FRIENDSHIP GREEN WITH NO HEDGE BETWEEN

The situation which has evolved in the international economic arena necessitates integration and cooperation between financial institutions to combat the negative trends in globalizing markets. Almost all countries today are members of at least two or three international financial institutions.  The latter, acting as major creditors of large-scale regional projects, simultaneously carry out all types of missions to monitor the state of the economy in member countries, handing down "verdicts" - reports which influence the situation in entire regions or sometimes even in the entire world. For example, the world "caught a cold" from the "food crisis" immediately following "frightening" statements by the World Bank and International Monetary Fund.

So, international financial institutions (IFIs) are an inherent part of the world economy today and as soon as Azerbaijan embarked on the road to independent development, it immediately joined some of them, dutifully paying its annual membership fees. The World Bank, International Monetary Fund, European Bank for Reconstruction and Development, Black Sea Trade and Development Bank, Islamic Development Bank - their role in the country's integration into the international economy is undisputed.

With the exception of the Bretton Wood Sisters, many international financial institutions were formed on the basis of some particular criteria eg. geographic or religious, or are derivatives of political alliances. Against the backdrop of the declared intensification of work by GUAM - an organization which fosters democracy and development - the idea of creating a bank with four member countries: Georgia, Ukraine, Azerbaijan and Moldova, which would act as a source of funding for regional projects, seems quite logical. But it apparently has more opponents than supporters.

Hopes and concerns

The idea of creating an International Bank for development within the GUAM member countries can be implemented only if there are specific sources of funding for such an organization and for the management of its activities. This is the conclusion drawn by the heads of the banking associations of the GUAM member countries.

"Of course this is a good idea. But we have the negative experience of the operation of the CIS International Bank, which turned out to be a practically useless organization. To create a GUAM bank, it is necessary to have a clear-cut idea of what its source of income will be and what types of projects it will fund," noted Dmitriy Ursu, President of the Moldovan Bank Association.

"Creating a bank is an economic, not a political issue, which is why we should first of all consider what benefits could be derived from this project, and we should begin implementation only when we have completed our calculations, said Georgian banking association president Zurab Gvasalia.

At the same time, according to Eldar Ismayilov, head of the Azerbaijani Banks' Association, the creation of the international bank is inevitable. "True, there is the negative example of the CIS International Bank, with its incorporation capital of 300 million roubles. But there is another example, of the Eurasian Development Bank, which was also founded within the CIS, with incorporation capital of $1.5 billion, for the implementation of major regional projects," said Mr. Ismayilov.

It has to be said that the GUAM bankers' caution is justified. Only a few people know that the CIS International Bank, which was founded back on 22 January 1993, actually exists. Let us remind you that Azerbaijan did not join the organization which was created by 10 countries, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine. We know that three branches of the bank were opened in Armenia, Kyrgyzstan and Belarus. In accordance with the protocol signed by six states in October 1996 (Armenia, Belarus, Kyrgyzstan, Moldova, the Russian Federation and Tajikistan) the bank was allowed to enter the domestic currency markets of these countries with the right to carry out banking operations and deals. The broadest powers were given to the CIS International Bank in the Russian Federation, its country of residence. But despite opportunities to operate effectively, the small incorporation capital of the bank, and the excessive passivity of its member nations in respect of further development of the financial institution, made it practically useless.

After the founding by Russia and Kazakhstan of the Eurasian Development Bank (EADB) in January 2006 to finance projects of member states of the EurAsEC, the Eurasian Economic Community, the suspension of the activities of the CIS Bank was just a matter of time. After all, the EADB, with its incorporation capital of $1.5 billion, (of which two thirds is Russia's share, with the remaining one third being Kazakhstan's) can fund major projects. The founders of the bank said from the very outset that the bank will invest not only in Russia and Kazakhstan, but also in all the EurasEC countries and it is ready to take risks and work where other foreign investors are not yet prepared to go. There has already been an appeal to the EurasEC countries (Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan, and observers Armenia, Moldova and Ukraine) to become shareholders in the bank. According to the EADB development plan for 2008-2010, its assets should reach $6,668.2 million; its stock is set to be $1,731.1 billion and post-tax income - $86.6 million.

Time for large-scale projects

So, for the creation of an international financial institution, the main condition is its financial viability, which requires economic support from all member countries. It is no secret that among the GUAM countries, Azerbaijan is the most economically developed. Thus it may be assumed that the main burden of the creation of a joint banking institution could rest on our country's shoulders, so it is up to us to decide whether the republic needs this type of organization.

On the one hand, as already mentioned, Azerbaijan can handle the funding of large-scale projects itself, and the leading IFIs and foreign banks will readily lend the money Azerbaijan might need to a country with such a high rate of economic development.

But, on the other hand, the time has really come to develop GUAM as a political and economic alliance, to which a joint bank might be conducive, especially as the banks of the member countries recently signed, in Baku, an agreement 'On a coordinating council of the banking associations of the GUAM nations'. The council will work on the development of appropriate conditions for high-quality banking services for the movement of goods, services and capital in the participants' economic area, the development of an infrastructure for inter-bank services, including direct correspondent partnerships between member countries' banks, the introduction of financial and credit instruments to transactions between those involved, an analysis of the banking laws of the countries and the development of proposals for their improvement and convergence towards the integration of banking systems. In addition, the council will take charge of improving mechanisms to combat the laundering of illegal revenues through banks, the exchange of financial, economic and banking information and the organization of the exchange of professional experience, including personnel training.

In addition, the member countries are already talking about the need to implement concrete economic projects within the GUAM framework. "If, for example, I hear today that we want to build a motorway around the Black Sea, why should we not do it? In addition, the issue of increasing transit cargo turnover is also on the agenda. There is a need for more and higher-capacity ferries to increase rail traffic, especially as there is a proposal to use our transit potential for the shipment of cargoes from Asian countries. But this would require colossal investment and a flow of funds which need to be serviced by the banks," noted Oleksand Suhonyako, president of the Ukrainian Banking Association.

In other words, there is a need for the promotion of joint projects to prove that GUAM is a viable organization and that the $4 billion of goods turnover between our countries is on the low side.  "Soon, the turnover of goods between GUAM countries will reach $10 billion. Obviously, bankers must be ready to process a huge amount of money. This is why we need to create an appropriate banking infrastructure within the framework of GUAM to establish and develop regional cooperation in the banking sector," said Eldar Ismayilov, president of the Azerbaijani Banking Association.