WELCOME TO IWPR'S REPORTING CENTRAL ASIA, No. 526 Part I, 11 January, 2008 UZBEK GAS HIKE LEAVES NEIGHBOURS IN THE COLD The economies of Central Asia's two poorest states are reeling after Uzbekistan raises the price of gas again. By Jypara Abdrahmanova and Elina Karakulova in Bishkek
OPPOSITION FEARS KYRGYZ PARLIAMENT WILL BE RUBBER STAMP While the government claims the ruling party's domination of parliament will make the legislative process more effective, opposition leaders fear the institution's independence has been fatally undermined. By Tolkunbek Turdubaev in Bishkek KYRGYZSTAN UNVEILS FOOD SECURITY PLAN Government's plan to build up food reserves may prevent a repeat of last year's price hikes, but sceptics say the country needs to grow more grain. By Jyldyz Mamytova and Gulnara Mambetalieva in Bishkek TAJIKISTAN VOWS TO REVIVE AILING COTTON INDUSTRY While the government says new system of bank credits will revive the industry, many farmers fear they will just be left deeper in debt. By Aslibegim Manzarshoeva and Lola Olimova in Dushanbe COMMENT: TURKMEN ECONOMY NEEDS REAL, NOT SUPERFICIAL REFORM Promises to rescue the economy from stagnation sound good on paper but have achieved little in practice. By Annadurdy Khadjiev in Bulgaria **** IWPR RESOURCES ****************************************************************** CROSS CAUCASUS JOURNALISM NETWORK. IWPR has launched the website of a unique Caucasus-wide programme, funded by the EU and the Finnish government, forming a network of more than 50 journalists from across the North and South Caucasus. They are meeting and collaborating in all parts of the region over the next three years. www.crosscaucasus.net <http://www.crosscaucasus.net> SAHAR JOURNALISTS' ASSISTANCE FUND: IWPR is establishing a fund, in honour of Sahar al-Haideri, to support journalist participants in its training and reporting programmes around the world. The Sahar Journalists' Assistance Fund will be used to support local journalists in cases of exile or disability, or to assist their families in case of death in service. 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For more information about how you can support IWPR go to: http://www.iwpr.net/donate.html <http://www.iwpr.net/donate.html> **** www.iwpr.net <http://www.iwpr.net> ******************************************************************** UZBEK GAS HIKE LEAVES NEIGHBOURS IN THE COLD The economies of Central Asia's two poorest states are reeling after Uzbekistan raises the price of gas again. By Jypara Abdrahmanova and Elina Karakulova in Bishkek Nadezhda Georgieva says her family turned off the gas fires in their apartment in the Kyrgyz capital Bishkek a year ago, when the price of fuel soared overnight. The reason was simple - while Kyrgyzstan generates its own electricity, it has to import its natural gas from neighbouring Uzbekistan. When the Uzbeks raised the export price of gas from 55 to 115 US dollars per thousand cubic metres for all their customers last year, there was little Kyrgyzstan could do about it. A few days ago, Georgieva heard that Uzbekistan had raised the price once again, this time to 145 dollars per thousand cubic metres, and her dream of turning the gas fires back on evaporated. "We can't afford a luxury like gas now," she lamented in an interview for IWPR. "Many people in our neighbourhood have already abandoned their gas heating - including one small private hotel." Poorer Kyrgyz families have replaced gas-canister heaters by burning wood or coal instead in order to get through the cold, hard, winter. But this has come at a heavy environmental cost. "The snow in our neighbourhood is black from soot because people are heating their houses with coal, wood and even old tyres," said Georgieva. "We can hardly breathe and the children don't have a place to play but what can we do? No one wants to freeze." Uluk Kydyrbaev, head of the Bishkek Business Club, which groups the country's private entrepreneurs, says Kyrgyzstan and neighbouring Tajikistan, which is similarly dependent on Uzbek gas, should have developed more ambitious energy strategies long ago. Both states should have noted the trends in regional energy markets and pushed to develop their own potential to generate hydroelectricity from their mountainous water reserves. Kydyrbaev believes only a major injection of private investment capital can help secure the energy futures of both countries and make them less vulnerable to prices rise shocks inflicted by their neighbours. Kyrgyzstan currently imports around 800 million cubic metres of Uzbek gas annually, which will cost it about 116 million dollars this year. Tajikistan will pay a little less, about 94 million dollars. With significant investment, Kyrgyzstan could generate far more hydroelectric power than it does at present. However, even the current infrastructure is now crumbling. "Our electricity cables are deteriorating year by year and need immediate investment," said