Global Perspectives - Turkmenistan - Case Study Example

 Turkmenistan is a young country with bright prospects for the future. From a global perspective it faces many challenges that it needs to confront head on. Turkmenistan has inherited a socialist set up with vast gas reserves and a strong agricultural background. The purpose of this memo is to identify the major issues and recommend solutions that need to be implemented. Issue no. 1: Authoritarian state with centralized state control and no opposition parties. After independence in 1991, Turkmenistan has been a single party country with the president having unlimited powers. President Saparmurad Niyazov ruled for 16 years and was an autocratic leader. He changed the education system to include books he had written, changed medical staff to military personnel and so on and so forth. Turkmenistan does not have a multi party system and the ruling party does not have any opposition. It is a popular notion that, nothing can be said against the president without consequences. The current leadership has promised reforms, but totalitarianism present. Presidential elections in 2007 included pre approved candidates and no real opposition exits. [Tur102] Elections are held, but it is still a form of dictatorship that imposes restrictions on personal freedom and economic freedom. Everything from education to health to the financial system and to property is under the direct control of the government. Conditions under President Kurbanguly Berdymukhamedov have improved to a certain extent with regards to more freedom and economic openness; however after coming to power he stated that his government would continue its predecessor’s political path. The idea of allowing political opposition parties was shot down in February 2010; however in July the president stated that Turkmenistan was ready for the establishment of political opposition.[Inf10] This has not been implemented yet and media controls are still stringent. The three issues of authoritarianism, corruption and economic limitations are inter linked but are so vast that they need to be discussed separately. Recommendation 1: Political reform is necessary in Turkmenistan. This can be done by allowing opposition parties to compete in elections. Opposition parties should be free of any government influence. The public should be allowed to participate in political parties. Opposition parties and leaders should be given freedom of movement and publicity Opposition leaders and other dissenting groups should be allowed to freely spread their message. Recommendation 2: Clear and transparent democracy is required in Turkmenistan. Regular free elections should be held in the country. Democracy will lead to better leadership and governance. It will lead to removal bureaucracy and set up a more effective and productive government setup that benefit the people and the economy. Democracy will enable people to elect the politicians they want and choose their policies; with regards to social and political reform. A communist set up that is built upon the poor will in the long run cause political and economic upheaval thus it is important to enact change now. Recommendation 3: The government should set up elected bodies for education and health, this will lead to educational and health reforms that are much needed. The education sector can be reformed by privatizing schools or at least removing them from direct government control. An education board should be set up that involves education experts and professionals who decide curriculum and teaching methods. Admissions into schools and colleges should be merit based and bribery should be a punishable offence. Hospitals should be free of government interference unless it involves social benefits for the public Healthcare professionals should be free from government influence and should be hired on the basis of merit. Recommendation 4: Freedom of media is important in this information age. Restrictions on media are restrictions on freedom of speech and a violation of Human rights. Media restrictions result in only government biased messages and information getting across to the public, the public is kept in the dark and this affects social freedoms and thoughts. Media freedom leads to development of ideas and creativity which in turn leads to development of new media and new jobs. Media freedom results in healthy debate and awareness of issues which helps in diagnosing solutions. Recommendation 5: Presidential powers should be limited as it leads to unlimited power over every institution. The president should not be involved directly in education, media or any financial institution. Laws should be in place to limit the term of the president and he should not be the sole person decision making power. With the system of the mejlis, the mejlis should comprise of elected representatives with collective decision power independent of the president. Issue no. 2: Soviet style command economy and lack of economic freedom President Gurbanguly Berdymukhammedov is more open to the West than the previous president; and has made gas agreements with the European Union. Turkmenistan took part in the 2008 NATO summit and declared its openness to foreign investment in hydrocarbons. The new regime has allowed Internet in the country, and reconciled with Azerbaijan. It has acted positively towards relations with Europe and US, and has diversified transportation routes away from Russia. It has initiated gas pipelines with China and Nabucco which means Turkmenistan is making efforts on the international front. Turkmenistan has scored worse in 2010 than in 2009 on the economic freedom index which ranks the economic environment of countries. Although, the economy is more market oriented than before independence, it is still largely state controlled. The economy depends on Turkmenistan’s vast gas and oil reserves and it lacks a developed private sector. Trade freedom is very low with stringent restrictions and tariffs on imports and exports, high taxes and fees, import licensing, red tape, bureaucracy and detailed and unnecessary procedures and regulations.