FULL STOP OR COMMA?

A few days ago the news under the headline "The IMF is leaving Azerbaijan" in the Azerbaijani media came like a bolt from the blue. Yes, the Fund has not carried out any programmes in the country for four years, except for counseling missions and reviews. Yes, there were frictions between the government and the organization, but there was no special reason for such a departure.

As it turned out in the end, we are not talking about complete cessation of the IMF's relations with Azerbaijan - the Fund, as was announced in the summer of this year, is significantly reducing its staff in the country (to two people) and, naturally, will transform its representation into an office. This is a normal rational approach, especially during the world economic crisis. According to the former head of the IMF representative office in Baku, Koba Gvenetadze, "the Fund sees no need for a permanent mission in countries where there are no credit lines". According to him, the IMF is using such an approach in CIS countries like Kazakhstan, Turkmenistan and Uzbekistan. Earlier there was an office in Georgia, but after the beginning of hostilities in the country it was transformed into a permanent representation. "The IMF office in Azerbaijan will have an economist and a manager," said Gvenetadze.

The history of difficult relations

In relations between the International Monetary Fund (IMF) and the Azerbaijani government, the parties' views of the on the same matter usually, and one might say, often differed. But if at first the government kept silent about it, then with economic development and the lack of problems in servicing the foreign debt of the country, it began to boldly defend its point of view. At the same time, in the context of the present day, it would be unfair not to recognize the role of this organization in stabilizing the financial and economic situation in the republic as a whole. Azerbaijan, like all post-Soviet countries in that period, was left face-to-face with a huge mass of problems requiring urgent solutions, as well as with the need to build a new capitalistic model of economic management. At the time, recommendations and loans from the IMF were a saving remedy that helped curb inflation and secure a gradual growth in the economy as a whole.

But even then, or rather by the end of the 1990s, contradictions on important strategic issues between this organization and the government became increasingly obvious - the Fund was not happy with the use of revenues from the Oil Fund to finance the Baku-Ceyhan pipeline and there was the problem of increasing domestic energy prices (the IMF demanded this in 2000, but the government decided to take this step only in 2006), the controversy over the privatization of two state banks of Azerbaijan - the International Bank and Kapitalbank - and the ongoing bickering over the preparation and management of the state budget, especially budget spending. Time showed that in the vast majority of such disputes, the government of Azerbaijan was right, which eventually resulted in the country being able to implement major regional projects and fully ensure its own economic self-sufficiency.

And, probably, the first thing that was done as soon as the republic got to its feet was that it refused credits, that is, financial dependence on the IMF. Of all the programmes it was decided to keep only cooperation under Article 4 of the agreement on the establishment of the IMF - technical assistance. As part of this article, the Fund continues to hold an annual assessment of medium and long-term prospects for the economy and make recommendations. Although these are only recommendations and advice, they are important like any competent look at the government's actions - because no-one is immune from mistakes. Although the IMF, as well as other international financial institutions and rating agencies were accused of wrong estimates which eventually led to the global crisis, their views continue to be heard in all developed countries and many developing countries support their economy only through their help. Presumably, this is why Azerbaijan does not exclude the possibility of the International Monetary Fund continuing technical assistance programmes in the future, although their volume has also decreased in the recent period - unobtrusive recommendations have not done anyone harm yet. 

Only recommendations!

Regarding the latest estimates and projections by the IMF on the economic situation in Azerbaijan, they are fairly optimistic. The Fund predicts an 11-per-cent increase in gross domestic product in the oil sector in 2009 and a 4-per-cent increase in the non-oil sector. In 2010, GDP growth in the oil sector is expected to reach 10 per cent and in the non-oil sector - 5 per cent. As previously reported, according to an updated forecast by the IMF, this year, economic growth is expected to reach 7.5 per cent in Azerbaijan (versus the originally proposed 2.5 per cent), and next year - 7.4 per cent (earlier - 12.3 per cent).

According to Gvenetadze, GDP growth this year will amount to 1.5 per cent in the Caucasus and Central Asia as a whole. It must be noted that the government of Azerbaijan predicts a GDP growth of 12.9 per cent in 2009, and 6.8 per cent in 2010. Thus, in the current year GDP growth in the oil sector is projected at 20.3 per cent and in the non-oil sector - at 3.2 per cent, and next year - at 8.3 per cent and 4.1 per cent respectively.

"Initially, we predicted that according to the results of this year, Azerbaijan will have a state budget deficit. But now the situation has changed, primarily due to higher oil prices on world markets. We made primary predictions based on the price of oil at 50 dollars per barrel on average, but now it is 62 dollars. Therefore, in 2009, we expect a surplus in Azerbaijan's state budget," said the head of the IMF office. The IMF also forecasts a surplus in Azerbaijan's balance of payments in 2009.

In addition, the IMF believes that the foreign debt of Azerbaijan in 2009-2010 will not exceed 10 per cent of GDP. "The global crisis has resulted in the countries of the Caucasus and Central Asia being divided into two groups. One group, which also includes Azerbaijan, has been able to keep the level of the foreign debt under control. The other group - Armenia, Georgia, Kyrgyzstan and Tajikistan - significantly increased their foreign debt, which will fluctuate from 38 to 55 per cent of GDP in 2009," said the IMF representative. According to him, in 2008 Azerbaijan's foreign debt totalled about 8 per cent of GDP and in 2009-2010 its level will be within 10 per cent of GDP, which is a good indicator for the current economic situation in the world. We should add that, according to the Azerbaijani Ministry of Finance, the direct and guaranteed foreign debt of the republic in the first half of 2009 increased by 2.3 per cent and reached 3.72 billion dollars by 1 July. According to estimates by the ministry, by 2010 the foreign debt of Azerbaijan will amount to 9 per cent of GDP.

According to Gvenetadze, the countries of the Caucasus and Central Asia need to develop regional cooperation to secure economic growth, to continue structural reforms in the economy and improve the business environment.

In addition, in order to stabilize the economic situation in the post-crisis period it is recommended that a more flexible exchange rate policy should be conducted. "The main recommendation of the IMF in Azerbaijan concerns a flexible policy on exchange rates in the post-crisis period. We believe that this policy will allow the economy to be better prepared for external shocks and to absorb economic processes," said Gvenetadze. Thus, over time, the Central Bank of Azerbaijan may return to the double-currency basket in determining exchange rates, which the bank gave up during the crisis.

Also, we must pay tribute to the IMF because towards the end of its active cooperation with Azerbaijan, it repeatedly and explicitly recognized the correctness of the economic policy of the country's leadership, despite all frictions and discontent. But at the same time, it does not intend to refuse recommendations and advice. The latest one will relate to more effective use of the proceeds from the sale of oil and gas. "Azerbaijan is less affected by the global economic and financial crisis. However, at the same time, the IMF notes the need to continue measures aimed at the fiscal stimulation of the economy in 2010, said Gvenetadze. But he immediately added: The decision on this matter should be taken by the country's government. "Apparently, that is the future tone of relations between the two entities...