The Choice between Democracy and Major Loans

The European Bank for Reconstruction and Development has suspended issuing loans to Turkmenistan due to the country's precarious human rights situation. That's unlikely to bother its autocratic president. By Christiane Hoffmann

Over the past 12 years the European Bank for Reconstruction and Development (EBRD) supported large state projects in the Turkmen shipping and textile industries and allotted funds to help rebuild an oil refinery. In 2003, it granted Turkmenistan $500 million (€416 million). But those times are over.

Relations between the EBRD and Turkmenistan reached an all-time low in July, when the bank notified President Saparmurat Niyazov in a public letter that it had revised its strategy for Turkmenistan and would freeze all loans to the country until reforms to develop democracy and a market economy were undertaken.

"We are seeing massive problems with the protection of human rights and the rule of law," said EBRD Secretary General Johnny Aakerholm. "In the economic sphere, the authorities interfere greatly in the private sector, and we see that the monetary system functions poorly."

The situation is unlikely to change anytime soon, according to Paul Georg Geiss from the German Institute for Middle East Studies. President Niyazov isolated the Central Asian country, ordered the arrest of the entire opposition two years ago and even his own ministers fled into exile, Geiss said.

No sweat off Niyazov's back

But the EBRD's suspension of loans for state projects will hardly irritate self-proclaimed "Father of all Turkmen" Niyazov.

"I think the effect will be relatively remote, since Turkmenistan in recent years achieved restructuring that has led to economic growth and disengagement from international financial aid in exactly the economic sphere that earns foreign currency," Geiss explained.

The foreign currency stems from natural gas, textile and petrochemical exports, which make up for the 11 percent economic growth the country currently achieves, according to the EBRD.

But the five million Turkmen, particularly those who live outside the capital, Ashgabat, hardly profit from the growth. The money from oil sales is paid into accounts controlled by the president. Those funds were largely employed to develop the capital, Geiss said.

Small and medium-sized companies under pressure

Indeed, the president is afraid that small and medium-sized companies could threaten his grip on power if they gain in strength, according to Geiss. Niyazov saw to it that Turkmen entrepreneurs were hindered from carrying out their own business and discriminated against in favor of Turks who the president recruited to do business in the country.

Thus, the EBRD's plan to devote support exclusively to small and medium-sized companies until the government reforms both the political and economic spheres doesn't appear promising in view of Niyazov's autocratic practices.

Since the president dismisses cabinet members and government officials every six months, effective work is impossible, let alone reforms, which Niyazov opposes anyway. He remains unshakably entrenched in his position, without any alternatives on the horizon, Geiss said. On the contrary, the German added, the young country is likely to collapse if Niyazov were to leave office.

Christiane Hoffmann