Ali Karimli: Government makes public to pay a price of crisis

Speaking at the conference on the results of the first year on implementation of "Socio-economic development of Regions of the Republic of Azerbaijan for 2014-2018" a week ago President Ilham Aliyev has attracted attention with a series of releases. “Azadlig” newspaper asked the chairperson of the Popular Front Party of Azerbaijan Mr. Ali Karimli to comment on some aspects of this speech.

Question: Mr. Karimli, a head of the country spoke about beginning of a new phase of the world financial and economic crisis. As a reason of it he called increased tension in the world, bloody clashes in Europe and wars in the Middle East. Do you agree with this assessment?

Answer:  This is incorrect assessment. First of all, there is no serious economic crisis in the world. The main giants of the world economies as US and China are substantially growing. US have acquired its highest economic growth for recent years in 2014. For more than 10 years China demonstrates annual growth of GDP higher than 7 percent. The European Union, though slowly, is recovering economic crises that faced previous years. To stimulate economy the European Central Bank is planning to spend additional 1.1 trillion Euros, and it is definitely strengthening economic growth. Even in Asia, Africa, Latin America, the majority of countries are demonstrating progress. In other words, there is no global economic crisis. The International Monetary Fund forecasts the global economic growth respectively 3.3-3.8 for 2014-2015. At present, due to a fall in the price of crude oil just a few countries faces socio-economic crisis. Meanwhile, Russia, Venezuela, Azerbaijan, which economies are wholly dependent on oil revenue, are leading the list. Ilham Aliyev deliberately presents to people expected socio-economic crisis as a global financial crisis, to reduce his and his own government responsibility for these difficulties. In fact, if oil money were used properly in time, non-oil sector were developed, fundamental economic reforms were done and boosting the country's export potential, as well as development of agriculture were remembered back to 11 years ago, declining oil price would not much negatively affected country's economy. That means that when Ilham Aliyev was mentioning about world economy, could he imply authoritarian countries like Russia, Azerbaijan, Venezuela?

And I do not agree with the political side of this evaluation. Where is the bloody clashes  in Europe except aggression to Ukraine leaded by Putin - a friend of Ilham Aliyev? Why Europe is found accountable to what done by Putin? Unfortunately, Middle East had never achieved sustainable peace in the last 70 years. Someone always has fight there with somebody else. Illustrating a world now as a dark format serves for special purpose. While telling tales of the development to the people is impossible now, massages are given that current stability should be valued and anything extra should not be asked.

Question: The head of the state also highly appreciated the activities of government for the results of 2014. According to him, all  works went to positive direction within the last year. The country is moving forward with confidence, has ensured sustainable development, presents itself to the world as an island of stability and so on.

Answer:  First of all, this is a very negative practice, regardless of the reality of the situation, in all meetings Ilham Aliyev praises himself and his government all the time. If a head of the state is needed self-promotion, it would be better to do it in a different format. First of all, meetings of government should be conducted in a spirit of deliberation and then self-criticism. Regardless of how works are done, if all government meetings are not held without single criticism of any members and all works done will be praised, ministers, chairmen of committees and other officials will have no reason to improve their performance.

Now let's look at the results of 2014. The main macroeconomic indicators of the government, which is forecasted to increase by 5.2 percent of GDP per year, according to the results of the total GDP increased just 2.1 percent. Annual average price of oil had slightly higher than $100 for a barrel during last year, it has just started to decline in recent months. So, the oil price is not a cogent reason for underachievement. Would not government give a report for underachievement for not meeting development forecast? And do you know that at what expense has government achieved 2 percent GDP growth? First of all, this has been done at expense of many costly buildings constructed during the last year with regard to the European  Summer Olympics. But actually, Azerbaijan's economy has not grown in reality for 2014, just a lot of budget money has been spent for building stadiums, sports facilities and other related buildings (and these fields will not bring income in future) and the GDP figures has formally changed. In reality, foreign trade (according to the results of 11 months) was decreased more than $ 3 billion in 2014. Compared to the same period of last year, the country's export was decreased $ 1.4 billion, while import fell by $ 1.6 billion. Compared with previous year, both oil production (1.2 million tons) and oil revenues were decreased during last year. Although 2014 was declared a "Year of the Industry", but it became evident that industrial production was also decreased for this year.

