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Country Commercial Guides FY 1999: Turkmenistan

CHAPTER II: ECONOMIC TRENDS AND OUTLOOK

Turkmenistan gained its independence in October 1991 following
the demise 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, oil, and gas 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 may 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-1998, no IMF stand-by agreement.) These included
liberalizing the foreign exchange regime and controlling in-
flation by maintaining low fiscal deficits and restraining the
growth of easy credit to state enterprises. As a result, since
1996, Turkmenistan has been entertaining a stable exchange rate
and decline in the annualized rate of inflation 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 invest-
ment 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.
To begin forming a securities market, in early 1998, the GOTX
decreed the creation of joint stock companies from state-owned
industrial enterprises and determined a mechanism for stock
distribution.

Full and consistent implementation of IMF reforms would improve
significantly 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 foreign 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
has been recently adopted. The Civil Code, a set of rules and
regulations defining a legal framework for proprietary
relations, is one of the first steps to legalize private
ownership in Turkmenistan. 

Most of Turkmenistan's basic infrastructure -- especially
roads, urban and intercity transport, telecommunications,
port facilities, and water and electric power distribution
systems --dates from the Soviet period and is in need of
repair. The GOTX is working with international donors and
foreign investors on improvements in many of the areas listed
above, but much remains to be done. On the positive side,
the capital city of Ashgabat features a modern international
airport and world-class hotel and conference facilities.

[end of document]

Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.

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