Kydyrbaev. "If we don't do that, we might lose our last [energy] resource and become totally dependent on our neighbours for energy." Bazarbay Mambetov, who chairs the Oil Traders' Association in Kyrgyzstan, warns that matters are coming to a head, as Kyrgyzgaz, the national gas company, may not be able to pay its bill to Uzbekistan this year. The company suffers from a liquidity shortage owing to widespread non-payment or late payment of bills by both private and industrial consumers. "People had trouble paying the tariffs when gas was 55 dollars per thousand cubic metres," said Mambetov. "Now that the price is 300 per cent higher, it could have catastrophic repercussions." Shavkat Shoimov, first deputy director of Tajikistan's national gas company Tajikgaz, says his company is deeply indebted to Uzbekistan for the same reason as its Kyrgyz counterpart. Uzbekistan's gas price hike not only leaves families like that of Nadezhda Georgieva facing a cold winter; it also threatens the viability of important industries in the two poorest states of Central Asia. One mineral fertiliser plant in Tajikistan that was operating on gas power had to close last year after energy costs made its products too expensive. Asomiddin Saidov, a deputy in the Tajik parliament, says he fears more factories will close soon. "Gas prices will hit all big enterprises that run on gas, their products will become uncompetitive and as a result many factories will become unprofitable," he warned. Galina Lee, commercial director of Bishkektsroimaterialy, a construction materials producer which is one of the biggest Kyrgyz companies, makes much the same grim prediction. "We are very nervous," she said about the most recent gas price rise. "We don't know whether our company will remain competitive on the market." Jypara Abdrahmanova is an IWPR contributor in Kyrgyzstan. Elina Karakulova is an IWPR editor in Bishkek. OPPOSITION FEARS KYRGYZ PARLIAMENT WILL BE RUBBER STAMP While the government claims the ruling party's domination of parliament will make the legislative process more effective, opposition leaders fear the institution's independence has been fatally undermined. By Tolkunbek Turdubaev in Bishkek Zayniddin Kurmanov, who chairs the parliamentary committee of Ak Jol, the party that won a landslide in the recent elections in Kyrgyzstan, is a confident man. After Ak Jol took the lion's share of seats in the assembly after the December 16 poll, Kurmanov is in a position to maintain a balance of power between parliament and President Kurmanbek Bakiev and believes this will usher in a new era. Instead of the sterile politics of confrontation between legislators and and executive, he predicts an era of cooperation for the common good. Drawing on a fable by the 19th century Russian writer Ivan Krylov, Kurmanov said the new parliament would not be like the swan, crayfish and pike who tried to tow a cart in different directions, as a result of which it got nowhere. Instead, he says. Kyrgyz parliamentarians will now pull their proverbial cart in one direction only, taking joint responsibility for their actions. While Kurmanov paints a rosy vision of cooperation between parliament and president, others are less sure this will happen. Some opposition members fear that the new assembly will be more of a rubber stamp for the president than a true partner, and that it will surrender its power to hold the executive to account. They are concerned that President Bakiev wants to exercise the same near-total control over his country that Vladimir Putin has in Russia. Nikolay Baylo of the Communist Party warns that a mood of "political euphoria" has gone to the head of the victorious Ak Jol. "If we don't use this historic chance to build up parliamentarianism in Kyrgyzstan, the legislature will just take the same form as the old Supreme Soviet of the USSR," he said. Omurbek Abdrakhmanov, a leader of the most influential opposition party, Ata Meken, makes the same point even more vehemently. Ata Meken, which was not awarded any seats even though it won more votes than any other opposition party, is understandably critical of the new assembly. Abdrakhmanov claims that most of the new Ak Jol parliamentarians did not truly compete for their seats and only won them as a result of the heavy-handed use of the "administrative resource" - common shorthand for government pressure. "These people were 'elected' by two or three people sitting in a room, who drew up a list of those who were to get into parliament," claimed Abdrakhmanov. "Such parliamentarians will always be in debt to the bosses who actually appointed them. Even if they have their own opinions, they won't be able to express them, since the 'top' will decide everything for them every time." Abdrakhmanov concluded, "Just like parliamentarians in Soviet times, they will unanimously support decisions handed down from above... and we have to realise that this situation will bring the country to a