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FY 1999: Turkmenistan |
CHAPTER VIII: TRADE AND PROJECT FINANCINGBrief Description of Banking System
The banking system in Turkmenistan is based on a number of basic laws addressing the financial and monetary policy of the state, including the Law on the Central Bank of Turkmenistan, the Law on Commercial Banks and Banking Activity, the Law on Foreign Exchange Regulation, and the Law on the Monetary Unit of Turkmenistan. The banking system consists of the State Central Bank of Turkmenistan; two state banks: the State Bank for Foreign Economic Affairs (also known as Vnesheconombank) and the State Savings Bank (Sberbank); 13 commercial banks including banks with foreign capital; and 52 Daykhanbanks that are supervised by the Cooperative Commercial Daykhanbank.
The Central Bank is the National Bank and acts on behalf of the government. According to the Law on the Central Bank, the Bank is independent from any state power and administrative bodies. It is responsible for formulating and conducting monetary and foreign exchange policy; licensing banking activity; supervision and regulation of the banking system; management of international financial reserves of the country; and development of the efficient banking settlement system. The Central Bank is the banker, advisor and fiscal agent of the Cabinet of Ministers. In addition, the Bank is charged with setting interest rates and for administering subsidies to the priority sectors of the economy.
The Central Bank is also responsible for running the weekly currency exchange auctions in cooperation with the Foreign Exchange Committee chaired by the Deputy Chairman of the Cabinet of Ministers for Banking and Foreign Exchange. The Interbank Com- mission, chaired by the same Deputy Chairman controls foreign exchange circulation and distribution and regulates the activities of commercial banks.
The State Bank for Foreign Economic Affairs (Vnesheconombank) is the key institution for foreign businessmen and investors, as well as local exporters. It dominates import/export and investment operations and is a member of the International Payment Cards Association. The Vnesheconombank has been authorized to sign an agreement with "Standard and Poors" agency concerning awarding Turkmenistan an international sovereign credit rating. Vnesheconom- bank is the primary fiscal agent for the GOTX that secures financing for all governmental commercial transactions and handles all foreign exchange operations. Vnesheconombank closely works with the SAFI and the state development funds. In 1997, the total bank's assets amounted to $843.7 million.
Most of the Turkmen commercial banks are small- and medium-size with the major share in their founding capital belonging to state enterprises. There are also four banks with foreign capital in- cluding the Turkish-Turkmen bank "T.C. Ziraat Bankasi," the Russian-Turkmen bank "Rossiysky Kredit," the National Bank of Pakistan and an Iranian commercial bank "Saderat." All banks, including foreign banks, may operate only if they are licensed by the Central Bank of Turkmenistan. Six Turkmen commercial joint stock banks, a Turkish-Turkmen joint commercial bank, the Russian- Turkmen joint stock "Rossiysky Kredit" Bank, the National Bank of Pakistan, and Sberbank have licenses from the Central Bank enabling them to carry out foreign exchange operations. Among the Turkmen commercial joint stock banks, the bank "Turkmenistan" and Investbank rank as the largest and most active on the Turkmen market.
Foreign Exchange Controls Affecting Trade
In the past, foreign companies doing business in Turkmenistan had difficulty converting the national currency into hard currency. Some companies could not even receive manat coverage for a tran- saction made in Turkmenistan because of a shortage of both local and hard currency. Therefore, most trade transactions in the past were made on a barter basis (usually, payments were made in cotton). Now, all barter transactions are controlled by the Cabinet of Ministers.
Since 1997, the situation has much improved: the foreign exchange rate became single and unified; it has been stable and, as of July 5, 1998, is 5.300 manats against the dollar. Hard currency is available to foreign and local companies for manat conversion through their commercial banks. There are certain criteria that are taken into consideration when the Central Bank provides foreign exchange through its Interbank Currency Exchange to meet the commercial banks' needs in hard currency. (See paragraph "Conversion and Transfer Policies" in the Investment Climate Statement.)
The Central Bank licenses foreign exchange operations by com- mercial banks and guarantees the security of foreign investors' deposits, stocks, securities and other payment documents kept in commercial banks.
General Financing Availability and Terms of Payment
The internal financial market in Turkmenistan is heavily supported by the state: state entities hold majority shares in most Turkmen commercial banks. However, due to the tough monetary policy of the Central Bank and general improvements made in banking services, most of the banks have increased their own capital. As a result, commercial banks have activated project or trade financing services. Turkmen official 1997 statistics shows that commercial banks ex- tended credits in the national currency to local state and private enterprises in the amount of 805.902 million manats ($152,056,980). It should be noted that, so far, state enterprises have dominated the economic structure of Turkmenistan. Therefore, most credits have been granted to state enterprises. Short-term credits amounting to 767,825 million manats ($144,872,640) have been provided to primarily small- and medium-size state and private enterprises. About 34% of short-term credits covered industrial production projects and 15% agricultural production projects. However, there are difficulties that prevent commercial banks from expanding their investment activities. Among the difficul- ties are a lack of stimulus for long-term investment; inexperience of heads of enterprises in management, and, at times, their failure to honor contracts; lack of a well-established mechanism of debt payment by enterprises; and shortage of skilled banking specialists. High interest rates for credits is a significant obstacle for local entrepreneurs in expanding their commercial activities.
