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Economic shock therapy?

Written by on Sunday, 20 April 2008
Business and Economics, Turkmenistan
5 Comments

[inspic=78,,,0]It looks like the Turkmen government is going to continue economic reforms aimed at bringing Turkmenistan’s economy closer to market economy. Some commentators have even called it the beginning of an economic shock therapy.

On April 14 Turkmenistan’s President Gurbanguly Berdymukhammedov held a government meeting, which addressed the results of the first quarter of 2008 as well as the future strategy for improving the country’s socio-economic development. In particular, a decree “On introducing the redenomination (changing the currency value) of the national currency of Turkmenistan” was adopted. The session also highlighted that a unified dollar exchange rate is scheduled to replace the state-controlled ?nd commercial rates.

The denomination of manat is scheduled to take place as of January 1, 2009. However for the time being, it was the announced introduction of unified dollar exchange rate that has been most painful for people.

The next day the news caused panic among the Turkmen residents. Starting from May 1 (or throughout May) a new dollar exchange rate will allegedly be introduced. One dollar is expected to equal 10,000 manats whereas according to other sources one dollar will equal 17,000-18,000 manats. People rushed to the currency exchange offices to exchange their foreign currency savings. However, referring to a manat shortage, the exchange offices allow each person to sell up to 100 dollars at a time. In order to exchange as much cash as possible, people bring their relatives and friends. Huge hour-long queues have formed at the currency exchange offices.

Experts are not unanimous in their assessment of the current economic reform. Some of them criticize the government, indicating that its plans may e.g. spur inflation. Nevertheless, it seems that in this case the authorities can hardly be accused of ill will. It looks like they have good intentions and really intend to reform (at least partially) the Turkmen economy. The fact that they make mistakes is yet another issue. Maybe it would be a good idea to invite experts from other countries, e.g. from East-Central Europe, that have recently undergone transformation?

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5 Comments »

  • Eziz Turkmen says:

    It sure is going to be tough… prices going up all the time. Denomination is easy, the most difficult job is keeping new currency at its value. We are going to know if it was a good move or a bad one in couple of years. I hope we wont be swearing it should have never happened…

    Reply

  • Anna says:

    Most developed countries in the world have inflation target of around 2% a year. The US calls it ‘inflation goal’ rather than ‘target’ and has the same number 2% as objective.

    Purpose of currency reform, that ’000 will be deleted from the currency, might have another implication. For example, it might be a way to introduce Turkmen heroic figures of the past in new currencies. If it were solely for accounting purposes, we are not even close to the loss of value of currency other countries who had introduced currency reform in the past – such as Turkey and Zimbabwe .

    After a thorough experience, my advice for a country like Turkmenistan, oil sector being the single most developed sector, funds flowing from oil income should NOT be directed into the economy. It will create a massive availability of foreign currency, say US dollars, and will cause Turkmen manat to appreciate. It will cause other sectors to lose competitiveness in world market and will slow down. Best practice should be to create a separate fund abroad, definitely abroad, and to use that fund for investment purposes.

    Strong economists should be hired and let them do their jobs. One last thing: Central Bank should be independent of political pressure so that central bank business cycles do not move in the same cycle political swings take place.

    Reply

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