Systemic crisis in Azerbaijan

Today we see that something is happening in the governance of the country. Certain management structures are being modified, some are being eliminated, new ones appear, some steps are being taken to humanize management, changes are made in the appearance of the regime.

But there is still no serious discussion in society about what is happening and what is it connected with? Some observers believe that all this is only showing home, and others argue that these are serious structural reforms. In my opinion, the truth is somewhere in the middle, and one cannot say that this is a "completely nonsense".

My first thesis is the answer to the question "why is this happening?".

I think this is a loyalty issue. For a long time in Azerbaijan loyalty was initially based on ideology. The ruling Yeni (New) Azerbaijan Party (YAP) does not have a serious ideological basis for attracting people. Since the 1990s, the only justification for the policy of the authorities was based on the personality of the party leader, Heydar Aliyev: the country collapsed, but Heydar Aliyev came and saved it.

It was not an ideological platform, the population was not clearly explained the party goals, objectives and methods for achieving them, loyalty was ensured by faith in the infallibility of the party leader. Therefore, after the death of Heydar Aliyev in 2003, there began problems with loyalty. However, at the same time, the country began to receive large oil revenues, and the new president began to buy the loyalty of the ruling elite and the sympathy of the population for money. Loyalty to the government and the president moved to the material level.

For many years, in the period of big oil money there were no problems with loyalty. In 2008, the state budget was just over $ 9 billion; that year the country received about $ 21 billion, that is, by 2.5 times more than the state budget. The presence of this money easily solved the issue with loyalty. Big money was spent on maintaining the loyalty, so to speak, of the old team of the father of the current president. This team strongly emphasized its need - we brought you to power, we keep it, so you must pay us.

This lasted until 2014-2015 - the moment of a two-fold drops in the country's oil revenues. Paying big money to the old team was no longer possible.

In 2015, an attempt was made to create a second ruling party and put the ideological base under the regime's policy. But this initiative, although it was associated with the name of the first lady, was weak, and its initiators were weak. The old father's team stopped this conversation as soon as possible.

This continued until the 2016 referendum, but then the topic was closed. In my opinion, the 2016 referendum was an important transitional moment in creating a new management system for the ruling family. The main purpose of this referendum was the extraordinary strengthening of the power of the ruling family and the restriction of opportunities for other clans. Most likely, the meaning of the new structure was the division of powers through the institutions of the vice-presidency.

Therefore, an absurd decree was issued on the admissibility of several vice-presidents, whereas in most cases there was only one vice-president in the world. But, apparently, it did not work, and serious problems arose within the system.

When the first vice president was appointed in 2016, I myself was subjected to the greatest criticism, since, not having read all my interviews about the creation of the post of vice president, everyone seized my one phrase "why not" and I was sharply criticized. But the whole phrase sounded like this: "if this appointment serves a split, or a clash or confrontation in the ruling elite, then there is no problem in formal de jure, something that already existed de facto, why not, let this problem grow ".

The president was either explained, or he himself understood that the old way of buying loyalty is too expensive. Why should Kamaladdin Heydarov have 5 billion, and Ziya Mammadov 3 billion manat with the resulting opportunities? After all, loyalty can be bought cheaper.

When it was found that the traditional structures affected by corruption could not be reformed, an interesting process of creating parallel efficient management structures began. It all started with ASAN Service. Its creation was necessary, and nothing more. A structure was created that provided us with better service for our money. For example, last year the ASAN Service collected about half a billion manat. We pay and we are served. All this money now goes straight to the budget past the corrupt oligarchic system.

But that was only the beginning. Then it was decided, in general, for the entire management system - to abandon the oligarchy and replace it with the system of CEO, that is, the system of managers. Thus, the start was given to acquiring loyalty at lower prices and to attracting professionals to this business.

For example, it was revealed that the former minister of taxes had $ 2 billion and he had an extensive business network, but taxes were collected poorly. But the current minister, the manager, is paid a certain large amount in the form of a "black salary" every month and he is no longer engaged in business. CEO system provides cheaper loyalty.

Last summer official statements were made about changes in the tax legislation, fundamental changes were expected, but they did not happen in the way that small and medium businesses expected. The old guard urged the president not to introduce a new simple and efficient tax system. The draft tax reform proposed by me through the media and social networks, and supported by some representatives of the CEO group, was adopted, but distorted beyond recognition. The goal here was to not allow the business to free itself from the dependence of the officials.

Why did this happen?

In my opinion, there is no team under the name of Pashayev, this is a myth, this is the team that Ilham Aliyev himself wants to create under the Pashayev brand. Tired of his father"s team, he creates his team under the Pashayev brand, and tries to kill two birds with one stone. He himself acts as a moderator, that is, shows that he has nothing to do with it, and when a serious problem arises, then he intervenes as a moderator.

