Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
TURKMENISTAN
FY 1998 Assistance to the NIS Request . . . . . . . . . . . . . . . . . $6,000,000 Introduction
Turkmenistan remains a resolute one-party state, with power invested in a communist-turned-nationalist leader. It has introduced limited economic reform including a privatization program. With a small population (approximately four million) in a country larger than California and significant reserves of natural gas, oil and other minerals, Turkmenistan has the potential to be a wealthy country. In fact, these factors account for the government's gradualist approach to market reform and avoidance of reforms that might entail significant loosening of state control of the economy or rapid political liberalization.Turkmenistan's landlocked situation and a continuing Russian monopoly on energy resource export routes are obstacles which help prevent the country from achieving its potential. Russia continues to restrict Turkmen gas exports to other CIS countries (Ukraine, Armenia, Georgia) that lack hard currency and are unable to pay contracted prices for gas deliveries. Alternative routes--through Iran, across the Caspian Sea, or through Afghanistan to Pakistan--all present political or economic difficulties which will not be easily solved.
The United States has several important interests in Turkmenistan. The first and major goal is to support Turkmenistan's independence and sovereignty as part of a broader effort to ensure regional stability. The second is to assist in efforts to develop energy resources and identify multiple export routes thereby permitting Turkmenistan to solidify its own independence. A prosperous Turkmenistan achieving its economic potential will help expand world energy supplies and also attract U.S. trade and investment. A third interest is to assist Turkmenistan's transition to a more open, democratic society in the belief that a pluralistic system is the best guarantee of political independence in the long run.
In addition to energy resources, Turkmenistan is important due to its geographic location. With long borders with Iran and Afghanistan and proximity to the Caucasus, the Middle East and South Asia, it is at the crossroads of Asia. It has the capability to contribute significantly to stability in the entire region; or, conversely, to be a factor for instability. In particular, the U.S. has an interest in limiting the influence Iran exercises in Turkmenistan, with its potential implications for developments elsewhere in Central Asia.
The Development Challenge
Although Turkmenistan tried to avoid the trauma of a rapid economic restructuring program, efforts to maintain an unsustainable status quo have had their own risks and costs. More than five years after independence, life for the average citizen in Turkmenistan remains difficult. Many complain of declining purchasing power since 1993, the year in which the country stopped receiving substantial hard currency revenues for its natural gas exports. Inflation in 1995 reached 1,260% and the national currency's nominal value fell from two per dollar in late 1993 to 3,000 per dollar at the end of 1995.During 1996 the level of Turkmenistan's external debt increased substantially, reflecting the fact that long-term economic planning is still premised on expectations of substantial hard currency earnings from gas sales abroad. On the positive side, the average maturity of its debt also increased substantially, indicating that creditors' share confidence in the country's mid- to long-term potential. However, the inability of the country's gas customers to pay for deliveries and a drastic reduction in revenues from Turkmenistan's other main export, cotton, led to continued problems in servicing Turkmenistan's external debt. Although payments have been made on loans guaranteed by the Ex-Im Bank, private lenders report long delays in receiving payments.
There are encouraging indications that the government recognizes the failure of its former policy and is willing to begin economic reform. In 1996 the government applied macroeconomic reform measures recommended by the World Bank, including controlling credit expansion, managing the budget deficit, liberalizing foreign exchange conversion, and agreeing to a privatization program. These policies have helped rationalize economic decision-making and initial results have been encouraging. Monthly inflation fell from approximately 60% in January 1996 to three percent in July 1996 and the decline in the value of the national currency slowed significantly. A return to 12% per month inflation rates late in the year probably stems from a combination of a disastrous harvest and unusual expenses related to Turkmenistan's fifth anniversary celebrations. That said, the state sector continues to dominate the economy and major economic distortions remain.