The country's agricultural situation was also significantly deteriorated in 2014. Overall, agricultural production declined 2.6%, crop production fell by 8.3%. Investment for "agriculture, forestry and fishing" areas decreased by 47% and the total investment amounted to 302.6 million manat for the last year. Capital investment in manufacturing industry fell by 56%, or 582.7 million manat in 2014. A state budget expenditures have been fulfilled in deficit in amount of 1.4 billion for 2014. State's foreign exchange reserves fell from $ 54 billion to $ 50 billion.

The political results of the previous year was miserable. First of all, the European Union Parliament, which is important political and economic institution for our country, adopted a resolution on Azerbaijan, condemning existing situation in our country, required that in a case of not releasing political prisoners they may review application of sanctions against our officials. It already known that anti-democratic situation has been criticized during hearings in the US Congress, resolutions adopted by the Council of Europe and the OSCE Parliamentary Assembly. Leading international organizations has been continued to criticize Ilham Aliyev for his non-democratic governance, large-scale corruption, electoral fraud, mass arrests of political opponents throughout the year. Anti-democratic politics of the President has taken our country away from potential allies and it has become practically alone. So, does Ilham Aliyev mean all of these points when he emphasizes that "Everything has gone in a positive direction over the last year"?

Question:  According to Ilham Aliyev, the tension in the region will increase in the coming years. New threats emerge, which have not seen before. To his point, it is not ruled out to meet new challenges associated with economic and financial crisis. How do you assess these points?

Answer:  Finally, Ilham Aliyev acknowledged a crisis not at the door, but in our house. But is not it too late? What was a logic he used just a month ago when the President promised that Azerbaijan people will not feel negative influence of falling oil price in their life. Is not a family, which ruled for 21-year, responsible for making country dependent on oil price? Would we be now so dependent on oil and its price if, instead of talking about diversifying of economy, development of non-oil sector, political and economic reforms, all these reforms were implemented in the recent years? Who is responsible for building a primitive model of Azerbaijan economy like selling oil and distributing its money?

Question:  Mr. Karimli, another important point in the speech of President is related to national currency rate. He made the announcement on the actual devaluation. He was in favor of value loss of national currency. He also expressed his hope that devaluation of national currency would stimulate export. In your opinion, why does government is going to devaluation of national currency, what is the real purpose behind it?

Answer:  First of all, I want to stress that, government should not often change his mind with respect to the principal issues. Government pursuing unstable, unpredictable economic policy is not a good government. In the meeting hold just 2 weeks prior to this one - January 10, 2014, a meeting of the Cabinet of Ministers dedicated to the results of socio-economic development of the last year, which conducted under President chairmanship, Ilham Aliyev promised sustaining stability of national currency and justified his point that this policy "serves for improving living standard of the people". Furthermore, he even called for foreign citizens and foreign companies to keep their money in Azerbaijan national currency. Let's imagine that a lot of people believing to  the president's mind and turned up their funds held in foreign currencies. Just after two weeks later they reveal that the president has changed his mind. Now he talks about the "benefits" of devaluation of national currency. In that case, how could business people and simple citizens believe government word and promise? Secondly, to state an exchange rate by himself Ilham Aliyev made a serious mistake. A president should not determine a course of national currency. Why does he intervene authority of the Central Bank? Seeing such a political intervention in a course of national currency what might think any entrepreneur, even an ordinary people who has some savings? Of course, these people might think that if government gives up stability of the national currency, which has been looked at as a source of pride of government for many years, economic situation in the country is not good. Government itself does not believe that it will be able to sustain the currency stable for a long time. How can we convince businessman or ordinary citizens, who had come to this conclusion, that national currency will not devaluate significantly, for example, it will lose only 10-15%? So, these people will soon move massively to currency exchange offices and banks. Everybody will change their national currency to dollars. Artificially created demand for dollars will be increased in a tizzy, the National Bank will be obliged to spend a few billion dollars from its reserves to stabilize the situation. In that case, how would national currency, which is currently under "psychological pressure", lose its "balance" after all?

