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 1997 FY 1998 FY 1999 Actuals Estimate Request FREEDOM Support Act............... $5,000,000 $4,500,000 $15,000,000
Introduction
The United States has several important interests in Turkmenistan. The primary goal is the development of Turkmenistan as an economically viable, politically independent democratic entity, which is integrated into international political and economic institutions. This interest is enhanced by geography -- Turkmenistan has long borders with Iran and Afghanistan and proximity to the Caucasus, the Middle East and South Asia. Secondly, the U.S. has an interest in ensuring that Turkmenistan's energy potential is realized to diversify world energy supplies. Turkmenistan possesses the world's fourth largest natural gas resources as well as significant oil reserves, placing it in a position to become a major player in world energy markets once export route questions are resolved.
The Development Challenge
Limited progress has been achieved in Turkmenistan's economic sphere since the breakup of the Soviet Union. Much work remains to be done if the country is to implement sustainable reform measures consistent with free market principles. Progress depends upon the will of the government to institute reforms in both the economic and political spheres. However, the country remains a resolute one-party state with power vested in a communist-turned-nationalist leadership. Turkmenistan has the potential to be a wealthy country, but the government has adopted a gradualist approach to market reform, avoiding actions that might entail significant loosening of state control over the economy or rapid political liberalization.
The general economic situation has deteriorated since 1993, when the country stopped receiving substantial hard currency revenues for its natural gas exports. Inflation in 1995 reached 1,260% and the national currency devalued dramatically in nominal terms. In 1996, the GOT tightened fiscal and monetary policies and loosened foreign exchange and trade controls. Inflation decreased to approximately 500% in 1996, and fell further to approximately 21% in 1997 (although this was achieved with a dangerous draw-down of international reserves designed to mop up excess liquidity). Fiscal control is difficult to exercise since over half of government expenditures are effectively off-budget. Real gross domestic product (GDP) declined more than 65% over the past four years.
There are signs that the government's economic difficulties (discretionary foreign reserves are dangerously low and the GOT built up a high volume of short-term commercial debt in 1997 to support import flows) have facilitated recognition of its flawed economic development strategy. The GOT appears on the verge of accepting the need to rapidly adopt systematic economic reform policies. An International Monetary Fund (IMF) Mission is expected in Turkmenistan in early 1998 to discuss terms of a possible IMF Standby Arrangement. The government has begun design of a mass privatization program (with World Bank and USAID support), and has partially privatized usufructury rights for agricultural land. In addition, there has been modest success in increasing budgetary transparency. Despite recent progress, reforms to date have yet to jump-start the economic recovery process. The state continues to dominate economic production, and key policy and regulatory constraints severely inhibit private investment.
Recent steps by the government to promote economic restructuring have provided an opportunity for USAID to offer more substantial assistance in market-oriented reforms. The core of USAID's assistance program through FY 1999 will be to strengthen the government's budget planning and management, and advance legal and regulatory actions necessary for the growth of private enterprise, including privatization. These programs will be reinforced by training public officials to increase theirunderstanding of and commitment to legal and regulatory changes that foster market-based economies and democratic governance. Other donors believe that similar USAID-financed training over the past few years has made Turkmen public officials more receptive to reforms.
In the area of democratic transition, the leadership exercises firm authoritarian control over a highly centralized government structure with no press freedom and no tolerance of opposition political activities. However, some advances have been made. The President opened the Institute for Democracy and Human Rights (IDAHR) which has a mandate to foster democratization of the state and monitor the protection of human rights. Over fifty non-governmental organizations are also operating despite bureaucratic obstacles. Reforms that will be instituted in the near future include measures to increase the flexibility and democratic nature of the bureaucracy, to enlarge the responsibilities of the legislative branch, and to regulate the status of non-government organizations (as part of the almost-completed civil code). Although Turkmenistan is not yet ready for a broadly-based program in citizen participation due to its constrictive political climate, modest USAID initiatives are assisting non-governmental organizations (NGOs) and increasing the role of local citizens in the economic and political life of the country.