political and economic standstill." The government naturally rejects this assessment entirely. Ak Jol's Kurmanov insists President Bakiev has no desire to crush the life out of parliament and turn it into a body with no real functions. "There is a special kind of relationship between parliament and the president, whereby he defines the major courses of internal and external policy," he said. Kurmanov said the head of state had no interest in converting parliament into an extension of the executive. On the contrary, he noted that the president had already given it a list of urgent issues to tackle at its next session. Outlined in a speech Bakiev gave to the chamber on January 10, these include major issues of social and economic development such as property problems, the fuel and energy sector and an agreement on a new retirement age for workers. Abdrakhmanov says this is empty talk. Moreover, he likens talk of the youth and diversity of the new Ak Jol members to the "representation" proclaimed by Soviet-era institutions. "I used to work as a [Soviet Communist] party secretary and we used to nominate deputies like that," he recalled. "They included representatives of all social strata, such as tractor drivers and shepherds. At my sovkhoz [farm] all the dairymaids were nominated, but such nominees never really voiced the interests of the rank and file; they just carried out what they were told to do." This time round, he warned, "Voters should not be mistaken and harbour false hopes; they should take a good look at their history." Karybek Baibosunov, a Kyrgyz political analyst, takes a more moderate view, insisting it is too soon to jump to conclusions about the new parliament's likely action. "The new parliament is just being formed," he pointed out. "But it will only become a parliament in the professional sense by the beginning of 2009." Baibosunov suggested it was not entirely fair to claim all the new Ak Jol members were mere ciphers for the president. "There are professionals there who have a deep knowledge of our problems," he said. "There are many specialists in the parliament who are competent in energy, jurisprudence and agriculture." Indeed, Baibuosunov predicted that these three fields will form the basis of most of the legislators' activity. In the meantime, questions linger about the new parliament's democratic credentials. Western election observers heavily criticised both the handling of the polls and the complex arrangements under which most parties were excluded from taking seats, whether or not they won votes nationwide. While Ak Jol now shares the assembly with a minority of Social Democrats and Communists, the biggest opposition party - Ata Meken - is left out in the cold on the grounds that it did not gain the required number of votes in each of the nine electoral units in the country. Tolkunbek Turdubaev is a correspondent for the BBC's office in Bishkek. KYRGYZSTAN UNVEILS FOOD SECURITY PLAN Government's plan to build up food reserves may prevent a repeat of last year's price hikes, but sceptics say the country needs to grow more grain. By Jyldyz Mamytova and Gulnara Mambetalieva in Bishkek Fearing a repeat of last year's dramatic food price hikes, which caused a crisis for the country's poor, the Kyrgyz authorities have announced plans to introduce a new system for stocking up on food reserves, especially grain. Last autumn, the price of bread - the basic foodstuff for much of the nation - rose sharply, leaving many families locked in a battle for survival. The increases were largely beyond the government's control, as they were triggered in large part by worldwide hikes in the price of grain. But speculative stockpiling and trading made the problem worse in Kyrgyzstan. The country is sensitive to fluctuations in cereal prices on world markets. There is little arable land in this mountainous country, and much of it is given over to raising livestock rather than growing crops. To feed a population of just over five million, Kyrgyzstan has to import more than 200,000 tons of grain and about 30,000 tons of flour every year. Most of it comes from Kazakstan, the breadbasket of Central Asia. Last year, however, from last August onwards, prices rose by 100 per cent from an average of 140 US dollars per ton of grain to a high of 300 dollars. This external shock and the resulting shortage of affordable flour were compounded by speculators who bought up stocks in anticipation of further rises. Even when the government released 15,000 tons of flour from national reserves onto the market in August, this failed to stop bread prices from doubling in shops. Daniyar Usenov, the mayor of the capital Bishkek, accused distributors and vendors of capitalising on the instability in order to bump up prices and reap a 300 per cent profit instead of the normal 20 to 30 per cent. This week, Arstanbek Nogoev, the agriculture minister in Kyrgyzstan's new cabinet, unveiled a new policy to substantially increase