Government makes public to pay a price of crisis

Devaluation of national currency is not also justified through stimulating exports as well. What exports do they want to stimulate while 96 percent of the country's exports entail oil and gas? The country's non-oil export is just slightly over $1 billion per year, is not it?

There are two main reasons for devaluation of national currency in this stage. First of all, it is because of the fall in oil prices. Crisis in Russia has a negative impact on Azerbaijan government to keep national currency stable. In order to ensure the stability of national currency National Bank has spent around $3 billion of its reserves just for last two months. If this track is sustained reserves of the National Bank will be depleted in 10 months. The government faces a dilemma: who should pay for the crisis? If the priority is to keep the standard of living of the population they are needed to spend all reserves. Government has chosen the second way: to make public to pay for crises in expense of saving reserves as far as possible and to devaluate national currency.

The second reason of announcing devaluation is related to realization of targeted collection of national currency to budget. If average price of oil for a barrel will be $50 in 2015, the State Oil Fund will receive $7.6 billion less, just 4.7 billion dollars profit from exploitation of Azeri-Chirag-Guneshli oil fields. For today's currency rate, it makes 3.7 billion manat. In a case of devaluation of national currency, for example, let us imagine that 1 dollar = 0.90 AZN budget will gain an extra half billion, but in a scenario of 1 dollar = 1 AZN it will gain an extra 1 billion manat. So, although an amount of revenue remains the same if calculated in dollars, but in expense of devaluation of national currency it will appear to be much if calculated in manat. This is an illusion of progress without doing nothing important.

Question:  Ilham Aliyev spoke about his good governance in the country, and he listed significant facts at the meeting. It might be assumed that Ilham Aliyev manages the country better than his father Heydar Aliyev. How would you comment on the following figures that are mentioned by Ilham Aliyev?

Since 2004 domestic product increased 3.4 times, while industrial production increased 2.7 times; 180 billion dollars have been invested in the country during last 11 years; if foreign currency reserves was $1.8 billion in 2004, it is more than $50 billion today; if average monthly salary was $100 in 2004, now it is estimated at $565; if average monthly pension was $24, now it is $221 ...

Answer:  You know, the President uses these figures almost in all of the meetings he participates. But these figures shows the extent of the oil revenues, but not realistic and efficient management that we have achieved in the last 11 years. To say evidently, Ilham Aliyev has been lucky. His reign coincided the years of country's highest oil revenues. These years were characterized not only by peak of oil production, moreover, by very high oil prices in the short intervals. Just for comparison, it worth to mention that a price of oil was $16 when oil contract was signed. It should be clearly understood, irrespective of a person being a president of Azerbaijan for 2003-2014, the same volume of oil were produced and were sold for current market price. Ilham Aliyev has no any special role neither in amount of oil produced nor in its market price. If he has any role, why he allows dropping of oil production and prices? If there were major political, social and economic reforms conducted, and there were not large-scale corruption, but efficient government, so much oil money would be used for rebuilding economy and quality of life would now be compared with in Eastern Europe and the Baltic states. Otherwise, it turns out that relying on formal logic of these figures, Ilham Aliyev rules the country better than Azerbaijan National Front and his father Heydar Aliyev. Does Ilham Aliyev want to say this? Why Heydar Aliyev did not achieve reserve of 50 billion during his presidency? Why wages and pensions were so low under his governance? What special has Ilham Aliyev done which his father Heydar Aliyev could not? Obviously, these questions are rhetorical. I mean, you do not need to manipulate the figures.

Question: As the success of his activity, Ilham Aliyev spoke about the country's participation in the energy projects (like BTC pipeline, the Baku-Tbilisi-Erzurum, "Shah", TANAP, TAP, "South" Corridor), construction of bridges and tunnels.