A few Turkmen commercial banks are experienced in working with letters of credit (Turkmenbank, Investbank, and Senagat Bank). To date, this method of payment has been the safest one. Payment based on actual shipment of goods or work performance is another method used in Turkmenistan. The GOTX does not allow commercial banks to service transactions on a prepayment term.
To finance large commercial projects involving foreign and Turkmen state companies, the GOTX uses foreign credits extended by foreign governments and international financial institutions. Vnesheconombank handles all transactions involving foreign credits.
Types of Export and Project Financing and Insurance Available to U.S. Companies
1. The Export-Import Bank of the United States (U.S. EXIM Bank) is an independent U.S. government agency that provides support for U.S. exports through export credit insurance, loan guarantees, direct loans, working capital guarantees, and project financing. The Bank assists only the export of goods and services with at least 50% U.S. content. Under medium- and long-term programs, if the U.S. export product contains foreign-made components, EXIM Bank will cover up to 100% of the U.S. content, provided EXIM Bank's support does not exceed 85% of the export price. Short- and medium-term export credit insurance and project financing are available to Turkmenistan. So far, for short-term transactions, EXIM Bank has been requiring an ILC or guarantee from the Vnesheconombank and, to date, has extended $424 million to Turkmenistan. In April 1998, EXIM Bank signed a framework agreement on financing credit worthy projects in Turkmenistan. The agreement envisages that the Bank will pro- vide financing for export projects involving private companies without requiring government guarantees. 2. The Overseas Private Investment Corporation (OPIC) is a self- sustaining independent agency of the U.S. government that promotes economic growth in developing countries by encouraging U.S. private investment. OPIC assists U.S. investment through the following basic programs: financing of investments through direct loans and loan guaranties; insuring investments against political risks; and providing a variety of investor services. In 1993, Turkmenistan signed an OPIC agreement but, to date, there has been little U.S. direct investment in Turkmenistan and no OPIC program involvement. 3. The International Finance Corporation (IFC), an independent member of the World Bank Group, is the largest source of direct project financing for private investment in developing countries. IFC normally invests in projects with a total cost greater than $25 million in the CIS countries and requires that a project generate hard currency. In 1996, Turkmenistan joined the Inter- national Finance Corporation, but is not a member of the Multilateral Investment Guarantee Agency. 4. The U.S. Trade and Development Agency (TDA) is an independent U.S. government agency that provides non-reimbursable grants for U.S. firms to carry out feasibility studies for both public and private sector projects. In Turkmenistan, TDA has extended grants in the oil and gas and telecommunications sectors. 5. The European Bank for Reconstruction and Development (EBRD) is a multilateral financial institution that lends and invests exclusively in the countries of Central and Eastern Europe. The bank provides advice, loans, equity investments and debt guarantees in order to foster the transition toward open market- oriented economies and to promote private and entrepreneurial initiative. In Turkmenistan, EBRD has opened a $35 million credit line available for small- and medium-size project financing. The bank has invested its equity in a textile production complex, and arranged tenders for a number of projects in Turkmenistan. 6. Central-Asian American Enterprise Fund (CAAEF) has an office in Ashgabat which provides loans to small enterprises for private sector development. CAAEF also makes equity investment and offers various technical assistance, including business plan development, to new private businesses.
List of Banks with Correspondent U.S. Banking Arrangements
(Full contact information is provided in Appendix E: U.S. and Turkmenistan Contacts.) Central Bank - Chase Manhattan, New York -- Citibank N.A., New York -- Deutsche Bank, New York Vnesheconombank - American Express Bank Ltd., New York -- Bank of America Int'l, New York -- Bankers Trust Company, New York -- Bank of New York, New York -- Chase Manhattan Bank, New York -- Chemical Bank, New York -- Citibank N.A., New York -- Credit Lyonnais, New York -- Republic National Bank of New York, New York
Investbank - Bank of America Int'l, New York -- Chase Manhattan Bank, New York -- Citibank N.A., New York and Frankfurt/Main, Germany
Turkmenbank - Citibank N.A., New York -- Bankers Trust Company, New York
Daykhan Bank - Citibank N.A., New York -- Bank of New York, New York -- Chase Manhattan Bank, New York
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