grain reserves, which is due to start being implemented in February. Nogoev said that by increasing national grain reserves to 100,000 or even 150,000 tons, the government will be in a position to intervene more effectively in the market in future. At the same time, the government wants to set up new "agricultural unions" which will bring together small-scale producers, who will then be in better a position to coordinate and maximise production and set prices more effectively. "When the president appointed me to this position, he said my main task would be to increase output from agriculture, one of the most important economic sectors, in a very limited timeframe," Nogoev told IWPR. "So now we have to abandon the old strategies and come up with completely new ones." After the previous cabinet was blamed for failing to intervene effectively to restrain price rises, there were political casualties. President Kurmanbek Bakiev sacked the Minister for Economic Development and Trade, Sabyrbek Moldokulov, among others. Nogoev told IWPR that the idea behind the farmer's unions was to unite all small agricultural producers and help ensure that all their crops were sold at an pre-arranged time. Experts have been warning for years that the country's agricultural sector is in trouble, making the state more vulnerable to external price shocks. The area of land under grain has shrunk sharply in the last five years alone, and the scale of imports keeps on increasing. Kyrgyzstan now has only about 1.5 million hectares of arable land, less than seven per cent of its territory, and only 360,000 hectares is used for grain production. Abdymomun Joldoshev, who heads the Osh office of Kyrgyzstan's International Business Council, says the government needs to get to grips with the farming crisis and stimulate higher production. "The state has to motivate farmers and grain producers especially, and provide them with good quality grains," Joldoshev said. He also said that effectiveness of the proposed food producers' unions will depend on their status in the wider scheme of things. "Everything will depend on the legal status of such holdings. In our experience, farmers associations have not proved very popular, at least in southern Kyrgyzstan," Joldoshev added. However, Taalaibek Koichumanov, representative of the State Investment Committee, says the new associations might act as a counterweight to the virtual monopoly held by a handful of purchasers on the flour market. But Koichumanov warned that the plan to build up government-held grain reserves would not halt bread price rises; at most, they could soften the blow to consumers dealt by sudden price hikes. "Reserves are not a panacea," he said. Sergey Slepchenko, head of the International Institute for Strategic Studies in Bishkek, agreed. Reserves might help counter speculative trading and thus prevent gross overcharging for bread, but the effect would be limited if world grain prices were to rise sharply. "Small countries like Kyrgyzstan are not capable of producing all their basic commodities in sufficient quantities, which is why they can only hope to come up with successful food security strategies," he said. Jyldyz Mamytova and Gulnara Mambetalieva are IWPR contributors in Bishkek. TAJIKISTAN VOWS TO REVIVE AILING COTTON INDUSTRY While the government says new system of bank credits will revive the industry, many farmers fear they will just be left deeper in debt. By Aslibegim Manzarshoeva and Lola Olimova in Dushanbe Hoping to lift the country's all-important cotton industry out of the doldrums, Tajikistan has come up with a plan to help farmers by providing them with easier access to bank loans. The cotton industry has become increasingly indebted over recent years. Farmers ended 2007 owing their creditors more than 500 million US dollars. This level of indebtedness is a serious problem for Tajikistan, where agriculture remains a key component of the economy. More than 70 per cent of the six million-plus population live in rural areas and support themselves from farming- many from raw cotton production. Cotton production has averaged less than half a million tons a year since 2001, and while the government approved a programme in 2004 designed to raise output to 800,000 tons a year by 2015, production has dropped significantly over the last three years, due mainly to bad weather. In 2005, output was 448,000 tons instead of the anticipated 610,000 tons, and it slipped further to 443,000 tons in 2006 and just 418,000 tons last year. The cotton industry went into crisis when the Soviet Union fell apart in 1991, the Tajik economy collapsed and the country plunged into five years of civil war. Little relief was brought by reforms launched in 1994, in which the government encouraged farmers to finance their operations through a complicated system of financial intermediaries known as futures companies. These firms are often termed "investors" but it is something of a