IS TURKMENISTAN READY FOR PRIME TIME?

Recent decisions by the Moody’s and IBCA rating agencies granting Turkmenistan an international credit rating, combined with the extension in December of $80 million in funding by the European Bank for Reconstruction and Development, suggest that one of the least reformed and poorest CIS economies is moving closer to the international financial system. (Russian agencies, January 8, 9) However, these positive developments are unlikely to help the authoritarian government of Sapurmurad Niazov to quickly unlock Turkmenistan’s mineral wealth.

IBCA’s decision in January to extend a "B" rating to Turkmenistan, which followed the "B2" rating announced by Moody’s in December, could eventually help the government to borrow on international capital markets, as well as receive trade financing on more favorable terms. The collateral represented by Turkmenistan’s natural gas reserves, as well as by its foreign-exchange holdings, appeared to underlie the agencies’ decisions. Likewise, the EBRD’s December decision to finance $80 million worth of construction projects has elicited bids from more than 40 international constructions firms for the right to reconstruct the Ashgabat – Mari highway, as well as to modernize the Caspian Sea port at Turkmenbashi.

None of these undertakings are likely to bring rapid results, however. The current flight of international capital from emerging markets that is keeping firms and governments in Russia, Ukraine, and other CIS countries from floating bond issues is unlikely to leave unaffected securities emitted by a government that has shown little interest in reform. And while Turkmenistan’s vast gas riches could still be the ticket to long-run prosperity, Ashgabat’s medium-term inability to ship its gas through pipelines not controlled by either Russia or Iran continues to be a major constraint on the country’s economic prospects. Turkmenistan’s financial coming out may therefore be premature.

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