ADVICE IS GOOD, BUSINESS IS BETTER

Amid the global financial crisis, international financial institutions and rating agencies are among the most severely criticized organizations. The organizations that specialize in forecasts and assessments failed to foresee the crisis in time and prevent such a clear global threat. Belated promises about aid and support for the worst-affected countries can only be regarded as an attempt to sugar the pill.

But Azerbaijan does not need aid from international financial institutions - they all deem our country to be the most prepared for the crisis in the region owing to the correct economic policy being conducted in the country. Meanwhile, they have repeatedly criticized the actions of the Azerbaijani government on some other issues. Initially, the government listened to recommendations from international financial institutions, but after the country's economy "rose to its feet", it skillfully declined to fulfill them. Experience showed that this was not in vain.

Post factum recommendations

Currently, all the leading financial institutions of the world are developing programmes on anti-crisis measures - specific recommendations to governments and financial injections into the economies of the worst-affected countries. For example, the International Monetary Fund is planning measures to maintain the level of global demand for goods and services, to provide liquidity for countries with new markets and to protect countries with a weak economy. The IMF recommends that reforms should be aimed at developing measures to regulate the financial sector, creating more efficient early warning systems and so on.

In turn, the board of directors of the European Bank for Reconstruction and Development (EBRD) has approved a business plan and a budget for 2009, which will allow the bank to increase the annual volume of business by almost 20 per cent - up to 7 billion euros - next year. The volume of financing is increasing in response to the consequences of the global financial crisis in the countries where the bank operates. The bank will increase its support for the banking sector in countries in which the EBRD has invested and will secure financial flows for small and medium-sized businesses. The bank will also give broader support to the corporate sector. The package of measures also includes the simplification of procedures on the programme of commercial financing.

Analysts of the World Bank (WB) recommend that governments conduct a policy of promoting investments, intensify resource-saving measures and increase efficiency, which will make it possible to balance the supply of raw materials and the demand for them.

At the same time, international financial institutions also have private country recommendations and have established the amount of aid to separate countries. However, Azerbaijan has not been included on this list. "Azerbaijan is unlikely to need aid from international financial institutions in order to overcome the consequences of the world financial crisis," the head of the World Bank office in Azerbaijan, Gregory Jedrzejczak, said at a recent meeting with the country's banking community. "The influence of the world crisis on Azerbaijan is currently low, because the country's banks have a careful approach to the issue of foreign borrowings. Perhaps, the reason is that historically Azerbaijanis have been careful about such issues."

The IMF also holds a similar view. "The influence of the world financial crisis on Azerbaijan will be minimal. First, the integration of Azerbaijan's financial and banking sectors into the world financial system is very low. Second, due to oil revenues, Azerbaijan has enough currency reserves. Third, the National Bank of Azerbaijan has all mechanisms to solve possible problems with liquidity in the banking sector," the representative of the International Monetary Fund in Azerbaijan, Koba Gvenitadze, said.

Advice and dislike

In a word, the international financial institutions have no recommendations for Azerbaijan - the economic policy of the Azerbaijani authorities turned out to be far-sighted. "While in Baku, WB Vice-President Shigeo Katsu asked President Ilham Aliyev how he managed to anticipate the development of events on the world financial market and take precautions. The thing is that while carrying out various financial and economic reforms, the government first of all considered how they created various risks for the country," a top official of the National Bank of Azerbaijan told journalists recently.

Owing to this policy, which some experts assessed as extremely careful and conservative, Azerbaijan now has quite a high level of currency reserves, which allows it to part with the country's foreign debt without any problems. Moreover, it proved possible to curb inflation, and its level is expected to account for 16-17 per cent, not 19-20 per cent, by the end of the year.

It is quite pleasing that several months ago, the same IMF predicted 20 per cent inflation in Azerbaijan, persistently recommending a more moderate pace of state spending, which would increase the quality and efficiency of investments. "The country's budget for 2008 envisages a rise in pensions and salaries and a 48 per cent rise in the investment budget, aimed at accelerating the socioeconomic development of Azerbaijan. The government's intention to increase spending on the non-oil, social and infrastructure sectors is quite understandable, however, with the current state of the economy, large investment spending is premature, the IMF said in its report.