misnomer, as they simply advance money to farmer to buy seeds, fuel, fertiliser and other inputs, or actually supply these items in kind. In return they get a pre-determined share of their crop at a fixed price, and then sell it on. "When the reforms started, we expected good results within ten to 15 years, but they just did not meet today's requirements," said Vahob Vohidov, head of the agriculture department at the Institute for Economic Studies. The "futures" system falls down when adverse weather conditions or other factors leave the harvest lower than expected, leaving farmers saddled with outstanding debt to the company instead of the healthy profit they should have at the end of the season. Declining national output figures show how expectations are consistently being disappointed. Most experts agree that raw cotton is only profitable in Tajikistan if farmers gather more than 2.4 tons per hectare. Last year the average cotton yield was just 1.6 tons per hectare. Many farming experts agree that the futures companies have become part of the problem rather than the solution. "Control over cotton production was effectively handed over to the futures companies, so the state is unable to regulate it strictly," said Nuriddin Kayumov, head of the Institute of Economic Studies, which comes under the Ministry for Trade and Economic Development. "The uncivilised way that futures companies operate here is one of the reasons why we have is a multi-million-dollar debt in this sector today. There is no rational arrangement between them and the farmers." Farmers complain that when futures companies supply them with things like fertilisers, diesel and seed as part of the advance contract, one set of prices is given, but when they are billed after the harvest is over, the prices listed for these same items are much higher. Now the government is planning to change the rules in a bid to relieve the farmers' growing debt problem. Late last year, Prime Minister Akil Akilov announced that his ministers intend to phase futures contracts out of the system. Instead, cotton farms will be directly financed by the banks, cutting out the middlemen. Agriculture Minister Abdurahmon Kodiri said that under the new mechanism, farmers would be free to take out loans and use this money at their own discretion. That will allow them to source their inputs - fuel, seed and the like - on the open market. Kodiri said a government working group had come up with a mechanism under which the debts currently owed by cotton farmers would be rescheduled so that they could pay them off gradually. According to the minister, there was no reason why the industry should not be more lucrative for growers, because the price of cotton on world markets was rising. Ahmadov believes the new financing structure is the best alternative yet, as it will enable the farmer to act more independently. "It's a very good idea, compared with the futures companies which took everything from the farmers... leaving them with nothing," he said. However, not everyone is so optimistic that the new system will rescue this embattled sector from destruction. Some say it will make no difference, or that it could even lead to a worse situation. Muhiddin Kabiri, a member of parliament and leader of the Islamic Rebirth Party, believes the majority of farmers will not able to obtain bank loans because the terms will be exorbitant. "The banks charge such high interest rates that no one will get loans from them," Kabiri claimed. "I doubt that money from the banks is now simply going to flow into agriculture." At the moment, most commercial banks in Tajikistan lend at rates between 15 and 22 per cent or even more, just for a six month period. Vohidov agreed that changing the financing system would not be enough to turn things round, and said the government needed to intervene directly to help farmers reach agreements with the processing plants to which they will be selling their raw cotton. Tajik farmers get only 300 US dollars a ton, while cotton fibre sells on the world market for 1,200 to 1,300 dollars. Vohidov said there was no reason why Tajik cotton farmers could not in future sell directly to the Liverpool Cotton Exchange, the main international clearing-house. The farmers themselves have had their fingers burned so often in the past that it is unsurprising that they are sceptical about the latest reform. They are especially worried that banks want to insist they sign over their land as collateral against loans. This arrangement has not been finalised, and is problematic as farmers do not hold title deeds to the land on which they as tenure; agricultural land is still officially state property. "We don't see anything good about this new financing method. Our lands just don't yield enough crops to cover all our expenditures, so there is no doubt that farmers will again be burdened with debt," said one farmer from the southern region of Khatlon. "We don't know what to expect