When Turkmenistan was part of the USSR, the Soviet regime developed the republic to supply the raw materials of natural gas, oil, and cotton. These materials remain the foundation of Turkmenistanís economy. The focus on raw material extraction left other sectors of the economy underdeveloped, as most of the raw materials were shipped to industries located outside the republic. Turkmenistan was the poorest republic of the USSR, and little has changed since independence. The government retains tight control over many aspects of the economy. While various reforms have been announced, actual movement toward becoming a free-market economy has been limited.
The emphasis on raw material production initially cushioned Turkmenistan from severe economic disruption following independence. This was in contrast to other former Soviet republics, where industrial collapse created sharp declines in national production. The ability to sell natural gas for the first time at world prices and the countryís stable agricultural output actually increased Turkmenistanís revenues. However, by 1993, increases in the costs of imported food and consumer goods forced Turkmenistanís government to raise prices, creating one of the highest inflation rates among the former Soviet republics. Turkmenistanís neighbors fell behind in payments for natural gas, which led to production cuts. The countryís gross domestic product (GDP), which measures the value of goods and services produced, began to fall. In 2000 GDP was an estimated $4.4 billion.
Economic dislocation from market reforms, however, was minimal, as the government was slow to alter Soviet-era economic structures. Most economic activity in Turkmenistan is still state controlled, except in the services sector, where the government has implemented privatization. In the mid-1990s Turkmenistanís government announced a series of privatization initiatives, targeting large enterprises, transportation, and agriculture. The government intends to retain control over the production of cotton and energy, although it is seeking outside participation to develop these resources.
Turkmenistanís economy is predominately agricultural, with cotton as its primary crop. Cotton alone is responsible for nearly one-fifth of GDP, and Turkmenistan is among the worldís top producers of the fiber. In some ways, however, the country is ill suited for cotton production. To grow cotton in Turkmenistanís dry climate requires diverting great amounts of water. The irrigation canals built during the Soviet era to divert river water to cotton crops are considerably responsible for drying up the Aral Sea. Intense use of pesticides and fertilizers to boost cotton production is also suspected of damaging the nationís health. In recent years, Turkmenistanís government has encouraged some shift away from cotton cultivation, with the goal of diversifying crops and achieving self-sufficiency in food production. Other crops grown in the country include wheat, vegetables, and fruit. Livestock raising is also important, especially Karakul sheep, horses, and camels. Large state and collective farms still dominate the agricultural sector, and the government determines crop mix and prices.
The principal industry in Turkmenistan is the extraction of natural gas and oil. The country also produces important industrial minerals, including gypsum, iodine, bromine, sulfur, and salt. Turkmenistan is the second largest producer of natural gas among the former Soviet republics (after Russia). The gas deposits are located along the Caspian Sea coast and in the northern and eastern sections of the country. Energy products, primarily natural gas, are the largest export item. The Turkmenistan government has launched several large-scale ventures involving foreign partnerships to explore, develop, and export natural gas. The countryís leadership also has proposed building several new pipelines as a way of achieving economic independence. Turkmenistan's gas and oil is currently exported through Russian-controlled pipelines, and Russia refuses to allow exports to countries outside the former Soviet Union. In 1997 the first new pipeline opened, connecting gas fields in Turkmenistan with northern Iran. Aside from the production of fuels, industry in Turkmenistan is limited mainly to food processing and textile production.
Turkmenistanís involvement in international trade has been limited by the countryís geographic isolation. However, in 1996 a new railroad opened, connecting Turkmenistan with Iran and thereby the Indian Ocean. Because the new section connects with the former Soviet railway grid, it will significantly reduce travel time by rail between Europe and Southeast Asia.
In November 1993 Turkmenistan introduced its own currency, the manat, to replace the Russian ruble (3,000 manats equal U.S.$1; April 1996). In 1992 Turkmenistan became a member of the International Bank for Reconstruction and Development (World Bank), the International Monetary Fund (IMF), and the European Bank for Reconstruction and Development (EBRD).