The reforms instituted in 1996 have not yet turned around the decline in most economic sectors. Mismanagement and centralization of the agricultural sector have led to poor harvests of the critical wheat crop, in addition to cotton. In spite--or perhaps because of--the continued weak performance of the economy, the government remains committed to its policy of heavily subsidizing utilities, social services, and basic food commodities. While understandable from a political perspective, these subsidies are difficult to sustain under current economic circumstances.
The Turkmen government's desire to avoid the social trauma inherent in rapid change underlies its political as well as its economic decisions. The leadership exercises firm authoritarian control over a highly centralized government structure. However, during 1996 advances were made toward legal reform, the development of a more independent parliament and judiciary, and the formation of non-governmental organizations (NGOs). In October 1996, the President opened the Institute for Democracy and Human Rights which has a mandate to foster democratization of the state and society and to monitor the protection of human rights. The institute is led by members of parliament and will play a key role in developing legislation to modernize political institutions. Several small NGOs have emerged over the past year which are actively promoting citizen participation and civic education.
With the adoption of economic reforms and the development of structures to begin political reform, the modest USAID program in Turkmenistan is shifting its focus to provide limited technical assistance which will promote the process of change.
Other Donors
The International Monetary Fund provides the Turkmen government and the Central Bank of Turkmenistan with technical assistance and consultancy services in all areas of macroeconomic policy. EU-TACIS focuses on agriculture, energy, privatization, and private sector development. The UNDP supports a public administration institute. Other donors include the Turkish International Cooperation Agency (TICA), the British Know How Fund, UNICEF, and UNHCR.FY 1998 Program
The FY 1998 USAID program will continue the previous year's limited initiatives in the areas of business climate development, budgetary reform, and the energy sector, with emphasis on gas and oil. Turkmenistan will continue to be exposed to the experience of other countries in developing their oil and gas industry by mobilizing foreign investment through a combination of technical assistance, training, internships, and partnerships with U.S. energy entities. Regional cooperation in areas such as water and power generation will also be encouraged. Technical training and study tours in the U.S. and third countries will complement these efforts. Modest programs in democratization (including further encouragement of NGOs) and the health sector are also planned, including increasing use of regional workshops to expose Turkmen to the benefits other countries in the region are having from reform.
Strategic Goal: Economic Restructuring
Recent steps by the Government of Turkmenistan to promote economic restructuring provide an opportunity to provide direct assistance in the area of market transition. Already, NET training programs have helped prepare the groundwork by exposing Turkmen policymakers to concrete examples of how market economies work. Other donors have cited this early work as one reason why Turkmenistan appears to be more open to change. Given this backdrop, USAID will fund further in-country training as well as on-site advisors to assist Turkmen counterparts in adopting and implementing new policies. Possible areas of interest include budget reform and trade and investment advice. Also, the Central Asian-American Enterprise Fund (CAAEF) can play an important role in assisting new private businesses to develop and expand business operations.Finally, Turkmenistan's participation in a regional oil and gas initiative should offer many opportunities to discuss and implement legal and regulatory change in the energy sector. In May 1996, the government requested USAID technical assistance in the area of legal and regulatory reforms for the petroleum sector. The government's main aim is to establish a policy environment conducive to attracting foreign investment in oil and gas exploration, processing, and transport.
Strategic Objective: Accelerated development and growth of private enterprise
Strategic Objective: A more economically sustainable and environmentally sound energy sector (CAR Regional) Strategic Goal: Democratic Transition
Modest efforts are planned that would introduce new democratic concepts, expand information flows, and ensure that local citizens play a greater role in the economic and political life of the country. USAID-funded training has already played a role in preparing the groundwork for this type of initiative. The new Institute for Democracy and Human Rights represents one welcome development which USAID can help support through technical assistance and training. Also, NGO development programs active elsewhere in Central Asia are finding increasing opportunities to work in Turkmenistan. Expanded in-country training programs will also support this objective.