More than five years after independence, the average Turkman faces hardships caused by inflation, poorly-funded government services, and the tremendous costs of maintaining a state-run economy. The situation was exacerbated by the lack of gas revenues for most of 1997. The majority of Turkmenistan's population, particularly outside the capital, lives with hunger and disease. USAID-financed medical partnerships are addressing critical health needs in partner Turkmen hospitals. Disease surveillance systems are being strengthened to better diagnose diseases and to make appropriate decisions for disease prevention and control. Other health needs will also be addressed through special initiatives until conditions are right for a comprehensive social services program.
Other Donors
The International Monetary Fund (IMF) provides technical assistance in all areas of macroeconomic policy. The European Union's development program (EU-TACIS) supports privatization, agriculture, energy, and private sector development. The United Nations Development Program (UNDP) supports a public administration institute, and UNICEF provides assistance in reproductive health and maternal/child care. Other donors include the Turkish International Cooperation Agency, the British Know How Fund, and UNHCR.
FY 1999 Program
USAID's program will feature two strategic objectives, one to help establish the legal and regulatory environment to support market-led economic growth, and a second to support budget reform aimed at transparency in the budget process. USAID will also provide technical support for accession to the World Trade Organization. Under cross-cutting and special initiatives, USAID will increase assistance to NGOs and consider technical assistance to Parliament and the IDAHR. To help address social needs, health-related programs and family planning activities will be funded to strengthen primary health care and disease prevention and control. Complementary in-country and third-country training activities will focus on preparing and persuading decision-makers to adopt policy changes.
TURKMENISTAN
FY 1999 PROGRAM SUMMARY*
(in Thousand of Dollars)
Strategic ObjectivesEconomic Restructuring Democratic
TransitionSocial Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform 450 -- -- -- 450 Private Enterprise 4,750 -- -- -- 4,750 Financial Reform -- -- -- -- -- Energy -- -- -- -- -- Environmental Management -- -- -- -- -- Citizens' Participation -- -- -- -- -- Legal Systems -- -- -- -- -- Local Government -- -- -- -- -- Crises -- -- -- -- -- Social Benefits -- -- -- -- -- Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 9,800 9,800 TOTAL 5,200 -- -- 9,800 15,000
*FREEDOM Support Act (FSA) funds
USAID Mission Director: Patricia K. Buckles
ACTIVITY DATA SHEET
PROGRAM: TURKMENISTAN
TITLE: Fiscal Reform, 110-S001.2
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $450,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1998; ESTIMATED COMPLETION DATE: FY 2002
Purpose: Increased soundness of fiscal policies and fiscal management practices
USAID Role and Achievements to Date: Turkmenistan has been relatively slow to effect serious economic restructuring measures. Since independence, USAID and 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. Until FY 1997, USAID engaged Turkmen counterparts on economic reform measures mainly through a series of carefully targeted training courses. Topics included tax policy, budgeting, privatization, and banking.
In FY 1997, the Government of Turkmenistan (GOT) requested U.S. technical assistance in the area of budget policy reform. USAID responded to the request by placing a resident advisor in the Ministry of Economy and Finance in the summer of 1997, as well as through continued, targeted training activities. The focus of technical assistance is on design and implementation of a formal budget process that brings all state spending on-budget, as well as establishment of modern program budgeting and analysis methods. At this time, GOT discussions on a comprehensive macroeconomic reform program with the IMF are intensifying. If these negotiations culminate in a stand-by arrangement, USAID will be well-positioned to support implementation of the expenditure control and rationalization measures which would be included in an IMF Program.
The USAID fiscal reform program is already gaining momentum, and initial receptivity of the Ministry of Finance to the resident advisor's recommendations has been very positive. In late 1997, USAID supported the development of reforms in the 1998 budget document which mandated more detailed financial reporting by on-budget line ministries beginning in 1998. Moreover, the GOT recently indicated that it plans to require all off-budget state entities to report their expenditures each quarter to the Ministry of Finance starting in the spring of 1998. This is a key first step in the establishment of a comprehensive national budget. In addition, USAID will support development of a new budget systems law which, if enacted, will require detailed monthly financial reporting of all state ministry and agency expenditures, including capital expenditures.