[Tur101] The monetary outlook is unclear as well, prices are distorted through government organizations and subsidies and price controls prevent market forces from acting freely. Foreign investment is limited by the government as it chooses the investors and there are strict regulations. All payments and fund transfers as well as foreign exchange accounts require government approval. The easiest way to get things accomplished is if one has contacts in the bureaucracy. All property is state owned and capital transactions are restricted. The finance sector is also controlled by the government, and most banks are state enterprises. Non banking financial organizations are nonexistent and the government’s insurance company is the only insurance company in the country. Private sector does not have easy access to funds and the government allocates the funds and resources. There are few private banks and no existence of a private capital market. There is no formal labor market and the public sector is the main employer. [Tur102] Although Turkmenistan promises great economic potential, prospects in the near future are not very bright due to the horrific corruption level, extreme poverty, and government control over export revenues, a substandard education system and lack of political and economic reforms. The global recession may not have caused a great slowdown but contract disputed with Russia (its major export route) has caused disruptions in exports in 2009. Turkmenistan since independence has not released its statistics but the present government has established a State Agency for Statistics which is a step forward. However, the government released figures are inaccurate and do not represent the true nature of economic conditions. The dual currency exchange rate has been unified and the manat has been redenominated. The government has started a tourism program to diversify the economy of Turkmenistan however; it seems unfeasible due to bureaucracy and corruption and restrictions on personal freedom. Recommendation 1: Privatize the financial system for efficient allocation of funds to profitable investments. The Central bank should not be directly run by the government and should be autonomous to a certain extent. It should develop the monetary policy without government pressure. A private banking and non banking financial sector will lead to more foreign and private inflow of funds. Funds will be lent to borrowers on credibility and profitability basis rather than through bribery and cronyism; this will lead to the development of the financial sector and thus the economy. A private financial system will move funds away from inefficient investments and corruption will be reduced within the economy. It will streamline financial regulations with international standards As most local banks are insolvent by international standards this will help them gain viability and profitability. Recommendation 2: Develop the private sector in the economy. As there is an almost nonexistent private sector due to lack of private property and funding, the government should provide incentives to the private sector by relaxing regulations and increasing ease of doing business. This will help in privatizing agricultural industries and services, thus strengthening the economy and improving living conditions. The lack of private enterprise in an economy will stagnate its growth and imbed inefficiency, thus a move towards developing private sector will help in gaining competitive advantages and increasing productivity. Recommendation 3: Develop a private capital market in Turkmenistan. The requirement of getting approval from the central bank/ government for funds transfer and capital movement hinders businesses from setting up and operating; thus a private capital market is necessary for the growth of industry. Private capital markets will reduce the need for interaction with the government in the setting up of industries; it will increase private profits and benefit economic growth. Recommendation 4: Turkmenistan needs to establish the system of private property. Currently all property is government owned which is a communist concept. The introduction of private property will make it easier for entrepreneurs and locals to start and run businesses and encourage economic growth. Private property is considered a capitalist theory, and is propagated by Hayek, who believed that government ownership and interference should be minimal. The establishment of private property would result in a change in government policies and the establishment of taxes and new government policy. Private ownership by individuals and private enterprises is necessary for economic development as public ownership keeps the citizens repressed as wage earners with no hope of innovation or growth. Recommendation 5: Free and open market system is required to reform the economy. Firstly, state control over the economy needs to be lessened and as mention before private enterprise needs to be set up. The government’s control over export revenues, agriculture and all sectors of the economy needs to be gradually lessened to only involvement in market failures and provision of public goods. Market forces should be allowed to determine the prices in the economy and price restrictions should be eliminated. Turkmenistan should move towards an open economy with foreign investment and ease of imports and exports. Economic policies and regulations should be conducive to the free market rather than restrictive. A free market economy focuses on private resources and profit maximization; it reduces wastage of resources through efficient allocation due to market forces. A state controlled economy breeds bureaucracy and inefficiency, as there is no need for the profit motive. Thus Turkmenistan should enhance market orientation and reduce state control. Issue no.3: Corruption Turkmenistan faces rampant corruption and needs to confront it head on. The Corruptions Perception index 2010 ranked Turkmenistan as the fourth most corrupt country (tied with Sudan and Uzbekistan). According to the 2010 Investment Climate