The old team told him that if the business becomes independent and starts working according to the law, then it will be impossible to curb it. Further, these independent businessmen will inevitably begin to influence political processes and this will not end with anything good.

There is a second, more serious question. All of us in Azerbaijan know that the loss of positions does not mean only the dismissal of an official from his post, but the loss of all the funds accumulated by him. The old team wants to end this practice, wants to have some legitimate institution, for example, the second vice-president, their man, who will receive legislative authority. (By the way, the first vice president does not have any special powers other than the right to represent the country during international negotiations).

So, now the old team wants a second vice president to appear, and he must be from Nakhichevan, it must be their man, who will receive the authority to control law enforcement agencies.

This was one of the reasons for not adopting changes in tax legislation. If it were adopted in the first version, today in Azerbaijan there would be the most progressive tax system among the post-Soviet republics, even better than in Georgia. In Georgia, the income tax is 20%, this is a high figure. True, M. Jabbarov and his team were wary of the fact that in the first six months or within one year the amount of taxes could be reduced. Yes, there was such a possibility, but I think that we should not be afraid of it. If everything is systematized, sustained only a year with the support of President I. Aliyev, then in 2020 the amount of taxes will increase by 30-40%. If it now stands at 7 billion, then in a year it would be equal to 10 billion.

But this did not happen. The president was told that there would be serious reductions in the amount of the tax collection of about 3 billion manat, and in the end, the business would start developing independently of the bureaucracy.

But soon the country will face the increase of debt burden. It is still difficult to predict what the price of oil will be, but if its price drops to $ 50, then serious problems will arise with the budget, larger than in 2015-2016, because the budget is now again inflated. Production decreases, there are serious problems with gas, because Azerbaijan has got into big debts and since mid-2020 loan payments will increase, the peak of which is expected by 2024.

Another my thesis about the ongoing transformations is that the steps taken do not lead to changes in management. This is one of the important points. The question is that these changes are not yet institutional. So far there are only streamlining and reduction, not reform. They reduce the budget burden" and get rid of most of the deficit due to shifting it on the shoulders of the population. This is done because the government cannot collect taxes from the population. And so a decision was made to impose the population not with direct, but indirect taxes. For example, the established agency "Dost" in practice renders paid services to citizens - namely, those that the state should provide to citizens for free.

Further. Nowhere in the world customs collect VAT. But our officials think so - if at the border we don"t do it, then after all you don"t collect them. But this is absurd! Now, on the border a businessman must pay 18%, and then it is assumed that he himself will deal with customers. The Chairman of the Customs Committee proudly said that in such an absurd way they collected by one billion manats more than the funds provided. Business is suffering!

On the one hand, the government is trying to improve the budget in an absurd way, and on the other hand, they want to create management structures with a human face.

Since the events are not complemented by changes in the political and legislative sphere, all current changes in management may disappear overnight.

The old team can form an influential political coalition against reforms and ruin all the changes already undertaken. Tension within the power is strong, and it increases.

But I see that this internal friction has a deadline. It cannot last long. For me, the deadline is likely to be parliamentary elections. But I do not know whether this election will be regular or extraordinary, whether they will be held this or next year.

Let's sum up

So, to close the gaps in the budget resulting from the sharp drop in oil revenues, the president wants to abandon the old oligarchic system and seeks to move to a system managed by highly paid, qualified managers. Is this good or not? In my opinion, in our case, any changes are good! For us, in the already 20 years of being in the swamp "stability", any changes in themselves are already a positive factor.

Will this lead to an improvement in the situation? There are a lot of questions.

I will say, but certain steps of the president already cause serious opposition from the old team. Last year at about the same time, very serious poisoning by cotton pickers was observed in six districts associated with pesticides sprayed on cotton fields. It turned out that, in contrast to previous years, when subsidies provided for agriculture were transferred to the heads of the executive power (YV) of the districts, while they, having pocketed, almost half of these funds, distributed money to cotton pickers. But this time, the young Minister of Agriculture began to transfer money to the personal bank accounts of farmers and the heads of the executive power of the districts were left with nothing; poisoning began, and the nationwide scandal broke out. Those responsible for these poisonings were punished and the new way of distributing the money to the cotton growers continues. Still, something is changing for the better.

I would like to note that the negative side of the CEO system for the democratic opposition is that some improvements in management will have a positive effect on the stability and image of the current authoritarian system. I do not know for how long. In the meantime, the authorities have such a plan - for a long time the president was deified, now he is being humanized.

Natig Jafarli, expert economist