider of raw materials (primarily cotton, oil, and natural gas) during the Soviet period, the GOTX is now emphasizing development of its textile and food processing industries, as well as further development of its energy and cotton sectors and improvements in the country's transportation and communications infrastructure. The GOTX is also pursuing a policy of national self-sufficiency in wheat production. Accordingly, oil and gas, agriculture, textile and food processing are likely to remain the principal growth sectors over the next few years.

For the foreseeable future, cotton, natural gas, and oil will continue to drive the Turkmen economy. The degree of success of efforts to restore declining cotton and gas exports to (at least) Soviet-era levels will largely determine whether Turkmenistan is able to reverse a slide in its Gross Domestic Product.

Agricultural privatization and improved agricultural techniques might bring some increase in cotton production and exports, but a substantial increase in gas exports must await both the full resolution of payment disputes on gas shipped through the Russian pipeline system and construction of major, alternative export pipelines.

In 1996 and the first half of 1997, the GOTX voluntarily initiated a number of IMF-recommended economic reforms. (Turkmenistan has, as of mid-1999, no IMF stand-by agreement.) These included liberalizing the foreign exchange regime and controlling inflation by maintaining low fiscal deficits and restraining the growth of easy credit to state enterprises.

As a result, from 1996 till October 1998, Turkmenistan had a stable exchange rate, while the annualized rate of inflation fell from over 1,400% to 20%. In December 1996, President Niyazov announced an agricultural reform program entailing the gradual transfer of state lands to individual farmers.

March 1997 witnessed passage of a new energy law designed to attract increased foreign investment in Turkmenistan's oil and gas sectors. In April 1997, the President issued a series of decrees regarding privatization of industrial enterprises and unfinished construction projects.

A sharp drop in export earnings caused by the March 1997 cessation of exports through Russia's pipeline system began to exert increasing pressure on Turkmenistan's current account and international debt position. In the fall of 1998, in light of a continuing shortage of hard currency and the rapid depreciation of the manat on the parallel market, the Government introduced new regulations restricting the export of hard currency and access to converting local currency, the manat, into foreign exchange. There has been little progress on economic reform over the past year.

Full and consistent implementation of economic reforms would significantly improve the trade and investment climate. In the meantime, the GOTX dominates the economy and the President and a few close advisors exercise firm control over economic decision making.

Moreover, the absence of a fully developed commercial code inhibits trade and investment. The numerous presidential decrees, legislative acts, and administrative rules regulating commercial activity are often contradictory and changes are often applied retroactively. The Civil Code drafted by the Turkmen Mejlis with EC expert participation was adopted in 1998 and went into effect in March 1999. The Civil Code is one of the first steps to legalize and set the rules governing private ownership in Turkmenistan. How effectively it will be implemented is not yet clear.

According to official statistics, Turkmenistan's real GDP amounted to 13.2 trillion manat or USD 2.5 billion in 1998 (the official exchange rate is fixed at 5,200 manat per US dollar). Gas production constituted only 1 percent of GDP in 1998 against 8 percent in 1997.

Overall industrial production excluding gas production made up 29 percent of GDP against 33 percent in 1997. This included oil, electrical power, textile, chemical, and building materials industries. Agriculture, construction and services made up 25, 12, and 29 percent respectively against 20, 11, and 30 percent in 1997.

In 1998 Turkmenistan produced 13,284 million cubic meters of gas (against 17,322 million cm in 1997); 6,280 thousand tons of oil (4,481 thousand tons in 1997); 707,000 tons of cotton (630,000 tons in 1997); 1,240 thousand tons of wheat (655,000 tons in 1997); 9,280 million kilowatt/hours (9,403 million kw/h); 43 million square meters of cotton fabric (31 million sm); and 314,000 square meters of carpet (322,000 sm).

Average wages have varied between 250,000 and 300,000 manats per month or USD 47 and USD 57 since the last official increase of wages in the government sector in March 1998. The minimum wage and pension were set at 200,000 and 100,000 manats respectively or USD 38 and 19. However, the depreciation of the manat on the parallel market has led to an increase in the price of imported consumer goods, significantly reducing the purchasing power of fixed wages and pensions.

Turkmenistan's external debt more than doubled from USD 0.7 billion to USD 1.4 billion in 1997 and increased to 1.7 billion in 1998. In 1998 Turkmenistan made trade transactions with 75 countries; due to the decrease of natural gas exports, the highest portion of import/export transactions was made with non-CIS countries. The overall trade turnover consisted of USD 1,574 million or 26 percent less than in 1997. The trade deficit in 1998 was USD 386.8 million or around 15 percent of GDP.