The "sandwich" pleasure of our economy

Victory in wars is not won only with tanks, artillery, and weapons. It is achieved through diplomatic success, information dissemination, and economic power. Diplomacy is the art of making friends. Military power occurs when you cannot make friends. If weapons begin to speak, the state must find ways to crush the enemy. First of all, you must disrupt the moral and psychological state of the enemy. You need to damage its self-confidence. You must present the enemy in the guise of the devil inside the country. On the other hand, until you force the enemy into an act of capitulation, your multi-vector (diplomatic, informational, economic, etc.) war doctrine must be in your hands. Because the occupation has not only political and military content. It is more about exposing the enemy to economic expansion.

When Napoleon was asked how to win the war? He answered: money, money, money!

From this point of view, Azerbaijan is not only superior to Armenia in the war zone but also shakes Armenia economically. It keeps Armenia under economic pressure. As a resource economy, it spends money on military operations at the expense of big oil money.

As if Azerbaijan's economy is English nobleman John Montagu and Armenia is a sandwich made by John Montagu’s chef. Azerbaijan's economy "eats" Armenia by squeezing it like a "sandwich" (a dish containing a piece of meat and vegetables) so as not to get its hands oily. However, what the 4th Earl of Sandwich, who lived 18th century, did with pleasure, we now do as if we drink water. How? Let me try to explain. Considering the main macroeconomic indicators of both countries, it is clear that the Azerbaijani army has a serious and fundamental basis for winning the war.

First, the volume of GDP: 75% of the GDP of the South Caucasus falls only on the Azerbaijani economy. The economies of Armenia and Georgia only have a quarter share.

The Armenian economy is a limited economy. Prior to the war, the country had fallen far behind due to the coronavirus epidemic. Such that in May alone, compared to the same period last year, there was a 12.6% economic downturn. If we add the losses of the war to it, it is not difficult to predict the extent of the economic decline. According to the forecasts of the European Bank for Reconstruction and Development (EBRD), the Armenian economy will shrink by 5% by the end of this year, and according to the latest forecast of the IMF (October, World Economic Outlook report), it will shrink by 4.5%. For comparison, this is the largest decline since 2008.

If we compare the GDP of the two countries in 2019, we can clearly imagine the scale of the economies. According to the World Bank, last year Azerbaijan's GDP was $ 48 billion, while Armenia's was only $ 13.7 billion. It is true that the GDP per capita in Azerbaijan exceeded only $ 500 ($ 4.7 billion in Azerbaijan and $ 4.2 billion in Armenia). But in terms of GDP, Azerbaijan is 3.5 times larger than the Armenian economy.

Wars are won by weapons, and weapons are bought by powerful economies that can buy them.

Second, the state budget: According to the budget parameters of this year (2020), the revenues of the state budget of Azerbaijan were $ 14.1 billion, while the revenues of the Armenian budget were $ 3.5 billion. This means that our budget revenues are 4 times higher.

Azerbaijan's defense expenditures ($ 2.2 billion) alone are more than half of Armenia's total budget expenditure (1.8 trillion drams or $ 3.8 billion). This year alone, Azerbaijan's defense expenditures have exceeded 3.8 billion manats. This means that we allocate 12 manats for every 100 manats annually for defense expenditures. If we analyze the last 5 years with reference to the figures, we can see that our country's defense expenditures have doubled. By directing some of this overwhelming fiscal potential to defense expenditures, we can seriously break the resistance of Armenia. With such economic potential, Armenia can be both economically expanded and crushed like an ant on the battlefield. Armenia's prime minister, who has a little pragmatic thinking, must understand that a country should not spend its limited resources against a country like Azerbaijan, which has an incomparable potential economy. It is wiser to give what they will dispossess you of sooner or later quickly.

Foreign debt: The large sums of money that Armenia spends every day in the war do not come from its sustainable financial resources. It is due to the fact that it borrows more from international financial institutions. Because the country's economy does not have dynamic financial resources. If the flow of investment and aid stops, the engine of their economies will be as if extinguished. As a ray of hope, foreign borrowing comes to their rescue again. Armenia is the country with the largest foreign debt among the countries of the South Caucasus, not in terms of amount but in terms of ratio in GDP. The country's foreign debt is estimated at $ 5.7 billion, which is more than half of Armenia's GDP. So, from the point of view of the World Bank's creditors, it means that Armenia has exceeded the critical threshold for foreign borrowing.

Foreign exchange reserves: The foreign exchange reserves of a limited country like Armenia are so symbolic that it is impossible to reconcile it with the name of one state. It has a total of $ 2.6 billion in foreign exchange reserves. In developed countries, the liquidity of medium-sized companies is often as much as this amount.

The reserves of the Oil Fund of Azerbaijan ($ 50 billion) are about 20 times larger than Armenia. Since the beginning of the war (September 27, 2020), the atmosphere of internal dynamism and confidence in the Armenian economy has also been shaken. International rating agency Fitch downgraded Armenia's credit rating (“BB -” “B +”) a few days ago. Factors such as the pandemic, the money spent on the war, the economic stagnation, etc. will be the reasons for the rapid "melting" of foreign exchange reserves.

Economies that war will weaken and collapse

The economies of both warring countries will go backward. In this war, there will be no party of which economy will be strengthened. Because both sides on the battlefield are directing their revenues and resources in a militaristic direction. Both countries either buy military weapons for war or bought them back in the days. Both countries, which are strengthening the military-industrial complex at the expense of the state budget and extra-budgetary funds, are also depleting their resources.

Azerbaijan is waging a patriotic war to liberate its lands, and Armenia is spending resources to keep hold of the lands it has seized. Azerbaijan's economy, raw material reserves, foreign exchange reserves, etc. While Azerbaijan's economy has the advantages of raw material reserves, foreign exchange reserves, etc., Armenia's economy struggles in a disproportionate competition with a limited economy, non-existent natural resources, and symbolic financial reserves. Even if this war lasts not a few months but a few years, Azerbaijan's economic "respiratory system" will be able to reach a long-term finish. Armenia, with its limited economy, can take a stand against us for several months.

According to the international rating agency Fitch, Azerbaijan may lose $ 10 billion in this war. Azerbaijani Minister of Economy, M. Jabbarov, said that the war has the country's economy lost 120-150 million manats. Azerbaijan's losses for this war should not be considered a loss in the literal sense. What it could gain should be considered a loss. What funds it could earn but cannot earn is not a tragedy. Azerbaijan will gain a lot when it will regain Karabakh. Therefore, in the losses of Azerbaijan and Armenia on the battlefield, our losses are replaceable and compensable, and the losses of Armenia are wasted losses. Azerbaijan's economy will be weakened after this war but Armenia's economy will collapse.

Azerbaijan can win the war and rebuild its economy by spending money on strategic foreign exchange reserves. If Armenia also spends the limited reserves at the bottom of the "bag", it will be more like the case of a patient who has died clinically. I remember a thought-provoking proverb that characterizes this situation: “Until the thick one wears thin, the thin one is torn to pieces.”

Mohammed Talibli