Following is a Web version of a document from USAID's 1997 Congressional Presentation. Please note that some formatting may have been lost in the automated conversion of the original file. This document is also available for download in its original WordPerfect 5.1 format.

Introduction.

Turkmenistan remains a resolutely one-party state, with power invested in an old-line communist- turned-nationalist leader. It has made minimal progress in privatization or economic restructuring. Its small population of approximately 4 million, combined with rich gas fields and other natural resources, suggests the prospect of considerable future wealth. Given these circumstances, the government has thus far perceived few compelling reasons to undertake the wrenching economic reforms or associated political risks necessary for moving toward a market economy. The principal problem with Turkmenistan's economic strategy is that gas pipelines lead only to other former Soviet states that lack hard currency and are unable to pay market prices. Alternative openings to Iran for transport and access to wider international markets present other difficulties, both for the government and for Western political and economic interests.

The United States has a combination of commercial and strategic interests in Turkmenistan. On the commercial front, Turkmenistan boasts some of the largest gas reserves in the world, with obvious implications for international energy markets once the transport problem is resolved. A wealthy Turkmenistan that lives up to its economic potential will also be an attractive target for U.S. trade and investment. Other interests relate to ensuring stability and long-term growth prospects in a potentially volatile region of the world that borders Iran and Afghanistan and is relatively close to both the Caucasus and the Middle East. By encouraging greater openness in both economic and political development, the U.S. hopes to encourage potential reformers to seriously look at new ways for Turkmenistan to engage with the wider world and to begin to put into place the structures and mechanisms needed for more democratic governance and market-based economic growth.

The Development Challenge.

Although Turkmenistan appears interested in avoiding the trauma of economic transition inherent in a rapid economic restructuring program, maintaining the status quo has its own risks and problems. More than four years after independence, life for the average citizen remains grim and only a few, very tentative steps toward market-based economic reform have begun. The inflation rate is among the highest in the former Soviet Union. A new currency has been introduced and foreign exchange management is improving, following an initially unsuccessful effort to maintain exchange rates at an artificial level. The construction of a few showcase projects such as luxury hotels, government buildings and a new airport cannot hide the fact that fundamental economic weaknesses remain and that a reasonable strategy for economic growth has not yet been put into place. However, there have been some recent encouraging indications that the government is becoming more willing to consider and in some cases begin taking steps that would start the country on the road toward economic reform.

In 1995, Turkmenistan experienced problems servicing its external debt. Arrears of $78 million were accumulated by the end of the year. Recently, an agreement was reached with the EU for the payment of $58 million owed in quarterly installments during 1996. External debt has risen rapidly increasing from $168 million in 1993 to $469 million at the end of 1995. Debt service payments were over $260 million as the average maturity of the debt was less than two years.

Economic management is premised on unrealistic expectations about hard currency earnings from gas sales abroad. Unfortunately, these expectations have yet to materialize. Production levels have been disappointing and no markets have been found outside the former Soviet Union. Meanwhile, energy demand in the former Soviet Union is plummeting, partly because of energy conservation measures and partly because of the overall decline in economic activity. Earnings from gas sales in 1995 were far less than anticipated and probably did not reach $1 billion. The fact that buyers in the former Soviet Union are unable to pay in hard currency and unwilling to pay world market prices complicates matters further. Payment problems with Ukraine are especially severe, and payment of arrears owed by Georgia, Armenia, Azerbaijan and Tajikistan has been complicated by the political problems facing each of those countries. Various pipeline schemes under discussion as part of an effort to diversify markets and reduce transport problems have yet to materialize, in large part because of a lack of investment resources.

Stagnation is occurring in other areas, even as the gas sector fails to live up to its potential. The government issues little or no official data, but IMF reports suggest that there have been sharp declines in industrial output over at least the past couple of years. Cotton harvests have also been disappointing, and virtually all the output is still picked by hand. The official policy of heavily subsidizing utilities and social services, while perhaps understandable from a political point of view, is unsustainable under present economic circumstances.

At the political level, Turkmenistan still maintains the centralized system of governance inherited from Soviet times. Turkmenistan's leadership exercises firm authoritarian control, and there is little evidence of legal reform, formation of independent social and political organizations, establishment of a free press, or creation of an independent parliament and judiciary. Alternate views are rarely heard and opposition voices are quickly silenced. The fact that Turkmenistan was so isolated during the Soviet era complicates matters still further. While the country is very interested in engaging with the wider world, its lack of experience on how the world economy works clearly shows, complicating its own dealings with other countries.

The modest USAID program in Turkmenistan mainly involves offering opportunities and alternative perspectives to Turkmens as they seek to find a place in a modern, interdependent world. It also aims to lay the foundation for a stronger commercial relationship once Turkmenistan begins to exploit its natural economic advantages and emerges as an important energy source. Special efforts are being made to identify a potential "next generation" of reformers who will shape and manage Turkmenistan's economic and political policies in the next century.

