Turkmenistan's president Niyazov, or Turkmanbashi (Father of the Turkmen) as he has increasingly insisted on being called, has spoken of his country becoming the next Kuwait after its independence in 1991, with the state funding a high standard of living, a comprehensive welfare program, and industrial development from the invested proceeds of state-owned natural gas, oil and cotton operations. To date this vision has founded on Turkmenistan's geographical and political isolation from hard currency markets for its exports, a position that help produce, after an initial soft landing in 1992, to produce a sharp decline in economic activity, hyperinflation, and increasing external debt 1993 to 1998. Although official statistics show double-digit growth since 1999 and inflation reduced to a single digit by 2001 (6%), there is skepticism about the reliability of these statistics that the government treats like state secrets. The country does not submit economic information to the scrutiny of the IMF, which it has avoided by avoiding balance of payments problems (though not without difficulty judging from the harsh measures, including gas cut-offs, it has employed to get delinquent country's to pay their gas debts).
Turkmenistan's relatively well-educated population and natural resources provide a promising foundation for the growth of a diverse set of industries. The government's transition strategy consisted of three overarching principles: a gradualist (not big bang) pace to privatization and liberalization, a leading role for the state in developing the economy, and the maintenance of a full array of welfare supports to minimize the human costs of the economic transition. It is within these constraints that the government has pursued goals of food self-sufficiency and economic diversification.
The guiding principles of this program were detailed in a formal document in early 1991 calling for a series of legislative, fiscal, and monetary measures related to price controls, privatization, and industrial infrastructure development. More specific measures followed, including new laws on privatization and foreign investment adopted in 1992, price decontrol measures taken the same year, adoption of a value-added tax and other tax reform, and measures taken in 1996 and 1997 to control the growth of money supply. Under the liberalized property regime, leasing arrangements have expanded in both the agricultural and industrial sectors, though estimates are that as of 2002 there are no more than 100 private farmers in Turkmenistan. The leasing or purchase of individual enterprises by workers is favored by the current legislation, although land, water, and the oil and gas industries are excluded from the possibility of outright purchase by private individuals or companies. Public money and foreign exchange earnings have been used to establish textile and garment manufacturing plants, often as joint ventures with Turkish partners. The share of the textile sector in total industrial production has increased since independence from about 11% to about 26%, and the percent of Turkmenistan's cotton production processed domestically instead of exported has increased from 3% to 35%. However, it is difficult to judge the competitiveness of these state-supported enterprises. Overall the gradualist pace in privatization has left over 90% of the economy by value under state control employing about 80% of the work force. Most medium and large industrial enterprises continue to run on the basis of centrally planned state orders and resource allocations, although there has been a substantial amount of privatization among small enterprises and in the service sector.
Following the government's expressed commitment to minimizing the negative impact of post-Soviet economic restructuring on the population, the terms for Turkmenistan's social safety net are more generous than many other former Soviet countries: allowances for large families, social security payments, and pensions have all been increased substantially since 1992, and as of 1993 all citizens were to receive free electricity and free water. Potential fiscal imbalances resulting both from these increased expenditures and the end of transfers from the Soviet government have thus far been avoided by increased profit transfers from key enterprises, export duties, and a variety of smaller revenue sources. Twenty-nine percent of the 1992 budget expenditures was allocated to price-differential subsidies paid to retail agencies required to sell food and medicines below wholesale prices. Capital expenditures claimed a further 12% of total expenditures while combined social and cultural expenditures allocated to education, health care, and social security totaled about 30%. In 2002, an estimated 80% of the government 's budget is spent reinforcing the social welfare safety net. The Asian Development Bank (ADB) reports that the number of people in absolute poverty to be negligible in Turkmenistan.
Historically, landlocked Turkmenistan has depended on imports for most its food. Although there has been marked improvement in the government's prime target of wheat production since independence—total grain production, including wheat, rye, barley, corn, rice and miscellaneous grains, was 776 metric tons in 1992 whereas wheat alone had attained the government target of 1.2 metric tons by 1998—the goal has not been fully met. In recent barter deals with the Ukraine over past gas debts Turkmenistan has contracted for shipments of Ukraine wheat and sugar. In early 2002, the president backed away from a planned announcement that food self-sufficiency has been achieved, and in mid-2002 called on party officials to lead the way in pressing towards the goal by planting uncultivated hectares with wheat in their own estates.
A five-year production and investment plan set out in 1992 proposed large investments in the development of infrastructure and the energy sector financed by tax receipts and foreign exchange receipts from gas and cotton exports. The budget for 1993 included financing for projects to expand grain production and cotton processing. Under the government's central planning approach to economic development, the ambitious targets set have often not been met. The most recent setback was in 2002. Though the figures are disputed, annual cotton production was reported to have risen to a record 1.3 million tons in 2000, falling back to a still-substantial 1.03 million tons in 2001. The records reflected increased productivity, as the amount of land under cotton cultivation actually decreased. As a step in a long-range plan to achieve annual production of 3 million tons by 2010, the government set the goal of 2 million tons for 2002, an almost 100% increase. Incentives were given only to the more productive farmers, with actual decreases in the total area given to cotton and the amount of cotton seed made available. 2002 was an unusually wet, however, which caused some of the seed to rot in the ground and later impeded cotton picking. The result was a harvest of only 500,000 tons, one-fourth the official target and the lowest since 1996. In November 2002 the president, blaming "incompetent, irresponsible and dishonest" officials, removed many from office including a deputy prime minister, the minister of agriculture and four regional leaders. In allotting its reduced cotton production, the needs of the newly expanded domestic industry appear to be given priority over exports, although raw cotton is an important foreign exchange earner.
The key to Turkmenistan's economic success rests on securing development finance through the exploitation of its natural gas resources. The completion of the Korpezhe-Kurt Kui Pipeline to the Iranian gas pipeline system in December 1997 plus restored access to Gazprom's pipelines in 1998 laid the basis for the economy's first return to growth since independence in 1999.
In 1998 the government restructured its oil and gas industries into several state-owned companies to better attract foreign investment. Progress has been made on two other gas pipeline schemes: the Iran-Armenian pipeline that would allow Turkmenistan to deliver its gas to Armenia, and the Trans-Afghanistan Pipeline (TAP), that, as originally envisioned, would pipe Turkmenistan gas across Afghanistan to Pakistan. Neither, however, is free of economic and political problems. Armenia remains a poor and uncertain market, particularly, as a source of hard currency, plus it is not clear if the arrangement would be exempt from US sanctions against countries dealing with Iran. In February 2003, representatives of the three main participants in the TAP project attempted to persuade India to agree to be the final terminus for Turkmenistan's gas apparently on the realization that neither Afghanistan nor Pakistan could, under present circumstances, provide markets large enough to justify the $2 billion to $3.5 billion cost of construction. India refused participation because of its conflicts with Pakistan. Later in the month, in another blow to the project, the Afghani negotiator, its Minister of Mines and Industries, Juma Mohammad Mohammadi, died in a plane crash with four other Afghani officials as their light aircraft went down flying over Karachi. The three main participants set their next meeting on the TAP project for April 2003 in the Philippines. For oil, Turkmenistan's third major export earner, the president has announced a 10-year program to reach an output of one million barrels per day in 2010, up from only 159,000 barrels per day in 2001. The US Department of Energy currently forecasts Turkmenistan's oil production level in 2010 at only 200,000 barrels per day.