Statement, although Turkmenistan has the right laws in place they are not enforced resulting in corruption. The non transparent economic system and lack of accountability fuel this problem. There are restrictions on personal freedom and human rights abuses are common. Human right activists are imprisoned and women’s rights are often violated. Turkmenistan’s prison system lacks transparency and many environmentalists, human rights activists and journalists languish in prison on unproven charges. Turkmenistan needs to solve its corruption issues to develop its economy and attract foreign investment. The human rights abuses and dismal performance on the economic freedom and corruption index prevents Turkmenistan from integrating internationally. Economic regulations are unclear and cronyism is common thus investors and entrepreneurs face a politicized and corrupt system. The legal system is abysmal with no proper laws or their enforcement. Corruption of lawyers and the judicial system is well known. Copyright laws and intellectual property rights are nonexistent and piracy is common. As most property is owned by the government there are no ownership rights. Recommendation 1: The legal system needs reform; as there are many laws in place but no law enforcement. Bribery is so common that getting into college requires bribes thus it is necessary that bribery becomes a punishable offense. The judiciary should be independent and above bribery and corruption. Lawyers and judges should be properly trained and competent. Copyright laws and intellectual property laws should be enforced. The police and legal system are famous for corruption and concrete steps should be taken against these issues. These concrete steps include enforcing laws against corruption and immediate suspension of officials accused of bribery and corruption. Recommendation 2: Eradication of bureaucracy and cronyism is necessary to eliminate corruption. Bureaucracy and cronyism puts many obstacles in the path of businesses and individuals. Nepotism results in under qualified individuals in high positions and thus overall incompetence. This leads to lower economic growth and unemployment for those deserving. Thus the culture of nepotism should be changed to one that is based on merit, for all enterprises including government ones as well. By implementing stringent recruiting and hiring processes and focusing on productivity rather than nepotism, the government can eliminate corruption in its institutions. Recommendation 3: Human rights need to be upheld in the country. Abysmal conditions mar Turkmenistan’s human rights situation as prisons contains journalists, environmentalists and activists without just cause. Firstly, the government needs to relax its stance towards opposition and the voice of the public. It should be open to criticism and allow the media and people to express their views. The policy of secrecy accompanied with neglect of the health sector and drug trafficking should be stopped. Recommendation 4: Personal freedom of citizens should not be restricted by the government. The government needs to move away from restrictions on media such as internet, radio and TV. Social mobility is restricted as one cannot get jobs without bribery, employment process should be made fair and transparent. Security and safety is the right of every citizen as is the right to live without oppression; the government needs to provide security through an honest police force and stop imprisoning locals without proof. The government needs to stop imposing its religious beliefs on the public and allow religious freedom. Recommendation 5: Social sector reform is necessitated by the high corruption levels. The entire set up needs to change gradually from focusing on bribery to performance. The police force needs to be trained to protect citizens instead of making arbitrary arrests. The development of a social services program that aims to provide services to the impoverished and needy is required. An anti corruption unit should be set up. The most important step is the government’s attitude; which needs to change from a power hungry, authoritarian mindset to a public welfare and development mindset. The tribal based social structure and status quo needs to be reformed through strong institutions focused on the welfare of citizens. Issue no.4: Global trade Turkmenistan has abundance of gas and oil reserves and is a world leader in gas production. In the Soviet countries it is the second largest gas producer, after Russia. 70% of Turkmenistan’s territory can be used to produce gas and 85% if the Caspian Sea is included in this territory. There are about a 100 gas fields in the Amu Darya province and many natural deposits have been discovered. The economic crisis has not significantly affected Turkmenistan due to its reliance on oil and gas revenues. Turkmenistan is among the top four gas producing countries and the country relies on export earnings from gas and oil production. Although it is a major cotton producer, gas exports sustain the economy and enable its growth despite its inefficiencies and backwardness. Turkmenistan’s energy exports are concentrated on Russia and neighboring countries, China and Iran. It needs to reduce its reliance on this source as well as on these countries. The government has taken steps to increase trade with the EU and the USA but the dictatorship affects such endeavors as does the rampant corruption and the limited openness to foreign investment. Recommendation 1: Turkmenistan needs to diversify its trade partners from Russia, China and Iran to the EU and the USA. This will help the country in reducing dependence on these three countries and increasing export revenue. Although the country has tried constructing gas pipeline with Afghanistan, Pakistan and India; it should focus more on European countries as their demand for oil and gas products is high and the political and economic conditions are stable. Europe is also a feasible location for Turkmenistan. Recommendation 2: Apart from diversification of trade partners, Turkmenistan also needs to diversify its exports. Major export