Why did Putin Praise Azerbaijan?

Last week Russia’s president surprised with his two assessments. One of them—10% GDP growth has been much touched upon. The second one remained unnoticed. Replying to the question on armaments supply to Azerbaijan, Russia’s president said that country is able to purchase weaponry from any state. Not being an expert in international relations, I’m not going to discuss the issue of free trade of weapons in the contemporary world.

Instead, the hint, that Azerbaijani economy is able to freely purchase armaments from any preferred country, may be touched upon. This statement was made at the moment, when economy of the neighboring country isn’t having good days.

The most characteristic phenomenon of recent days of global economy is drop in price for energy. Pursuant the first half 2016 economy of the neighboring country is being developed on account of mining industry by 40% GDP. And 95% of export belongs to oil and gas. Last year, when price for oil per barrel dropped up to USD 28, Azerbaijan faced economic crisis. Budget deficit for 2015 was equalized to GDP 10%. Currently price for oil per barrel fluctuates within USD 50. Azerbaijani president stated in his festive speech on independence day that economic condition has stabilized.

However, he also accepted that they hadn’t overcome the crisis yet. Closing of four Azerbaijani banks by the end of the year may be considered as implication of hard economic condition. Money hasn’t been returned to their depositor physical persons yet. And the most shocking news for recent months is that in that country exchange black market has been restored. This, probably, was expected. They attempted to solve the condition, established in financial market, through administrative ways. Even a special body has been established to that end. 4%margin has been defined for currency trading for banks.

Last Friday maximal margin of USD 200-300 was defined for physical persons purchasing currency in banks. And this in case, when many banks suspended currency selling. Moreover, upon the decision by the Government, physical and legal persons having foreign currency bank accounts, were banned to use them. Azerbaijani Economy Minister assessed the condition as follows:

“Economy in our country and the banking system have been separated and are pursuing independent policies.” In his words, banks stopped providing loans for economy. On August 23 the Government passed a special order of making use of foreign currency accounts. Scales of fiscal crisis may be realized from the decision made.

From now on, for instance, physical persons may use their own foreign currency deposits only to pay loans, penalties, communal and hypothec, medical expenditures. However, prior to making use of foreign currency (as well as legal), they should submit a written application to the National Security Service. That very body is responsible for allocation or ban of using their own bank accounts.

It’s particularly stated in the decision that legal persons may make use of foreign currency means only for making payments for previously signed agreements. In other words, presently the householders will be probably banned to include points in future contracts on making payments in foreign currency. Against the background of this it’s becoming clear why Azerbaijani CBA stated early this week that it doesn’t discuss the issue of devaluation of national currency (will you recall any other precedent, when Central Bank of any country stated on possible devaluation?)

Thus, only the president of the country may positively reflect to economic potential of the country with such financial system, who himself strives to have as much method-chances to manage the economic life. However, it should also be accepted that it’s already a past stage for world economy history.

By Ara Galoyan

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