The government failed to prevent Holland disease

The time of high oil prices can hardly be called a happy period in the Azerbaijani economy. The economy kept on growing and did not fall under a fall influence of this economic disease, in particular, the measures to sterilize oil dollars have been successful. The population living standard has significantly increased since the 1990s. However, for a long time  the government paid little attention to the non-oil sector: the government resting on the oil revenues failed to avoid many consequences of the “Dutch syndrome.”

The oil money numb economic initiative and deprive the economy of the “searching activity.” The wastefulness and inefficiency of economy became more obvious. One even does not want to use the same old words: monopoly, corruption and suppression of competition. In the past several years the authorities attempted to restore the non-oil sector of industry and rid the export of the oil dependence. The attempts are also taken to re-industrialize the economy, industrial zones and quarters are created. On the other hand, we have lesser funds to support such initiatives, because the oil revenues are going down. Skeptics say that the golden time for reforms in the economy has been missed.

In other words, the problems, which in the past were “covered” by the oil dollars, let themselves know openly. Some of them are not directly related to the economic policy of the authorities. As far as the oil and gas market is concerned, there is no government’s fault here:  difficult processes at the world oil and gas market were hard to predict. However, one should not have delayed upgrade of the oil refining industry.

During one third of the years GDP growth (5%) was the same as in 2008. When looking up close, one can see that the growth has happened at the expense of comparison of this index in comparable prices. In the money terms GDP index was going down (see Attachment). The investments went up, but this is to a great degree related to implementation of the oil projects. The crisis is noticeable in all sectors of economy. Central Bank of Azerbaijan (CBA) said that in quarter 1, 2015 the monetary policy was pursued in accordance with the new factors arisen in the payment balance and at the currency market. The balance of payment was getting worse. The entire exchange rate policy was aimed at strengthening of the strategic stability and international paying capacity of the country. CBA has been working on introduction of new operation frameworks of the monetary policy. The statement also reads that in quarter 1, 2015 the country has a one-digit inflation rate and the prices for the main consumer products remained at the acceptable level.

The main question in the current situation in the economy sounds simple. Is it undergoing system crisis or are these just temporary difficulties, which could be overcome? It seemed that Russia had the similar situation. When the crisis started there at the end of last year the economists have come to conclusion that slump of oil prices has just triggered the crisis. The economy was going towards the crisis, because it lacked reforms. When it comes to politics, one can speak about a special spirit of the society. But this is not applied to the economy. Its laws are inevitable. There are signs that the economy is entering the system crisis.

The society was literally agitated with huge credits, which the so called “credit oligarchs” took from IBA. Action has been brought against 43 people on this case. Part of the credits was intended for the production purposes. The story of repayment of about 110 million AZN after long conversations in the “Anti-Gangsterism Department” remains a mystery. Most likely the money could have been returned by calling the borrowers to the presidential administration. It is possible that it was planned to give publicity to the story. Besides the credit oligarchs could have fled the country. The demonstrative punishment should have proved that that the authorities are able to reach any oligarch. Many plants of these super-borrowers have been shutdown, which also shows spontaneity of the decision. If the  authorities would have turned a blind eye to the situation, the biggest state bank of the country would have lost trust. In any case, this “unfinished” story shows that it is bad to create privileged casts in the power. Even part of these credits would have caused growth of small and medium-size business. This is must better for the economy, than a utopia similar to Hazar Islands.

The fire in the multi-storey house in Baku followed these strange arrests. In addition to the drama, it has revealed the monopoly and lack of competition in the construction sector. The materials of the siding have been supplied by one and the same companies. It is important to make changes in the economy, otherwise, we will see such failures. The preventive reforms in the fields are not enough. There are talks that the package of anti-crisis economic measures could be made public this summer.

to be continued