earnings come from oil and gas sector and the economy is dependent on this sector. Turkmenistan can focus on agricultural products such as cotton (tenth largest producer in the world). Due to low wages, the country can compete with other cotton producing countries. Apart from cotton and oil and gas products, Turkmenistan can focus on other services and products such as livestock and grains. Recommendation 3: Diversification of energy export routes is extremely important for Turkmenistan as Russia can cut off its supply and thus cause hurdle in its way. Although Turkmenistan is working on gas pipelines that would supply gas to Europe, and tapping its gas reserves near Afghanistan and the Caspian Sea; progress is yet to be made. The East-West pipeline and Nabucco is on the works, Turkmenistan can further focus on the Pakistan, India and China region and push agreements for constructing gas pipelines there. Recommendation 4: The privatization of agriculture can lead to better crop yields and productivity thus greater agriculture exports. It will provide more incentive to develop the agricultural sector. As all land is owned by the government, privatization will lead to the profit motive and usage of more efficient methods. Exports of cotton have fallen by more than 50% in recent years and a method to achieve higher exports can be through privatization. Recommendation 5: Turkmenistan can increase its global trade performance by encouraging foreign participation and investment. Joint projects with the EU and the USA can help the country develop its gas reserves and routes. Foreign investment can aid in development of agriculture and other sectors of the economy. Issue no.5 Foreign policy Turkmenistan has a closed economy and is a closed country. It has not risen up into the international arena and developed strategic relations with the powers, USA and EU. It has close relations with Russia, Iran, China and neighboring countries. It needs to diversify its trade and foreign relations to improve its status and performance. Export reliance on Russia, Iran and China renders it unstable when Russia cuts off its access to markets and furthermore these countries are communist with unstable relations with other world powers. Turkmenistan’s steps to develop positive relations with the EU will not only help it diversify its export market but create new ventures by making a gas pipeline. It will also help the government in implementing reforms and combating corruption. Recommendation 1: Turkmenistan’s foreign policy needs to be an instrument of the international environment and its impact on the country. Individual influences should not be the basis of foreign policy making, and a systematic method needs to be employed. Turkmenistan cannot isolate itself from the international community and it is highly dependent on exports thus it should focus on developing relations with countries in Europe as well as the USA and other trading partners. Recommendation 2 : To increase foreign involvement in the country incentives for foreign investment are required. Currently the regulatory environment and rampant corruption is not conducive to foreign investment. Inconsistent and ineffective regulations need to be scrapped in favor of a clearer and simpler framework that is beneficial for business. Laws that restrict currency exchange and capital movement need to be removed and copyright laws and property rights need to be enforced. Recommendation 3: Turkmenistan’s closest relations are currently with Iran, Russia, Turkey and China rather than the EU and USA that are global diplomacy leaders. Thus Turkmenistan should focus on developing relations with these countries which can be done through increasing trade of oil and gas. Turkmenistan will need to incorporate market systems and democracy in order to develop better terms with developed countries. Recommendation 4 Involvement with international organizations such as UN and participation in international agreements should be increased. This will signal openness of the economy and policy changes, thus attracting foreign investment and improving relations. However, Turkmenistan will need to focus on prior issues of human rights and corruption to comply with UN’s regulations. Recommendation 5: In order to come up to par with the world Turkmenistan will need to implement structural reforms. A favorable policy environment for transparent government and fair economic policies are required. The IMF and World Bank structural changes need to be implemented to increase market reforms and decrease poverty. Although this program has had mixed results, but the structural adjustment program aims to reform all aspects of the economy which Turkmenistan needs. Turkmenistan is a young country faced by many important issues with the most important being authoritarian government, a state controlled economy, corruption, global trade and foreign policy. The country has made progress under the new president on all these issues but much progress is required. The political setup needs to be changed to a democracy; and a multi party system with regular elections. The state controlled economy should be privatized and market forces should be allowed to freely determine the prices. The rampant corruption needs to be decreased by proper law and order, respect for human rights and personal freedom and focus on clear and transparent regulations. Turkmenistan needs to diversify its exports and trade partners. Gas routes needs to be diversified which has made progress in recent years. Turkmenistan needs to open it closed economy and integrate itself into the international market. It needs to join the emerging European countries and implement the economic, political and social reforms necessary. These recommendations should be implemented because they focus on the root causes of the issues which need to be addressed directly. Although the recommendations may be implemented gradually, they are of utmost importance to bring Turkmenistan into the 21st century. Bibliography: Tur102: , (Turkmenistan), Inf10: , (Info please), Tur101: , (Turkmenistan- economy), Read More