Strategic Objective: Increased, better-informed citizens' participation in economic decision-making Strategic Goal: Social Stabilization
Building on past efforts in regional water resource cooperation, USAID will continue to help the Central Asian Republics focus on the negotiation and preparation of draft laws, decrees, and long-term agreements concerning regional water use and sharing.
Strategic Objective: Reduced enviironmental risks to public health (CAR Regional)
Cross-cutting and Special Initiatives
To the extent possible, USAID has shaped activities under past Congressional earmarks to contribute to health sector reform. The medical partnership, established in 1993 and currently in the graduation phase, has trained staff at 31 institutions in modern hospital management. It also helped establish a cost accounting department at its partner Turkmen institution which led to a marked reduction in the average length of hospital stays. Fee-for-service medical care now accounts for ten percent of the partnership hospital budget.
USAID is using FY 1996 and 1997 family planning earmark funds to focus on the social marketing for contraceptives. Under this initiative, USAID will foster an environment for commercial distribution and sales of contraceptives and other pharmaceuticals. To enhance the likelihood of success in this area, USAID plans to use these funds to address more general regulatory issues related to trade restrictions and to address policy reform in the commercial and marketing sector. A more open and competitive commercial sector will increase the likelihood of success in marketing contraceptives.
Under the USAID regional productive health program, Ashgabat now has two fully equipped service delivery/clinical sites for reproductive health. These sites have the institutional capacity to train clinicians throughout the nation in reproductive health.
Farmer-to-farmer represents another special initiative that is also shaped to address more long-term development concerns, in this case related to private farmers. By the end of 1997, the farmer-to-farmer program managed by Winrock will have funded 75 volunteers to assist private farmers and agribusiness in planning, managing and financing their business interests. In some cases, these activities can also be linked to the investment programs of the CAAEF.
Finally, participant training represents another cross-cutting program. During the initial stages, the program focused on U.S.-based training. A new program is now being launched that would include an emphasis on less expensive third country and in-country training. Courses have been offered in a variety of areas, including drafting legislation, international contracting, and national budgeting. Training programs are coordinated closely with other donors as part of a broader effort to enhance the impact of technical assistance. In addition, training programs help introduce Turkmen counterparts to Western systems and approaches to political and economic reform.
In 1996, nearly 130 Turkmens participated in short-term, U.S.-based training programs. Approximately 300 participants are anticipated in 1997 in a combination of in-country, third country, and U.S. based training. While highly appreciative of U.S.-based training, Turkmen officials have expressed interest in expanding in-country training programs and in long-term technical assistance that will help them achieve specific reform goals. The training program will be adjusted in 1997 and 1998 to respond to this concern, and will include considerably more opportunities for both in-country and third-country training.
TURKMENISTAN
FY 1998 PROGRAM SUMMARY*
Strategic Objectives
Economic Restructuring Democratic Transition
Social Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform -- -- -- -- -- Private Enterprise 3,000,000 -- -- -- 3,000,000 Financial Reform -- -- -- -- -- Energy 200,000 -- -- -- 200,000 Citizens' Participation -- 400,000 -- -- 400,000 Legal Systems -- -- -- -- -- Local Government -- -- -- -- -- Crises -- -- -- -- -- Social Benefits -- -- -- -- -- Environmental Health -- -- 400,000 -- 400,000 Cross-cutting / Special Initiatives -- -- -- 2,000,000 2,000,000 TOTAL 3,200,000 400,000 400,000 2,000,000 6,000,000 *FREEDOM Support Act (FSA) Funds
USAID Mission Director: Patricia K. Buckles
ACTIVITY DATA SHEET
PROGRAM: TURKMENISTAN
TITLE: Private Enterprise, 110-S001.3
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $3,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1997; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Improved, more sustainable business operations
Background: Turkmenistan has been slow to effect serious economic restructuring measures. Since independence, USAID along with other donors such as the World Bank and the IMF have conducted an ongoing dialogue on the need for change and on the types of approaches needed to embark on serious reform. There are clear indications that the Government of Turkmenistan is more serious about taking the kind of economic reform steps needed to promote sustainable development.