USAID expects that Turkmenistan will have the institutional and other resources to continue its own transition. Current plans are to phaseout Freedom Support Act (FSA) assistance within the next few years.

Other Donors.

Other donors such as EU-TACIS and the various United Nations agencies such as UNDP and UNFPA maintain a modest presence in Turkmenistan. The IMF and the World Bank also deal directly with the government. They offer important policy guidance and advice as Turkmenistan becomes more familiar with what it means to maintain independence and function effectively as an economic and political player within the broader community of nations. Both the World Bank and the IMF indicate that recent signs have been encouraging and that government officials are more open to reform, partly as a result of the various training efforts undertaken by USAID.

FY 1997 Program.

USAID's strategy for Turkmenistan will continue to be centered on a creative use of U.S. study tours and in-country workshops and seminars designed to prepare the next generation of Turkmen leaders. The innovative follow-on program, which builds on US exposure trips and amplifies and expands on the training received, will continue to be important. On occasion, the effort also involves regional events that allow Turkmen officials to learn from the experience of others and discuss common concerns with representatives of other Central Asian countries. While economic restructuring and privatization are central themes in this training effort, other areas such as democracy, health and environmental issues can also be addressed.

Cross-cutting and Special Initiatives

Past USAID activity includes significant assistance to Turkmenistan and the introduction of new technology under the Aral Sea initiative that is now winding down; an extensive training effort; modest work in the health and family planning area; and a limited farmer-to-farmer program. In all cases, programs have been organized to help provide a previously isolated Turkmenistan an open window on a wider world, by introducing new concepts, showcasing new technologies and building a better understanding of alternative approaches and ways of doing business. These same concerns will continue to inform USAID program development in the future.

In Turkmenistan, "special initiatives" refers mainly to a medical partnership and family planning. Both are part of Congressionally-mandated funding earmarks which are being used to promote broader programming and strategic concerns in Turkmenistan. There is substantial interest in the Turkmen health community in collaborating with U.S. experts, although the emphasis so far has been more on "high tech" curative practices than on basic health care approaches that would make most sense in Turkmenistan. Although the emphasis now is on health earmarks, limitedtraining and technical assistance related to the political and economic transition is possible if funding and the situation in Turkmenistan permits.

The medical partnership between the Cleveland Clinic and the Niyazov Medical Consultative Center in Ashgabat was established in 1993 and is now entering its "graduation" phase. Through June 1995, some 35 short-term exchange trips had been conducted involving individuals from both institutions. Turkmen health staff from thirty other medical institutions have received management training at a number of regional seminars and workshops. Improvements that result from the partnership are designed to provide a good precedent for other hospitals to follow. For example, an examination of cost factors led to the establishment of a cost accounting department that in turn led to a marked reduction in the average length of patient stays. This review also led to the introduction of a number of fee-for-service activities which now account for 10 percent of the Niyazov hospital budget. New infection control procedures resulted in lowered morbidity and mortality rates. Turkmenistan is also participating in a USAID-funded regional family planning program that resulted in the first international meeting to address reproductive health issues in Turkmenistan. The country also participated in the USAID-funded reproductive health program, resulting in two fully equipped service delivery/clinical sites in Asghabat staffed with qualified trainers and service providers.

The medical partnership involves training and people-to-people exchanges between medical staffs in Cleveland and Ashgabat. Often, the partnership becomes a vehicle for raising additional private American funds and for providing badly needed medical supplies and equipment to Turkmenistan. Family planning programs combine advisory services and training that introduces new approaches and technologies into Turkmenistan. The focus now is on health, but developments in Turkmenistan could also permit additional training and technical assistance in support of the economic and political transition in Turkmenistan.

Also under Cross-Cutting Programs, the Exchanges and Training program continues to provide important support for reform-minded Turkmens to obtain specific training in a way that also exposes them first-hand to Western systems and methods. By the end of 1995, some 236 Turkmens had participated in the USAID-funded NET training effort, a program that is highly regarded by local counterparts. As many as 140 more Turkmens may participate in the ongoing effort in 1996. Programs focus on economic restructuring and cover such areas as privatization, bank reform, tax and fiscal policy, international contracting and budget reform. Although the time period is too short to fully "train" individuals in a particular technical field, the experience does provide highly useful, hands-on exposure to how modern, democratic and marketed-based societies are organized. An extensive follow-on effort, involving both returned participants as well as their colleagues who were unable to go to the U.S., helps reenforce the training and extends the experience to a wider number of people. For FY1997, this tailor-made approach to identify and support potential reformers within Turkmenistan will continue. If more definitive steps are taken to introduce and implement reform, short-term technical assistance in relevant areas can also be considered as part of the wide follow-on effort.

USAID Mission Director, Acting: Patricia K. Buckles