Energy in Azerbaijan

[Mher]

Re: Energy in Azerbaijan

The Road Map of an Anti-Crisis Strategy in Azerbaijan
Written by Dr. Vugar Bayramov


The Road Map of an Anti-Crisis Strategy in Azerbaijan


The current economic policy, including the monetary policy needs to be compatible with post-oil
or crisis period. Presently there are two major priorities in economic policy of government and the
Central Bank: to constrain inflation and prevent or delay potential variations in the exchange rate
of national currency. These priorities are important, however they are not and should not be, the
key targets in times of economic hardship and crisis. Limiting money base via administrative
measures may serve the short-term purpose of adjustment, but in medium and long-term may have
negative outcomes. Actually, after the first devaluation of national currency, the government
should have reversed its contractionary economic policy by stimulating economic activity. Being
experienced in planning of anti-crisis measures in several countries, I can state that, the current
economic and monetary policies, concentrated on tightening of monetary base and therefore
leading to decreasing activity in the real sector, needs to be reconsidered entirely. Such policy is
not capable of bringing progress in real sector, in contrast, can lead to closure of even more
workplaces. In order to exit the crisis, the economy requires an injection of “hot money”. The
contractionary monetary policy does not allow this money to enter the real sector. As a result, this
may help to maintain the exchange rate of manat via administrative way, but neither meets the
demand for dollar, nor facilitates the creation of new workplaces. The contractionary policy of the
Central Bank has a deleterious impact on employment, and that is why, it is essential to replace
the prevailing policy with anti-crisis and stimulating measures.

The problem is, currently the monetary policy is based on completing the dollarization process and
to commence anti-dollarization. Limiting the supply of manat via administrative way serves this
purpose as well. Nonetheless, the dollarization process should not be founded on shortage of dollar
and forming “black market”. Unless the demand for dollar is met entirely, the process will prolong
and be like ‘pain in the gut’, and the Central Bank will not be able to accomplish its targets. People
queueing to get 300 USD is not consistent with a stable exchange rate policy. So, shifting the
approach is crucial, and a repudiation of old rules should be the decisive element of the current
economic policy. The restriction of dollar sale has created a serious stagnation in the activities of
entrepreneurs engaged in import. Since businessmen cannot meet their demand for foreign
currency, they have experienced difficulties in foreign trade activities.

All anti-crises theories are founded on expansionary policies, rather than contractionary. Presently,
the opposite is the case in our country, the Central Bank restricts monetary base. Consequently,
reduced money in circulation discourages investment and decreases purchasing power ability.
Monetary base should be shaped not by decreasing the supply of manat artificially though
administrative measures, but according to the law on money circulation. Unfortunately, the present
policy of the Central Bank has failed the proportionality between money supply and gross domestic
product. Of course, new emission is not the answer. That is to say, the Central Bank may be
cautious about injecting new manats into circulation, because they tend to be converted to dollars,
and thereby, increasing its intervention costs. But the fact is that, attracting foreign currency into
the country can accelerate the dollarization process, and manats in circulation will no longer “seek
dollar” but create new economic value-added.

The Central Bank should let the exchange rate of manat to be freely determined in market, though
gradually. It is impossible to keep the exchange rate of the national currency stable through
administrative measures in the long-term. The Central Bank, being cautious of sharp devaluation
of manat, does not pursue exchange rate policy. It may be asked from the Central Bank why our
foreign reserves worth 12 billion USD was expended, given the sharp devaluation of the national
currency was inevitable. If the Central Bank were unable to maintain the exchange rate during
2015, then the Bank should have switched to the floating exchange rate regime not on 21
December, but on 21 February. During crisis, economic policy changes promptly, and it needs to
change in our country as well. Foreign reserves equivalent to aforementioned amount had already
been spent, will not return back. We must ensure that, this 12 billion dollar are to be produced by
real sector, in other words, by entrepreneurs. For this purpose, expansionary measures in real
sector, capable of creating new value, need to be implemented. These measures require the
injection of new currency into circulation, and provision of the long-term loans at a very low
interest rates for entrepreneurs in sectors of comparative advantage. An entrepreneur should be
provided with an opportunity to get a loan transparently at a maximum of 3% for 7 years in order
to produce export-oriented goods.

The assets of the State Oil Fund are continuously viewed as “insurance cushion”. When the
“cushion” is needed? During an economic hardship and crisis period, that is to say, now. It is
interesting why we do not use this cushion? The Norway Pension (Oil) Fund sells its real estate in
foreign countries, but the State Oil Fund of the Republic of Azerbaijan invests in the economy of
Italy though real estate purchases when our country so desperately needs foreign exchange.
However, under present circumstances, foreign currency should be directed into the economy,
rather than channelling it abroad. None of crisis theories cannot answer this question: Why should
foreign currency be taken away from the country and invested to the economy of other country,
provided that there is a demand for it in the economy?

The anti-crisis models unambiguously suggest that, the assets of the State Oil Fund, at the initial
stage 4 billion USD, should be brought to the country, and therefore provided for entrepreneurs
transparently and without a barrier by banks. In order to ensure transparency in the provision of
funds, a commission consisting of civil society representatives, experts, as well as, foreign
managers, can be formed. This will facilitate on the one hand an increased flow of foreign
exchange and will lower the pressure on manat, on the other hand, will increase foreign exchange
reserves of banks, though which an entrepreneurship can be supported. Thus, bringing funds to the
country will have a positive influence both on banking sector and on the development of
entrepreneurship.