USAID Role and Achievements to Date: So far, USAID has engaged with Turkmen counterparts on economic reform measures mainly through NET training courses. Topics covered thus far include tax policy, budgeting, privatization, and banking. These have been supplemented by a variety of in-country seminars and workshops covering such topics as legal reform in a market economy. Building on these initial activities, USAID believes it is appropriate to also move toward technical assistance to help plan and implement specific reform measures. This targeted technical assistance effort is due to begin in 1997 and continue into 1998.
Description: Modest technical assistance is planned, especially in the area of budget reform and trade and investment. As other Central Asian countries move forward in terms of their application to the World Trade Organization (WTO), Turkmenistan may well be interested in following their lead. As occurred elsewhere in Central Asia, this would almost certainly also provide an entry for serious discussion on a range of trade and investment issues, including the types of policy changes needed to ensure greater private foreign investment. Similarly, a new oil and gas initiative should offer many opportunities to engage on legal and regulatory issues related to investments in the energy sector. These technical assistance efforts would be supplemented by a variety of training "packages" involving in-country, third country, and U.S.-based training.
Host Country and Other Donors: USAID will work closely with the various governmental entities involved in private sector development and economic restructuring issues. Leading donors that support and are involved with this effort include the IMF, World Bank, and EU-TACIS.
Beneficiaries: Entrepreneurs and those involved in private sector development stand to benefit from this initiative. More broadly, the citizens of Turkmenistan would benefit from economic reform that leads to sustainable economic growth.
Principal Contractors, Grantees, or Agencies: To be determined. Mission plans to buy into existing assistance mechanisms or to competitively procure services depending on which will provide the best benefit to the U.S. Government, cost and other factors considered.
Major Results Indicators:*
Number of new laws or policy changes approved
Share of GDP generated by private enterprise
Level of private foreign investment in Turkmenistan
*Indicators and targets will be finalized during the next planning cycle.
ACTIVITY DATA SHEET
PROGRAM: TURKMENISTAN
TITLE: Energy, 110-S001.5 (CAR Regional)
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $200,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY 1999
Purpose: A more economically sound and environmentally sustainable energy system.
Background: Central Asia is rich in all major energy resources including oil, gas, coal and hydropower. The U.S. has a strong interest in the political and economic stability of this resource rich and strategically located region. The challenge is to develop a policy framework conducive to private investment and a market economy that will promote efficient, safe and environmentally sound resource recovery including the development of new transportation routes, thereby, assisting the region in realizing its potential as a significant contributor to world petroleum supply. Furthermore, energy has the potential to serve as the engine for future economic growth for the entire region.
USAID Role and Achievements to Date: USAID has provided advice in the preparation of an international oil and gas consortium for the Aral Sea Basin and has aided the Kazakstan state entity charged with development of Kazakstan's interests in the Caspian Sea, Kazakcaspishelf. In Kazakstan, consultants have also assisted in drafting rules and regulations for licensing and environmental safeguards, and preparation of a pipeline tariff methodology, critical in removing policy impediments for investment in and development of oil and gas. Monthly roundtables between industry and the U.S. Government within a consultative framework developed jointly by the U.S. Embassy and USAID/Central Asia have been of great value.
USAID's continued work in the power sector of Kazakstan and Kyrgyzstan has contributed to policy reforms leading to the sale of over 50% of the Kazakstani electric power system to private investors including a U.S. corporation, and establishment of the first NIS independent regulatory commission in Kyrgyzstan. In Kyrgyzstan, assistance has been critical in passing energy and electricity laws, conditions for the World Bank and Asian Development Bank's $90 million loan for Kyrgyzstan power and district heating rehabilitation and modernization.