Description: This strategic objective focuses on strengthening the expenditure side of fiscal policies initially, to provide a more rational allocation of scarce government resources and a more transparent picture of the real fiscal costs of maintaining a predominant state role in the production sphere of the economy. It is anticipated that a key indirect result of this work will be increased GOT understanding of the need for more rapid privatization of the economy. In the past year, there have been clear indications that the GOT is more serious about advancing the economic reforms needed to promote sustainable development. Budget reform is a priority reform area for the GOT, as approximately 50% of state spending was off-budget in 1997.
In FY 1999, subject to continued commitment by the GOT to budget reform, USAID will continue to provide a resident budget advisor to the Ministry of Finance. The advisor will (1) support effective implementation of budget reform legislation; (2) train key Ministry of Finance officials in budget analysis and preparation; and (3) introduce a new budget classification system that is consistent with international practice.
Host Country and Other Donors: In budget reform efforts, USAID cooperates closely with the IMF.
Beneficiaries: The direct beneficiary is the GOT's Ministry of Finance. More broadly, the citizens of Turkmenistan will benefit from budgetary reforms that lead to more efficient use of public sector resources and encourage private sector growth.
Principal Contractors, Grantees, or Agencies: This is a new strategic objective in 1998 and principal contractors and grantees have not yet been identified.
Major Results Indicators:*
General government deficit as percent of GDP.
GOT compliance with conditions of international financial institutions.
Off-budget share of total public sector expenditures.
*This is a new objective in 1998; baseline and targets will be finalized during the next planning cycle.
ACTIVITY DATA SHEET
PROGRAM: TURKMENISTAN
TITLE: Private Enterprise, 110-S001.3
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1999: $4,750,000 FREEDOM Support Act
I NITIAL OBLIGATION: FY 1997 ESTIMATED COMPLETION DATE: FY 2001
Purpose: Improved, more sustainable business operations.
USAID Role and Achievements to Date: Through mid-1997, USAID engaged Turkmen counterparts on economic reform measures mainly through training courses organized under the New Independent States Exchanges and Training Project. Key topics included macroeconomic management, privatization, and banking. This training was supplemented by in-country seminars and workshops covering such topics as legal reform in a market economy. When senior policy makers of the Government of Turkmenistan (GOT) signalled serious interest in accelerating economic reforms, USAID initiated a technical assistance program in mid-1997 designed to promote private sector development. This initiative has emphasized support for the GOT's efforts to gain accession to the World Trade Organization (WTO), associated policy and regulatory reforms to promote investment, and acceleration of the privatization process. In addition, the Central Asian Enterprise Fund (CAAEF) has been active in Turkmenistan with $14 million in equity investment and $2 million in approved loans through late 1997. With USAID-financing, the International Executive Service Corps has provided technical support to potential CAAEF clients and to local banks working with the CAAEF.
Description: Technical assistance continues to focus on analysis of the benefits of WTO accession and review of the compatibility of the current Turkmenistan regulatory environment with WTO standards. A full-scale support program for WTO accession will be launched in early 1998, assuming the GOT commits itself to a comprehensive accession and compliance effort. USAID's assistance to the industrial privatization program has been closely coordinated with the World Bank. In January 1998, the GOT partially reorganized inter-ministerial oversight responsibilities for privatization. The government is establishing a new privatization agency within the State Foreign Investment Agency and formulating a pilot enterprise privatization program. USAID will provide analytical and training support for this pilot effort. If the pilot is successful (as expected), USAID will intensify support for privatization of more visible and financially viable industrial assets.
Host Country and Other Donors: USAID will work closely with government entities involved in private sector development and economic restructuring. Lead donors include the IMF, World Bank, and EU-TACIS.
Beneficiaries: Enterprises and individuals involved in private sector development will benefit from this initiative. More broadly, Turkmenistan's citizens will benefit from reforms that lead to sustainable economic growth.
Principal Contractors, Grantees, or Agencies: To be determined.
Major Results Indicators: Baseline Targets Share of GDP Generated by Private Enterprises 20%(1996) 50% (1999) Number of market-enhancing policies, laws, and regulations in place 17 (1999) 0 (1996) 17 (1999) Turkmenistan Is a Member of the WTO No (1996) Yes (2001)
![[USAID Home]](/images/usaid.gif)
[USAID Home]
[CP 99 Home]