The reserves of the State Oil Fund are amounted to 33 billion USD, and 80% is invested in fixedincome
stocks. Other categories include real estate purchases, investments in gold, and securities
respectively 5%, 5% and 10%. The funds of the State Oil Fund will be brought in foreign currency,
and banks will promote entrepreneurship through provision of these funds. As stated, the Central
Bank refrains from injecting manats into the circulation and decreases monetary base in order to
lower money supply and prevent manat to be depreciated even further against dollar. Nevertheless,
if the assets of the State Oil Fund valued at 4 billion USD is brought to the country, and enters to
the circulation, it will not increase the pressure on manat.

Thus, foreign currency will enter into the circulation, and entrepreneurs will be able to contribute
to the non-oil sector by receiving low-interest loans. It is essential to bring the aforementioned
funds of the State Oil Fund at the moment. There is a need to support entrepreneurship. If the
current difficulties persist, the number of closed workplaces and business entities will reduce.
Therefore, in order to meet current foreign exchange demand and to finance entrepreneurship, the
country ought to either to turn to foreign borrowing, or to bring some part of the assets of the State
Oil Fund and making them available for businessmen through banks. There is a need to make a
decision about this at present time. Economic problems can be aggravated if there is a delay in
bringing the assets of the Fund.

Thus, current contractionary policy needs to be reversed completely. On the one hand, it can be
done using the assets of the state Oil Fund. On the other hand, large-scale reforms (structural and
institutional changes, elimination of monopolies and fight against corruption, supporting
entrepreneurship) need to be implemented in order to increase the volume of non-oil exports.
Unless the aforementioned current and strategic targets are realised, we cannot be insured against
the next sharp devaluation.

Vugar Bayramov is a well-known economist in Azerbaijan. He was a visiting faculty member
at the Washington University (USA) in 2002/2003. Bayramov has a Ph.D. in economics. His
papers/books have been translated into 25 languages. In 2010, Bayramov was named one of
the 500 most influential Muslims in the world by The Royal Islamic Strategic Studies Centre
(RISSC) in Jordan. Vugar Bayramov is the chairman of Centre for Economic and Social
Development (CESD, www.cesd.az). According to the University of Pennsylvania Global
Think Tanks Rankings, his centre has been selected as a top think tank in Southern Caucasus
and Central Asia last 5 years.

http://cesd.az/new/wp-content/uploads/2016/02/Road-Map-of-an-Anti-Crisis-Strategy-in-Azerbaijan_Vugar_Bayramov.pdf

[Azad]

Re: Energy in Azerbaijan

Strategists Prediction ... Oil headed into the $20s

http://www.cnbc.com/2016/02/05/citi-world-economy-trapped-in-death-spiral.html

[HyeSocialist]

Re: Energy in Azerbaijan

Total of 36 banks operate in the country, with two being state owned.

11 banks are being liquidated.

http://en.trend.az/azerbaijan/business/2490870.html

[HyeSocialist]

Re: Energy in Azerbaijan

Azeri cenbank sold $18.37 mln on forex market on Friday

http://www.reuters.com/article/azerbaijan-crisis-forex-idUSR4N15H00M

Total up to ~ $66mln sold in 5 days.

[Joseph]

Re: Energy in Azerbaijan

Follow this link to their CB, it lists all the banks operating in Baboonistan. http://en.cbar.az/lpages/links/banks-of-azerbaijan/

Follow this link to a report on their biggest banks as of last year http://report.az/en/finance/azerbaij...anks-revealed/

Note that a lot of banks have lost their license to operate in the past month and that a few more will be merging together. Also note that the Manat has fallen drastically and that the assets in these banks most likely have declined significantly.

Thanks!

[HyeSocialist]

Re: Energy in Azerbaijan

How many major banks are there in Baboonestan? I figure 2 but it must be more.

Follow this link to their CB, it lists all the banks operating in Baboonistan. http://en.cbar.az/lpages/links/banks-of-azerbaijan/

Follow this link to a report on their biggest banks as of last year http://report.az/en/finance/azerbaij...anks-revealed/

Note that a lot of banks have lost their license to operate in the past month and that a few more will be merging together. Also note that the Manat has fallen drastically and that the assets in these banks most likely have declined significantly.

[Eddo211]

Re: Energy in Azerbaijan

How many major banks are there in Baboonestan? I figure 2 but it must be more.

[HyeSocialist]

Re: Energy in Azerbaijan

Azeri cbank sells $16.7 mln on FX market on Monday to support manat

http://www.reuters.com/article/azerbaijan-manat-idUSR4N15605H

Azeri cbank sells $31 mln on FX market on Weds to support manat

http://www.reuters.com/article/azerbaijan-manat-idUSR4N15C01Y

---

~$50mln sold in the first 3 days of the month

[armnuke]

Re: Energy in Azerbaijan

LOL

Most of Azerbaijan’s losses from oil price drop to be compensated – top official

About 200 billion dollars have been invested in Azerbaijan. Nearly a half of this is Azerbaijan’s own investment and the other half has been invested in Azerbaijan by foreign investors, said Ali Hasanov, Azerbaijani president’s aide for public and political affairs.

LOL LOL

http://en.apa.az/xeber_most_of_azerbaijan___s_losses_from_oil_pri_238763.html

[armnuke]

Re: Energy in Azerbaijan

Great questions and analysis

Investing in popcorn futures myself; cold winter, Kurdish-Turkish civil war, Azeri meltdown, Russia vs. Turkey in Syria.

This is the best time to invest in popcorn futures.