Institute for War and Peace Reporting | Giving Voice, Driving Change

Oilmen Strike Over Exchange-Rate Change

On June 11, foreign media reported that 600 workers on an oil rig belonging to the Italian company ENI went on strike in Nebitdag in the west of Turkmenistan.

The protest was dispersed by paramilitary units of the interior and national security ministries, and 62 arrests were made.

An NBCentralAsia source in the western Balkan region where Nebitdag is located confirmed that similar stoppages took place “at every single foreign company working on the Caspian shelf, and at the construction site of the Avaza tourist zone”.

The strikers were demanding pay rises to restore the purchasing power of their wages following the introduction of a new exchange rate.

Although local staff should by law be paid in Turkmen manat, most foreign oil companies pay their workers in US dollars.

As one oil worker explained, “This benefits both sides, because we always exchange our money on the black market.”

Until recently, access to US currency was highly prized as it could be used to buy manats at many times the normal official exchange rate of 6,250 to the dollar, using either the black market or the commercial bank rate.

The rate was disadvantageous for the average person paid in manats who wanted to buy dollars, but a bonus to anyone lucky enough to work for a foreign company. For example, a monthly salary of just 200 dollars would translate into 46-48 million manats at the commercial bank rate, a comfortable income for a family.

After a phased shift in the exchange rate, the government imposed a single rate of 14,250 manats to the dollar from May 1 – good news for manat-earners, bad for those paid in dollars, like the oilworkers, who found their purchasing power cut in half.

The change is designed to ease the way forward to a re-denomination next year, when three zeros will be removed from the face value of Turkmen banknotes. It has had the more immediate effect of wiping out the black-market currency trade, since the new rate represents such a devaluation of the manat.

NBCentralAsia analysts say the strike by dollar-earners shows the skewed nature of Turkmenistan’s economic system, where many firms pay staff in foreign currency but submit their official accounts in manats.

“It is bad for budget revenues, because the government misses out on [undeclared] income tax month after month,” said one analyst in Ashgabat.

“On the one hand, the authorities artificially strengthen the manat; while on the other, they break their own laws by allowing foreign companies to pay wages in foreign currency. If these are real reforms, the government should now review all its contracts with foreign companies.”

Annadurdy Khajiev, a Turkmen economist based in Bulgaria, said private companies should have reviewed their internal pay policies and index-linked their wages. He suspects that foreign firms avoided doing this as it would draw attention to the practice of paying wages in dollars, which is technically illegal.

Analysts believe the authorities should have foreseen the social implications of embarking on such a radical shift in monetary policy, and taken steps to cushion the blow for vulnerable groups.

A cook employed at a foreign embassy in Ashgabat explained the impact the new exchange rate was having on her, “When I was getting 300 dollars a month and exchanging it on the black market, I lived well – I could buy domestic appliances, help my aged mother and send my child off to summer camp on the Caspian Sea. Now all that has become unaffordable.”

(NBCA is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service is resuming, covering only Uzbekistan and Turkmenistan for the moment.)