At the end of last week an amnesty of capital was announced in Turkmenistan.
Deputy Prime Minister Gochmyrad Myradov said that “this measure is aimed at attracting additional funds into the economy as well as to shape favourable conditions for the flow of investment into the economic zones of Turkmenistan”.
Moreover, several days earlier the International Monetary Fund published a press release summarizing the results of the IMF experts’ visit to Turkmenistan where “Turkmenistan was recommended to further reduce social benefits and reinstate foreign currency conversion”.
Khadaiberdy Orazov
“Chronicles of Turkmenistan” has asked finance expert and former CEO of Turkmenistan’s Central Bank Khadaiberdy Orazov, to comment on these two events.
— Why does Turkmenistan’s government need to hold an amnesty of capital? What kind of investment are the authorities trying to attract in this way and do you believe in the success of this initiative?
— The amnesty of capital is a working tool if you can use it correctly. Similar measures have been undertaken not only in Turkmenistan, but successfully implemented in the US, Russia and other countries. However, it is important to understand the legislative framework and the application mechanism.
The successful amnesty of capital involves the relevant group of residents who own capital to be granted amnesty.In particular, entrepreneurs and residents with medium and high income.
If there are such groups in Turkmenistan, their number is quite limited, and it is unlikely that the amnesty of their capital will contribute to a considerable improvement in the investment climate in the country.
It seems to me that the amnesty is being carried out for those cronies with close ties with the powers-that-be, who decided to take advantage of the numerous economic reforms which are being carried out in Turkmenistan and thus safeguard their savings underhandedly.
As regards investments, generally speaking there are none despite the fact the authorities are trying to attract them in every possible way. The economy in Turkmenistan lacks transparency and potential investors have insufficient reliable information to assess their risks realistically.
The recent story with the Russia-based MTS shutdown demonstrates the investment climate in Turkmenistan better that the amnesty.
When a business or a large company which has invested considerable funds into the country is taken over, what do smaller investors have to wait for? It is small and medium business which is the backbone of any healthy economy.
— What do you think of the IMF statement and its recommendations to the Turkmen authorities?
— IMF experts visit many countries, not only Turkmenistan. There is not a single figure in this statement, no statistical data, and for this reason I do not treat this press release as a serious document.
It has vague and ambiguous wording and it is obvious that IMF does not want to sour relations with Turkmenistan. The IMF cannot demand the implementation of reforms from Turkmenistan. They can only give recommendations since Turkmenistan is not its borrower.
As regards recommendations, speaking of “external imbalances” and “the current account deficit”, the IMF implies that Turkmenistan has a serious budget deficit, i.e. spending exceeds revenue. By reducing this gap, the government will further try to cut costs and look for new sources of revenue.
The IMF has called for the reduction of public spending, to which I would refer not only the recently abolished subsidies for electricity, gas and water but also the construction of various ministries and other facilities.
In my view, the authorities will primarily start saving on ordinary residents rather than construction projects.Fees for government services are now being increased whereas jobs are being cut.
This trend will continue in the future.
As regards new sources of generating revenue, even if they are identified they will be unlikely to help.I cannot say that the residents had a high standard of living even when the oil and gas prices were high.
Even if the oil price increased to $200 per barrel, this would hardly solve the problems.It is about the systemwide rather than economic crisis.This crisis has simply exposed problems of the shortage of qualified senior management.
Unless the management problems are resolved, the economic crisis will not be overcome.For this the political will, which is missing, is needed.Quite the opposite, instead of addressing problems, the authorities are trying in every way to demonstrate to external observers that there are no problems in the country.
I believe that this is one of the main reasons why the authorities are reluctant to dare to change the foreign currency exchange rate.If the exchange rate is sharply increased, government revenue will halve.
I am convinced that Turkmenistan can overcome this crisis because the country has natural resources and quite a favourable geographic location, but as I have already said the political will is needed for this.
If the authorities give to residents business freedom and the opportunity to earn money, other help from the government will not be needed.The residents will figure out what merchandise to import into the country and what to export for sale.
By Ruslan Tukhbatullin