Administrative-command system as a main catalyst of rise in prices

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-A basic cause of the rise in prices and duties lies in the specific character of how Azerbaijan manages its economy. In other words, prices for more than 30 commodities and services are still being regulated by the state. Decisions of the Tariff Council are not transparent and justified; the public takes no part in decision-making; views of consumers are not taken into account. From this point of view, tendencies toward the increase of prices, duties and tariffs result from the domination of corporate interests; hence, it is natural that the state pursues its own interests as well. The point is that corporations are largely representing state-owned companies. The rise in prices in Azerbaijan is caused by administered prices. Alas, no national economy has been formed in Azerbaijan. The current economy is still being regulated by an administrative-command system typical of Soviet times. Regrettably, the potential for free pricing and operative involvement of the market into related processes are restricted. In this respect, the current tendencies serve corporate and power-holding interests.

-Usually, in times of profitable oil prices, the government declines to raise tariffs. But today, despite normal oil prices, everything occurs inversely. This rise in prices is said to serve somebody"s interests. In general, will the latest rise in prices enrich the budget or somebody"s pockets?

-As a matter of fact, there is no direct relation between oil prices in world markets and tariff regulation in Azerbaijan. In other words, when the world market gasoline prices fell, the Tariff Council of Azerbaijan made a decision to raise gasoline prices. In fact, it was illogical from an economic standpoint. A decision of this sort is possible in terms of raising prices to the level of world prices. Unfortunately, there is no direct relation between administered-market prices and world prices. As for the question of whose interests are served in terms of profits gained from a rise in prices, it is natural that these gains serve, in the first instance, the interests of companies rendering services and appropriate production. These are companies holding large promissory notes who are incapable of paying them in the near future. Given that a larger amount of debt will be released from their budgets, these companies are trying to compensate a part of it by imposing extra expenses on consumers. I believe that in most cases the prices are forced up due to the companies" promissory notes to international organizations. When the companies are asked to provide credits, they demand to raise prices, thereby reducing their debt repayment risks. If tomorrow the budget has no money, a consumer will have to pay higher tariffs for using electric power, gas, etc. To reduce debt repayment risks, the companies resort to raising prices. It is natural that all these actions serve the interests of poorly managed corporations.

- The government explains the price increases as due to the growth in prime costs. For instance, to justify the rise in underground fares the government declares that the prime cost of the fare per passenger is 47 qapiks. Are these calculations valid?

- From an economic point of view, the connection between a rise in underground fares with their prime cost is the correct approach. Accordingly, the expenses for the underground carriage of one passenger, as well as the structure of these expenses, should be made public. It would be appropriate to know which part of these 47 qapiks make up elemental expenses; which part - managerial; which part - material; which part - investment in fixed capital. So far, the Baku underground has provided no explanation regarding elements of expenses and income composition. Note that the underground is a main transport facility in the capital of Azerbaijan, and that underground incomes are formed at the expense of state subsidies and investments into fixed capital. Annually, the underground serves above 201 million passengers. In current prices - 30 qapiks per one carriage, or trip, the underground"s annual income will be more than 60 million, if prices do not change. Additionally, the underground has leasing and advertising incomes. Unfortunately, no information on these incomes is available. I don"t think that 47 qapiks per passenger is realistic - it is overstated. To prove its credibility, the Baku underground must make the elements of its expenses public.

- It is rumored that the price increases will continue, and that prices for petroleum products will rise in the near term. What is your forecast?

- To my way of thinking, the price rise will continue, and upon completion of the agricultural season the prices for petrol and diesel fuels, as well as lubricating materials, will be revised upward. The probability remains that the price of petrol AI92 will go up this year. That will be justified by noting that car imports are allegedly rising, traffic jams are increasing and, finally, oil prices are tending to rise in world markets. The fact that the Cabinet of Ministers have recently introduced duties for the export of petrol in a spare tank reveals that preparations for this are underway.

The most realistic scenario for the near future is the rise in prices for fuel production. As for the rise in prices for other energy carriers, including electric energy, and gas, the authorities are unlikely to pursue a policy of simultaneously increasing all prices. The probability remains that fuel products will be in the forefront. Perhaps the question of increasing prices for gas and electric energy might be considered at the end of this year/beginning of next year. However, a price increase for water is quite realistic. Also, the probability of rising tariffs for other public services is rather high.

- When raising prices the government compares them with prices of identical products in foreign countries. However, in so doing, the government says nothing about the wage level in these countries. Is it fair to make such a comparison?

-As a rule, it is wrong to establish a direct dependence between the increase of prices and wages. It would, however, be correct to designate a specific value to expenses in the budgetary expenditures of families. For example, transport expenses in Europe make up 5% of a family budget; in Azerbaijan - 3%; now it has risen to 5%. However, the reality is inverse: in Europe transport expenses make up 3% of a family"s budget; in Azerbaijan the figure stood at 5% and has now risen to 7-10%. That would be the more correct approach than comparing prices in separate countries. It is natural that wages are the most important index in the structure of a family budget. Note that incomes in Europe and America do not only include wages. The family typically has extra income, including share dividends, deposit interest and investment appreciation. Unfortunately, the greater part of the Azerbaijani population is unemployed, while wages of those employed are low. At the same time, average monthly wages misstate the situation in the country because the wages of the majority of workers are lower than the average monthly wage. Average monthly wages are high mostly in the mining industry, as well as in the financial-banking sector, but this does not mean that most Azerbaijanis receive wages at the rate of 300 or 500 manats/month. Most are satisfied with 200-300 manats/month.

- What can be done to prevent price increases or to bring them into conformity with people"s needs?

- Prices are dynamic, they may go up and down. It is impossible to keep prices invariable. To stabilize prices, it is essential to liberalize our economy and to allow the market to set the prices. From this perspective, in order to work out the policy of price stability in Azerbaijan, it is necessary to implement reforms, to liberalize market prices, to develop broader competition and thus to create the foundation for stabilizing consumers" expenses.