Azerbaijan has been receiving such recommendations from the IMF since 1992 when it joined the IMF. But Azerbaijan has not always blindly followed them and, the result of obvious. We have to admit that in the first half of the 1990s, the IMF managed to ensure monetary-credit and financial stability in all post-Soviet countries. Thanks to the efforts of the IMF, a high pace of inflation and a ravaged financial system - inevitable companions of the first years of reform - were overcome with strenuous efforts in a very short period of time, after which there was a chance to talk about economic development and economic growth.

However, by the end of the 1990s, the IMF and the government of Azerbaijan were more and more divided over certain issues - sometimes Azerbaijan had to make concessions in order to get the loans that the country needed at the time, but there were moments when the government decisively rejected the recommendations of the IMF.

For example, it is difficult to explain the actions of the IMF when it gave a hostile reception to the government's efforts to implement a competitive project aimed at creating new jobs and making tangible profits. The IMF was displeased with the fact that money from the Oil Fund was used to finance the Baku-Tbilisi-Ceyhan oil pipeline. The IMF believes that this runs counter to the statute on SOFAR which bans the use of oil revenues for commercial purposes. But Baku-Tbilisi-Ceyhan is not an ordinary commercial project. It is one of the cases when future generations will get real revenues from the existence of SOFAR.

Another stumbling block was the problem of increasing domestic energy prices. The International Monetary Fund demanded that they be raised to the world level. In 2000 when the level of poverty in Azerbaijan was still high, such a step by the government would have caused a wave of protests. The authorities decided to do so only in 2006 after taking a number of measures to protect the poorest strata of the population.

There were also "passing" remarks on the formation and management of the state budget, especially its spending. Most likely, these disputes served as a reason for the early severance of financial relations between Azerbaijan and this organization. As soon as the country became strong enough to do without credits, they were immediately turned down. The international organization started giving loans to Azerbaijan in 1995. Up till now, the IMF has allocated loans to Azerbaijan within the framework of six programmes. The republic's quota in the fund is 160.9 million SDR (248 million dollars). By 1 January 2008, Azerbaijan's debt to the IMF totalled 100.6 million dollars. In 2008-2012, Azerbaijan will pay the fund 55.96 million SDR (88.9 million dollars) in order to pay off its debts.

Consultations in place of loans

For three years now, the government of Azerbaijan has been cooperating with the IMF at the level of consultations under Article IV, which is why prospects for cooperation on the basis of programmes are not even touched upon during visits. Moreover, the volume of IMF technical assistance in different sectors is also on the rise. Consultations with the country's government under Article IV are held in all member states of the IMF once a year. The main purpose is to assess the short-term and medium-term tasks of the government on the development of the country's economy and to discuss plans on structural reforms. According to the results of the visit, the mission usually prepares a report which is submitted to the IMF council of executive directors for consideration. Some time later, the World Bank also changes its priorities of cooperation with Azerbaijan, based on the shift of emphasis from loans to support for reforms and the state budget, putting an emphasis on political conditions for investment financing. "Azerbaijan now needs more recommendations rather than financial support," the WB representative in Azerbaijan, Gregory Jedrzejczak, said.

Indeed, like other countries of the world Azerbaijan regularly holds consultations with international financial institutions and listens to their constructive recommendations based on the experience of other countries.

However, until recently negative forecasts were made about the country's economic fate. In summer, the IMF forecast an economic decline in Azerbaijan from 2012. According to IMF experts, Azerbaijan will be the only CIS country where the economy will experience an economic decline in the long-term. By 2012, Azerbaijan's GDP will fall at a galloping speed, and in 2012 alone it fall by 1.7 per cent and in 2013 by another 2.6 per cent. The IMF predicts that if in 2007 Azerbaijan's GDP increased by 23.4 per cent, in 2008 it will not exceed 18.6 per cent, in 2009 it will fall to 15.6 per cent, in 2010 - to 4.8 per cent and in 2011 - to 1.6 per cent. At the same time, the authors of the forecast are sceptical about the possible beginning of the development of new deposits by this period and about the ability of gas extraction to effectively replace oil extraction. The IMF also has no hopes on the non-oil sector of the country's economy.

But time showed that against the background of the general recession in the world economy, the situation in Azerbaijan turned out to be more stable. As it were, man is his own worst enemy. Rephrasing this saying, we can say that recommendations based on many years of experience and the conclusions of a group of experts are good, but only the authorities can decide whether they should be applied, because a negative outcome will affect the people they lead.