of a new system, but we have little faith in the proposed mechanism. We are afraid our land will now be taken over by the banks." Hikmatullo Ahmadov, vice-president of the Academy of Agricultural Sciences, says the failure to turn the agricultural sector around to date is symptomatic of the broader failure of economic reform. "They only ever change the signpost outside, while on the inside, things always remain exactly the same as before," he said. Aslibegim Manzarshoeva is an IWPR contributor in Dushanbe. Lola Olimova is IWPR's Tajikistan editor. COMMENT: TURKMEN ECONOMY NEEDS REAL, NOT SUPERFICIAL REFORM Promises to rescue the economy from stagnation sound good on paper but have achieved little in practice. By Annadurdy Khadjiev in Bulgaria When President Gurbanguly Berdymuhammedov unveiled ambitious economic reform plans after taking office in February 2007, pledging to rescue his country from stagnation and integrate it into the world economy, analysts hailed it as a revolutionary step. Nearly a year on, there is little sign of progress. The economy and the financial sector have seen no serious structural changes. Hard information about the true state of the economy remains unclear because statistics and budget data remain closed to the public. President Berdymuhammedov admitted the extent of the problems in one area - monetary policy - at a government meeting on November 12. The official exchange rate is 5,200 manats to the US dollar, but access to foreign currency at this artificial fixed rate is severely limited and many companies and small-time traders have to buy dollars on the black market at nearly five times that amount, meaning that imported goods are priced accordingly. "The state suffers immense economic and political losses from the existence of two exchange rates, official and black market," the president, who is also prime minister, told cabinet members. "For some, this disparity is lucrative, but the state loses out. We can see these losses in the textile and oil and gas industries, where we price products at the official rate of 5,200 manats [to the dollar] but use the black market rate to buy imported equipment." Berdymuhammedov said the two rates needed to be unified by 2009, when a redenomination of the manat is planned. He then tasked the central bank and the finance and economics ministries with achieving this. The monetary authorities duly made a serious attempt to close the gap between official exchange rate and the black market rate of 24,000 to the dollar. By November 15, three days later, the dollar's sale value on the black market had plummeted to 6,000 manats, close to the official rate. It is unclear how this was achieved, as the black market is by definition not controlled by the state. The assumption has to be that the central bank dumped dollars on the market to soak up some of the demand. However, the move failed to shake intrinsic perceptions of the two currencies' relative values, as the dollar could still only be bought at the higher rate even after its sale value fell. This attempt to manipulate the black market, which is probably a more accurate reflection of the manat's true value, and tie it to the unrealistic official rate did not last. Even by the evening of November 15, equilibrium had been regained and the black market rate for selling and buying was back at 24,000 to the dollar, where it has stood for the last two years. The financial authorities may have cut short their intervention out of a realisation that it could have unsettling effect on the many who keep their cash in US currency. Or they may just have decided that the experiment was unsustainable. One problem holding up real reform is the rigidly vertical power structure in Turkmenistan, which allows the president to dispose of almost all financial revenues. This means he unilaterally controls the huge foreign currency revenues coming from gas exports. The president alone has the right to assign loans credits to different sectors of the economy. It is up to him to write off credits through commercial banks, determine interest rates, conduct foreign currency operations and set the exchange rate. This is a result of the law on the Central Bank of Turkmenistan, adopted in 1993, which deprived the bank of the right to make independent decisions on monetary policy. Since then, the bank's principal role has been to mechanically execute the president's orders. Turkmenistan receives large revenues from energy exports, and because the trade balance is in surplus due to depressed levels of imports, large resources are concentrated in the hands of the president. Under the country's tight currency regime, almost all foreign currency proceeds have to be submitted to central government. These are saved in correspondent accounts held in abroad and withdrawals are made only by the president, who authorises payments to sectors of the economy. Predictions made by consultants from the International Monetary Fund