February brought down manat

In February economic life was almost entirely focused  on devaluation of Azerbaijani manat by 34%.

There was nothing unexpected in the fact of devaluation itself, because it has been expected by the experts.  In some cases devaluation of national currency reflected weakness of the economy, in other cases  it has become a reaction to the situation in the countries, which are Azerbaijan’s trade partners. We have written repeatedly that devaluation by itself is neutral, it is just one of the instruments of economic policy. But if the government wises a wide-scale devaluation, then the economy must be ready to it to use its results efficiently. Stimulation of export with help of devaluation is possibly only when the country breaks into the world markets with competitive products. With dominating export of oil and oil products, a sharp devaluation of manat is unable to support diversification of economy and stimulate local manufacture, said economist Azer Mehdiyev. The current decision on devaluation was first of all dictated by the budgetary problems and secondly supported some positions of the country in the foreign trade.

In Azerbaijan devaluation was perceived almost as a catastrophe. This is a direct consequence of lack of immunity to the negative economic factors. However, there appeared to be  many victims of devaluation and first of all citizens have credits in USD. The rating agencies evaluate influence of the deflation on activities of big monopolies, such as State Oil Company of Azerbaijan (SOCAR), Azerenerji and Azerbaijan State Railway. The customs duties will not go down, because they have been based on the USD.

The society was concerned not with the fact of devaluation, but with the inflation expectations. The prices went up, despite the fact that devaluation does not lead to increase in the inflation rate. With the deflation of 50%, prices in Russia have been going up three times slower. The economists claim that the deflation component of the inflation makes no more than 10-15%: not everything is imported into the country and not every company will immediately buy imported equipment. But the prices went up anyway.

The society was in panic the entire month after the devaluation has been announced. Purchase of foreign currency has significantly increased. The National Bank had to close ten exchange points, which independently fixed the purchase and sell rate of the currency. General Prosecutor’s Office has started investigation of the currency speculations. The first wave of growing prices for food products has been kept back by the administrative control of the Ministry of Economic and Industry. Meanwhile, price of cigarettes (this market is very monopolized) has gone up by 30-60%, but went down a little later. However, on March 1 it was legalized as a result of rise in excises for alcohol beverages and cigarettes.

Devaluation has brought on motion the economic community of the country. The Movement for Democracy and Prosperity has organized the conference “Evaluation of Influence on Azerbaijani Economy and Expected Results of Manat Devaluation.” Participants of the conference have tried to evaluate tall risks of manat devaluation for the economy. The Conference has adopted the resolution with nine concrete recommendations to the Cabinet of Ministers and CBA. CBA has been recommended to revise the regulations of currency transactions, prevent speculations by the banks and currency exchange points, regulate deposits and credits interest rates, expand infrastructure of cash free payments and correct the statement about monetary policy and financial stability for fiscal year 2015. The Cabinet of Ministers has been recommended to take measures to keep back rise of prices, create environment favorable for investments, prevent unjustified interference of the  government into business and expand anti-monopoly activities. But the idea of the Expert Council of Independent Economists will hardly be supported by the government.

Real movement believes that the first step of the government should be elimination of monopoly of imported goods and creation of conditions for normal foreign economic activities of all business subjects. The government must reduce or temporarily cancel import taxes of food products. This is also applied to the products, which are mainly imported by the country. It is also recommended to accelerate the country’s joining World Trade Organization (WTO).

The Ministries try not to stay behind in the anti-inflation struggle. Agriculture Minister Heydar Asadov has gathered together representatives of the companies importing fertilizers. He said that the cost of fertilizers will not go up, they will be sold to the regional branches of Agroleasing with 70% discount and there will be a single price. Several days later he has brought up the issue of improving crop capacity in agriculture. The State Seed Fund will be created by the presidential decree.

The scale of devaluation was much wider in Russia. All methods have been used to hold back inflation. The Russian Finance Ministry has determined the ruble devaluation as the end of the Dutch syndrome, which as liberation from “oil addiction.” This position is understandable and it bears some relation to our economy. The Russian financial officials are mainly liberals. Minister of Finance Siluanov has clearly formulated the goals of the next stage of development: “We need to transit from the current paternal and re-distribution economic model to the model based on creation of a new added cost. If we reduce the government’s demand, there will be new possibilities for reduction of inflation and the key rate, which will stimulate private demand.” This is appeal to the structural reforms in the economy and involvement of economically active population of the country into the struggle against crisis.