Description: USAID assistance is within the context of a U.S./Central Asian Republic Regional Energy Initiative focusing on (a) improving the legal and regulatory framework for oil and gas exploration, production and transportation; (b) identifying future markets for natural gas and defining investment opportunities for expanded and more efficient use of natural gas; and © further restructuring and regulatory reform in electric power and strengthening of regional electricity cooperation.
Building on work which has already begun in Kazakstan, oil and gas sector policy assistance is expected to begin in early 1997 in Turkmenistan and Uzbekistan. This assistance will develop a legal and regulatory framework promoting market competition, transparency, and accountability. Ongoing power sector work in the region is designed to further strengthen national and regional power markets, and facilitate intra-regional trade in electricity by introducing internationally acceptable commercial contracts and pricing practices. This is based on USAID's success in developing a regional power grid in the Baltic countries. This assistance will integrate the Central Asian power markets into larger and more viable markets for investment in new hydro and gas-fired generation, as well as transmission projects within and outside the region - - which may include markets in China and Pakistan.
Host Country and Other Donors: USAID works with counterpart ministries in the governments of Kazakstan, Kyrgyzstan, Uzbekistan, Turkmenistan, and to a limited extent in Tajikistan. The other bilateral and multilateral agencies include the World Bank, the European Bank for Reconstruction and Development, the Asian Development Bank, and EU/TACIS.
Beneficiaries: This assistance will benefit local industrial and residential consumers in ensuring reliable and efficient energy resources and in expanding the diversity of their energy supply.
Principal Contractors, Grantees, or Agencies: Hagler-Bailly is the principal implementor, but assistance is also being provided by Burns and Roe, the U.S. Energy Association, and the U.S. Department of Energy.
Major Results Indicators: Baseline TargetNumber of independent regulatory agencies established 0 (1994) 3 (1999)
Private investment in power systems increased 0 (1994) 2 (1999)
Legal and regulatory framework established for oil and gas exploration and development 0 (1994) 2 (1999)
ACTIVITY DATA SHEET
PROGRAM: TURKMENISTAN
TITLE: Increased, better informed citizens' participation 110-S002.1
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $400,000FREEDOM Support Act
INITIAL OBLIGATION: FY 1997; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Increased citizens' participation in political and economic decision-making
Background: Turkmenistan remains a one-party state in which the president has almost absolute authority. That said, there have been recent indications of a willingness to expand participation and allow greater citizen involvement in the political and social life of the country. For example, a parliamentary structure is in place which can provide a forum for discussion on important issues. A number of non-governmental organizations (NGOs) have developed and do operate outside formal government channels. In addition, the establishment of an Institute for Democracy and Human Rights represents a new institution that may well emerge as the setting for more serious discussion on moving Turkmenistan more toward international democratic norms and practices.
USAID Role and Achievements to Date: As in the economic arena, USAID has engaged with Turkmen counterparts on issues of democratic reform mainly through NET training courses. Examples cover a range of activities such as judicial reform, farmers associations, civic participation, institutional contracting and budget reform. Building on these initial activities, USAID believes it is appropriate to also move toward expanding NGO development programs and providing a modest level of technical assistance in one or two key areas.
Description: As noted, USAID hopes to expand its NGO support effort in Turkmenistan and place at least one advisor at the new Institute for Democracy and Human Rights in Ashgabat. If this proves successful, other opportunities could emerge in other areas related to democratization and civil society development in Turkmenistan. In-country, third-country and U.S.-based training efforts that support these areas would also continue.
Host Country and Other Donors: USAID will work closely with both private citizens and government counterparts to undertake this effort. Other donors are also somewhat involved, including EU-TACIS which assists in drafting legislation and UNHCR which is setting up a law library at the Institute for Democracy and Human Rights. Both UNDP and EU-TACIS are also involved in programs which relate to governance.