Answer:  If there were 30-40 million tons of oil exported from the country in recent years what could be more realistic than constructed pipeline for taking this oil to the world market? What is the service here that government did in favor of people? Is there any state in the world that has a rich oil, gas, but fails to build pipeline to take them to the world market? Is there any state that has oil and gas, but cannot sell it? Moreover, the majority of energy projects, that Ilham Aliyev is boasted for, are operated and funded by international energy companies. What was the government's "celebrity" on oil strategy? Is it a plan of building an oil refinery industry after selling off the main part of oil as a crude oil? Or is it a "great" strategy to have a BP that is operating international company to produce oil and provide Azerbaijan party with profit oil that are marketed by companies registered by his relatives and gaining a huge amount of revenue from these suspicious buying-selling procedures?

Regarding implementation of infrastructure projects in expense of oil revenues, of course, it is important to construct roads, bridges, upgrade electricity, water lines. We also believe that some amount of oil revenues had to be spent for building better infrastructure in the country. But the question is, why construction of roads, bridges, and other structures is very expensive if compared to other countries? Why do not orders for these projects are determined through transparent tenders and monopoly companies construct them for 3-4 times expensive, exaggerated price? Therefore, public opinion rightly perceive these projects as not serving for improving infrastructure but as an effort of corruption.

Question:  How do you estimate a warning of Ilham Aliyev to his cabinet? He said that falling oil price will inevitably affect income, it will not be possible to increase foreign revenue reserves, as it was in previous years, so it should not be wasted ...

Answer:  You know, the problem is that the President knew and accepted that for many years country's oil revenue was spent and wasted. A large amounts of money were spent on projects without any special needs. And this negative trend has not appeared suddenly. We have for many years criticized this squandering. The question here is why the government did not understand that one day all oil reserves might be spent off when it was renovating the same streets and sidewalks several times in a year, replacing the city light poles almost every year, billions of manat were spending for changing facades of buildings, constructing costly and useless fences on Caspian Sea and district centers, putting lights at the bottom of every planted tree on the way to the airport, making them to lit them up day and night and spending millions of amounts for similar useless projects. Why did not government realize that one day oil price may fall down, oil production will be reduced from year to year. Smart government had to think about these scenarios at the peak time of oil revenues, but should not waste reserves. Was there a need for decline of oil price to raise an issue by the president for wasting revenues? The government has implemented a wrong policy in the past through letting squandering, therefore the country is now ready for the crisis now. They make population to pay declining oil price through increasing tax rates and prices of goods, as well as cutting jobs. Moreover, they want people to tell them "thank you" for their so negligent governance.

Question:  Mr. Karimli, while the meeting was focused largely on social and economic issues, there were one or two political statement as well. The President said that Azerbaijan is conducting an independent policy, but Armenia is losing its independence. "Look at Beggar Armenia. Armenia is not even a colonial state, it does not deserve to be called a servant. National honor are violated by criminal junta, which is confirmed by recent events. See, how helpless they are, they have not even a right to put forward demands. This country has already shown that it cannot exist as an independent country. It can only survive as a colony"- he said.

Answer:  Of course, President Ilham Aliyev is right in his opinion that for the sake of occupation of Karabakh the Armenian lost largely its independence. There are Russian military bases in Armenia now. And Armenia joined Eurasian Union established by Russia etc. We are right to call enemy state both colonial and servant state. But the question arises here why in many cases our officials are trying to be closer to Russia - a country evidently helped Armenia in Karabakh war? A motive of Armenia to behave as a colonial state is clear. It was the Russians that de facto took Karabakh from us to give Armenia. But what motivated our officials to find themselves under Russian umbrella  and behave as a shadow of Russia? How do they  explain voting unanimously for the defense of Russia by Azerbaijan delegation in the last debate of PACE, when diplomatic confrontation happened between Europe and Russia? Even when Armenian delegation took a courage to abstain from voting, what is the name of Azerbaijan officials when they acted more coward than delegation of "colonial and servant" state?

The interview was originally published in Azadliq newspaper