in 1994 that the Central Bank law would undermine the entire financial system of the country including the exchange rates have been amply realised. As the Central Bank does not operate independently, it is unable to employ monetary instruments to influence the economy. Since the manat is kept at an artificial exchange rate rather than being allowed to find its own value, it enjoys little public confidence and the American dollar effectively operates as a second currency. To overcome this crisis, the government needs to take radical measures to strengthen the financial sector. First, it must review the Central Bank law and grant the institution complete independence in directing monetary policy and building gold and foreign exchange reserves. It needs to introduce a floating exchange rate determined by the results of activity on inter-bank currency exchanges. Many countries have a floating rate which is managed by the central bank, where supervised fluctuations in the exchange rate allow the authorities to make corrections to macroeconomic factors such as deficits or surpluses in the balance of payments. Steps need to be taken to prevent the manat from being marginalised by the dollar and other foreign currencies as the normal, accepted means of payment. For a start, this requires the government to stop conducting so much of its business in foreign currency. Second, banks must be allowed to engage in foreign exchange activity, so that the market sets the rate. And third, the government must abandon the practice of requiring all foreign currency receipts to be submitted centrally. It must also stop forcing the Central Bank to extend loans to unprofitable state industries, whose losses then have to be written off. Such loans go to the agricultural sector and for the financing of pensions, benefits and salaries. These credit lines result, in effect. in unsupported emissions of money, so that we currently see a growth in monetary circulation not matched by a growth in production. Government, specifically the finance ministry, must find other ways to fund this kind of expenditure. Real reform would also require a revision of budgeting practice to eliminate the two-tier system which separates domestic tax revenues from external foreign currency receipts. Under the previous president, Saparmurat Niazov, who died a year ago, much of this second tier - mainly gas, oil and cotton revenues - was wasted on luxury palaces, government buildings and gilded monuments. A better way to soak up these resources would be to use them to build the planned Avaza tax haven on the Caspian shore, for which one billion dollars have already been allocated. Finally, tax legislation needs to be improved. The government must also start ensuring that finished goods and raw materials, including energy resources, are exported at market rates. The forthcoming redenomination of the manat, therefore, demands a whole range of measures to strengthen the economy, not simply the kind of exchange rate adjustment the authorities attempted in November. However, it remains doubtful whether the Turkmen leadership is ready to relax controls on monetary regulation and open up the rest of the economy. Berdymuhammedov has ordered officials to stop allowing companies to file non-transparent statistics. No detailed official statistics have been published in Turkmenistan, and the figures that are published - showing massive growth in production year by year - are of little value as they are constructed out of local economic reports that have been massaged and inflated to allow state enterprises to show their masters how well they are doing. Most enterprises engage in "double book-keeping", concealing the real state of affairs and presenting a wholly false picture to ministers. Such practices are likely to alienate potential foreign investors. Despite his intentions, however, recent months have seen no real change. The brief foray into the black market ended in little except the arrest of a few illegal currency traders. Annadurdy Khadjiev is an expert on the Turkmen economy, based in Bulgaria. **** www.iwpr.net <http://www.iwpr.net> ******************************************************************** REPORTING CENTRAL ASIA provides the international community with a unique insiders' perspective on the region. Using our network of local journalists, the service publishes news and analysis from across Central Asia on a weekly basis. The service forms part of IWPR's Central Asia Project based in Almaty, Bishkek, Tashkent and London, which supports media development and encourages better local and international understanding of the region. IWPR's Reporting Central Asia is supported by the UK Community Fund. The service is published online in English and Russian. The opinions expressed in Reporting Central Asia are those of the authors and do not necessarily represent those of the publication or of IWPR. 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