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Turkmenistan: Economy Suffers Biggest Decline Yet

Boston, 15 January 1998 (RFE/RL) -- Thanks to a standoff with Russia, Turkmenistan has suffered its biggest economic decline since the Soviet breakup. According to a new International Monetary Fund estimate, the Republic's gross domestic product fell by 20 percent last year.

The 1997 drop is even greater than the 19 percent decrease in GDP sustained in 1994, and it follows a relatively mild economic downturn of 3 percent in 1996. The 20 percent plunge is believed to have given Turkmenistan the worst economic record in the CIS last year.

The culprit is Turkmenistan's continuing dispute with Russia over access to the former Soviet gas pipeline network for deliveries to cash customers in Europe. Last March, the republic ended its exports through its northern pipeline connection after Russia channeled Turkmen gas only to poorer republics that could not afford to pay.

According to IMF estimates, Turkmenistan's gas exports last year were valued at only $294 million, less than one-third of the amount for 1996 and a pittance for a country that may have the world's fourth largest gas reserves. Ashgabat has complained that an exporting joint venture with Russia's Gazprom ran up debts of some $400 million. The effects on the economy have been devastating.

Gas is the country's biggest commodity. In a more normal year, it accounts for about 60 percent of total exports and half of Turkmenistan's total GDP. The situation could turn out to be even worse than the IMF estimates. At the midway point of 1997, Turkmen officials complained that the republic's GDP was down by a whopping 29 percent from the comparable period a year before and that industrial production had fallen 35 percent. There are indications that the problems have worsened since then.

Western experts who have visited Ashgabat in recent months report reluctance on the part of officials to provide figures on the republic's exports, and multilateral lenders like the European Bank for Reconstruction and Development have also had trouble getting details.

Turkmenistan had relative success in controlling inflation and exchange rates last year. Two Wall Street bond rating agencies have also given more positive assessments of the republic's ability to borrow on international financial markets, based on its cash reserves, petroleum resources and the debts of other nations for past gas deliveries. Foreign interest in Turkmenistan's Caspian Sea oil tenders is also said to be strong.

But there are also unmistakable signs of hardship in the republic. Although prices have remained relatively stable, a US Commerce Department office in Ashgabat reported that supplies of rationed meat have been unavailable in the capital for several weeks. Bread is said to be in short supply in other parts of the country.

Prospects for improvement in 1998 remain unclear. Although Turkenistan celebrated the opening of a gas pipeline to Iran last month, all of this year's export earnings from the new link are expected to help pay for Iran's $190-million construction costs.

And despite expectations, there appears to have been a disappointing result from the visit of Russian Prime Minister Viktor Chernomyrdin to Ashgabat last week. A large Russian delegation headed by Chernomyrdin was reportedly preparing to sign a new agreement to allow some Turkmen gas exports to flow again over the northern pipeline connection to European customers.

But initial reports suggest that Chernomyrdin and Turkmenistan President Saparmurat Niyazov only signed an agreement on avoiding double-taxation, leaving the gas export issue unsettled.

Gazprom Chairman Rem Vyakhirev told reporters in Ashgabat that an export deal is unlikely before mid-February because of disagreement over the pipeline fees that Russia wants to charge.

The Russian mission was believed to be a response to the threat posed by Turkmen gas sales through Iran, which could eventually reach Turkey and compete with Moscow's plans to sell its own gas to Ankara.

But Russia may have concluded that a pipeline across Iran for Turkmen gas will take several years to build, giving Moscow plenty of time to monopolize the European market before it has to give up a portion to Turkmenistan.

Preliminary figures suggest that the decline in Russia's gas exports to the Far Abroad last year may also have been the steepest since the Soviet breakup. As a result, Moscow may try to keep as much of the market as it can for itself.

Foreign investment in Turkmenistan's offshore Caspian resources may be a bright spot for the republic, bringing with it an infusion of cash. But plans to export petroleum from the planned projects will face the same problem -- how to get the oil and gas out. Turkmenistan already has plenty of gas available, but it has nowhere to go.

Turkmenistan must either convince Russia to open its pipelines or push for alternative routes quickly. Otherwise, it can expect that 1998 will be another bad year.