NO PANIC

The fluctuations in the rouble to US dollar exchange rate registered on 16 December 2014 and unseen since 1998 have been quite reasonably dubbed the "new black Tuesday" of the Russian currency by the media. The "wooden" [rouble] had an incredible day: now falling to R80 per dollar and R100 per euro, now shooting up. All that was a direct consequence of the Central Bank of Russia suddenly deciding on the night of 16 December to raise the key interest by 6.5 points at once: from 10.5 to 17 per cent.

That move caused a panic and rush among the population; people stormed currency exchange points and sales outlets in the hope to buy as much food as possible at old prices; commodity exchanges were completely nonplussed and so on. Naturally enough, the panic sentiments have spread over Russia's neighbour states tied to it in some way by trade and economic relations.  

It is quite normal that some agitation could also be seen in Azerbaijan in this context: rumours appeared about exchange points stopping sale of dollars, a shortage expected soon on the food market and an influx of Azerbaijani migrant workers returning home from Russia which might cause tensions on the labour market. Meanwhile local experts hurried to calm down the population: practically all analysts concur that the impact of the Russian crisis on Azerbaijan's economy will be insignificant. Head of state Ilham Aliyev has voiced support to this conclusion.

Reverberations

Against the background of unabating political tensions around Russia, economic outlooks are not very comforting. Russian President Vladimir Putin himself predicted during his latest big news conference that the current crisis situation might last two years. This is quite clear: the USA and the EU are not going to give up the sanctions. On the contrary, they are planning to impose new ones in the near future. The oil prices cannot quiet down. On top of that, surprises are coming from a state that appears to be a friend. Belarusian President Alyaksandr Lukashenka recently demanded that the government of the state should convert all payments with Russia into dollars and euros. "The task has been set to trade with Russia not for roubles but for dollars, the way we pay for energy supplies," Lukashenka said. In early December, he accused Russia of breaking Customs Union rules as Moscow had imposed a ban on food supplies from a number of Belarusian enterprises. In this way, Moscow is going to stop a channel used to supply foods from countries under the Russian embargo imposed in August (EU, USA, Norway, Australia and Canada).

Meanwhile Russia's other Customs Union partner Kazakhstan still keeps quiet. In any event, they are not going to devalue their national currency in the near future despite the rouble crash and plunging oil prices, said Olzhas Khudaibergenov, an adviser to governor of the National Bank of Kazakhstan. "Unfortunately, all negative forecasts on oil have come true. Moreover, the forecasts have been revised downwards, so some participants now expect 40 dollars per barrel. In my view, we should wait until the price hits the bottom which will happen, given the current rate of fall, within one or two months, and then take a decision," the National Bank of Kazakhstan governor's adviser said.

Unlike Russia's neighbour in the Customs Union, a candidate for membership of the union - Armenia - has been badly hit by the rouble devaluation. This is only natural considering how that country is dependent on Russia. The sharp fall of its national currency dram has caused a panic not only among common people but also among businessmen. Prices in many shops grew just in front of their eyes and some trading centres just stopped sales. Apart from new prices, many shops imposed limitations on a number of staple commodities. For instance, shoppers were not allowed to buy more than 10 kg of granulated sugar. Many residents of Armenia getting monthly cash remittances in roubles from their relatives working in Russia have found themselves in a hard situation.

The Central Bank of Armenia spent one week trying to straighten out the situation with the use of its instruments but all without visible results. The Armenian minister of energy and natural resources has said that the electricity tariff will also have an effect on devaluation of the national currency. Experts also say that such a sharp devaluation of the dram will push up gas and electricity prices.

Manat keeps stable

Worrying reports coming from Russia to Azerbaijan have caused some agitation among the population. However this time local experts' opinions practically echoed statements by officials saying that the fears are groundless and that the developments in Russia have and will have no tangible effect on the situation in Azerbaijan. "Oil prices have dropped a lot now. Has anybody in Azerbaijan felt it? Nobody has and nobody will feel it because we have mighty economic foundations," said President Ilham Aliyev.

According to him, the rate of the manat is stable and this enables us to say that Azerbaijan has economic power, a well-considered policy and social policy. "The stability of the manat rate may possibly be not so positive a circumstance for our export potential. But this is a social matter. It should be so," the head of state said.

As stated by the Central Bank of Azerbaijan (CBA), the rate of the manat is stable and there is no macroeconomic basis for its destabilization. "The financial buffer of the economy is represented by sufficient amounts of foreign exchange reserves and indicators of stability of the financial system are very high. State finances and the banking system have high strength and are able to withstand long-term exposure to any external shocks. Azerbaijan has no external debt problem. On the contrary, as for its external financial position, the country is a net creditor. The current account on the balance of payments is in the black and will remain so next year. Inflation is very low. Dollarization indicators are also very low," the CBA said.    

Besides, the Central Bank is well placed to maintain the stability of the manat and the CBA reserves alone will suffice to do it. "Next year, the supply of foreign currency will exceed the demand in a situation of export surplus. In other words, the balance of supply and demand taking shape in the foreign exchange market will provide the basis for maintaining stability of the manat. In such conditions, the rate of the manat will definitely remain stable next year as well. To maintain this stability, the CBA will take all necessary efforts. Therefore, there is no reason for panic," the CBA emphasized.

Meanwhile the Russian crisis can certainly have pinpoint impacts on individual segments of the Azerbaijani economy. After all, Russia is number four on the list of Azerbaijan's foreign trade partners. Trade turnover with the Russian Federation totalled 1.77bn dollars over the January-November 2014 period, which accounts for 6.13 per cent of the total volume of this country's trade transactions. Russia accounts for 14.39 per cent of Azerbaijan's overall import heading the list of its importer states. In terms of export of Azerbaijani products, Russia is number 10 with a volume of 600.7m dollars (2.9 per cent). According to Ali Masimli, a member of the parliamentary committee for economic policy, given that the two countries hold their mutual trade in dollars, the dollar to rouble ratio will also have an effect on their trade turnover. His fellow member of the committee, MP Rufat Quliyev, said that instability of foreign currency in the country which is our biggest importer makes it difficult for producers to sell products among which foods and perishable items prevail. "Our exporters will also have more difficulty entering the Russian market," Rufat Quliyev explained.

In addition, the collapse of the rouble may have some influence on the declining amount of cash remittances made by Azerbaijanis living in Russia.

"Some of our citizens who have habitually returned home for the New Year holidays will not rush back to Russia now as their wages have almost halved in terms of dollars. They are likely to prefer to spend the winter at home waiting for a change in the market condition. As a result, not only transfers from Russia will decline but I even admit that cash flows may temporarily change their direction and flow from Azerbaijan to Russia," political scientist and MP Rasim Musabayov said.

Note that, against this backdrop, the Baku Stock Exchange (BSE) has stopped accepting applications for the US dollar/Russian rouble currency pair. "This is because of the low liquidity of the dollar/rouble pair in international markets," a BSE report says.

In short, despite certain echoes of the rouble collapse in Azerbaijan, the fundamental stability and independence of this country's economy can be a buffer for such occurrences and keep them from spreading over different segments and, most importantly, from having a direct impact on the social welfare of citizens.

AT FIRST HAND

"Oil prices have dropped a lot now. Has anybody in Azerbaijan felt it? Nobody has and nobody will feel it because we have mighty economic foundations. The rate of the manat is stable and this enables us to say that Azerbaijan has economic power, a well-considered policy and a social policy. The stability of the manat is perhaps not so positive factor for our export potential, but it is a social matter and it should be". 

Ilham ALIYEV, President of Azerbaijan