Beneficiaries: All citizens of Turkmenistan would benefit from activities that promote democracy, encourage a civil society, and expand the role that private individuals are able to play in the economic and political life of the country.
Principal Contractors, Grantees, or Agencies: To be determined. Mission plans to buy into existing assistance mechanisms or to competitively procure services depending on which will provide the best benefit to the U.S. Government, cost and other factors considered.
Major Results Indicators:*
Number of new laws or policy changes related to democratization approved
Number of indigenous NGOs involved in advocacy or information activities
Extent to which new Institute for Human Rights and Democratization contributes to political and
social life of Turkmenistan
*Indicators and targets will be finalized during the next planning cycle.
ACTIVITY DATA SHEET
PROGRAM: TURKMENISTAN
TITLE: Environmental Health, 110-S003.3 (CAR Regional)
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $400,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 1998
Purpose: Reduced environmental risks to public health.
Background: Following the period of Soviet central planning, a legacy of problems related to industrial pollution and environmental degradation remained. A prime illustration of such environmental degradation is the Aral Sea disaster zone, where several million people have been deprived of access to safe water and have experienced abnormally high rates of morbidity, non-specific diarrheas, and viral hepatitis. While much of USAID's early environmental efforts were focused on humanitarian assistance to the impacted Central Asian population, the challenge now is to focus on reform measures that will reduce levels of urban and industrial pollution in the region and to establish the policy and institutional framework to manage precious natural resources, including water.
USAID Role and Achievements to Date: USAID's Aral Sea program has provided safe drinking water for 1.1 million persons, improved the health/sanitation practices of 1.5 million persons, and already promoted significant policy changes needed for more efficient water use. The turnover to local officials of water treatment/transmission equipment combined with related training in Kazakstan, Turkmenistan and Uzbekistan are graphic demonstrations that USAID is one of the few donors delivering concrete results in the Aral Sea disaster zone.
In an effort to prevent the poor planning and resource utilization that lead up to issues like the Aral Sea disaster, all five republics have participated in seminars for regional water cooperation; are conducting analyses required for the introduction of water pricing; and have established short-term regional water sharing agreements. In Kazakstan, draft legislation is being prepared for establishing water user associations, a new national environmental law, and a pilot air pollution emissions program. While the first phase in developing a national environmental action plan in Kazakstan is now underway, legislation is now being prepared for establishing air pollution standards in Uzbekistan.
Description: USAID assistance appears critical for the Central Asians to maintain the needed focus on policy reform, including the introduction of rational water pricing schemes and regional agreements on water sharing and quality control among all the affected states in the Aral Sea basin. Additional emphasis is also being placed on the passage of reform legislation which would establish water user associations, waste management guidelines/requirements, and a pollution fines system. Strong coordination with other donors is essential as the Agency begins to phase down its own direct involvement. This coordination offers important opportunities for USAID to use its own field experience to leverage substantial resources and help shape the programs and policy agendas offered by other donors.
Host Country and Other Donors: The World Bank, United Nations Development Program, and EU-TACIS have been involved in these efforts. Major host country counterparts include the Interstate Council for the Aral Sea - Sustainable Development Commission, heads of state water agencies from each of the various republics, and various other ministries of each republic. In addition, there has been substantial collaboration with a wide range of other officials at the local and national levels.
Beneficiaries: This assistance seeks to benefit all Central Asia citizens by reducing serious environmental hazards which they encounter in their daily life.
Principal Contractors, Grantees, or Agencies: These organizations include CH2M-Hill Consortium, Harvard Institute for International Development, World Environmental Center, Moscow State University and ISAR Cooperative Agreement.
Major Results Indicators: Baseline Target**Target data will be developed during the next planning period.National water pricing strategies support policy 0 (1994) TBD changes at the local and national levels
Critical watersheds subject to effective management and control policies/international treaties 0 (1994) TBD
Agricultural water management investments leveraged by other donors(bilateral and multilateral) $0 (1995) TBD
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