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Turkmenistan: EBRD Says 'No' To Loans For Public Sector

The European Bank for Reconstruction and Development has said it will give no more loans to the Turkmen government until Turkmenistan improves its record on democracy. RFE/RL correspondent Bruce Pannier speaks with the head of the bank about the unprecedented step, which marks the first time that an international body has actually denied Turkmenistan money.

Prague, 21 April 2000 (RFE/RL) -- An international body has finally hit Turkmenistan with more than just words.

For several years now, Turkmenistan has ranked among the world's top human rights violators and one of the most repressive societies. Western countries and institutions have been loud in their criticism, but, mindful of Turkmenistan's huge deposits of oil and natural gas, have still supported investment in the Central Asian nation.

That changed this week. On Tuesday, the European Bank for Reconstruction and Development, EBRD, said no to loans for the public sector in Turkmenistan, citing a complete lack of political reform in the country.

RFE/RL spoke (on Thursday) with Charles Frank, the acting president of the EBRD, about the decision. Frank says that while the EBRD has helped finance projects in Turkmenistan that show great promise, the country is not living up to some of the agreements it made when it joined the bank in 1992.

"We have in the past had some good public sector operations in Turkmenistan, but the problem is that the agreement under which the bank was established requires that we operate in countries committed to multiparty democracy and pluralism. And the commitment of the Turkmen government to multiparty democracy and pluralism is weak at best."

And economic reform has been similarly lacking. Turkmenistan has maintained price controls over key cash products. And the EBRD statement this week said: "[Turkmenistan] has a highly distorted foreign trade and exchange regime, while enterprise and institutional reforms have remained very hesitant."

The EBRD was set up in 1991 to help the countries of Central and Eastern Europe and the Commonwealth of Independent States implement economic reforms, and promote privatization and competition. Other international financial institutions are not bound to consider a country's commitment to democracy or pluralism in making their lending decisions, but the EBRD counts democracy-building as one of its goals.

On Wednesday, the day after the EBRD made the decision, Turkmen President Saparmurat Niyazov told his cabinet ministers his interpretation of the action.

"The European Bank set us a problem: 'You should raise the prices of gasoline to bring them in line with European levels.' Or, the second task: 'You should create a multiparty system in your state. This is also a condition,' they said. Ha! You bank worker! Tell them, I said, I do not accept these conditions. I will not speak about this [further]. I said, 'I do not want to speak with them.' Multiparty systems in society spring up by themselves. It is impossible to create them artificially."

Niyazov had already proved he was not interested in speaking with officials from the EBRD. When an EBRD delegation including Director Frank was in Turkmenistan this week, the president canceled his scheduled meeting with them. Frank said Niyazov's refusal even to discuss political reform suggests that his government is not committed to EBRD principles.

Frank notes that the EBRD has suspended funds only for public-sector operations. He says funding for private-sector operations will continue. And he says the private sector has shown encouraging signs.

"The private sector is modest in size in Turkmenistan, but there are quite a few smaller enterprises. In fact, I think it's fair to say that the government has made progress in terms of privatizing some of the small enterprises. Where[as] there is relatively little progress in privatizing some of the larger state-owned corporations. But there is a modest and growing level of private-sector activity."

All countries receiving funds from the EBRD are subject to a yearly review. The EBRD action in Turkmenistan could serve as a warning to other Central Asian countries.

"Clearly, we are concerned with the level of progress made on political and economic reforms. And in reviewing our strategies with other Central Asian countries, we will look very carefully at what response, what level of activity makes sense."

The EBRD may have just set a new standard for dealing with countries in CIS Central Asia. Loans and financial aid to governments in the region have been suspended before for questionable economic policies, but this week's action is the first time a government was cut off for its internal policies.

(Khoudibery Khallyev and Aina Khallyeva of the Turkmen Service contributed to this report.)