Examination on sustainability
Firstly the crisis in the USA and other unfavorable events on the global financial markets only contributed to the growth of pessimism amongst the economists frequently raising the theme of the approaching of new global crisis. However, now when serious danger appeared for the economy of Russia, experts do not doubt that the global economic crisis began its offensive. This was testified by the issue that as a result of large fall in the shares of the Russian stock exchanges, the trades in the stock markets RTS and MMVB were stopped according to the order by the Federal Financial Market Service of Russia.
The turn of bankruptcies of financial companies shook America. Last events - closing the twelfth bank (Ameribank Inc. was closed on 19 September by the regulators of the USA in connection with its financial condition), intake of Bank of America of the investment giant Merill Lynch and bankruptcy of investment bank house - Lehman Brothers. All these forced economists to speak of beginning of deep crisis compared to the Great Depression. Many large structures, financial organizations with the 100-150 years history are in stress.
The threat of the impact of global financial crisis on the economy of Azerbaijan exists, and it is sufficiently significant because as a result, any financial crisis transforms into economic crisis. Azerbaijan is integrated into the global economic system and is subject to the consequences of globalization. Other question is that in Azerbaijan there are both paradoxical factors, which positively affect "the defense" of the country from the financial crises, and thoroughly developed approaches on how to combat it.
For example, it is paradoxical, but today the absence of threat for the domestic stock market is connected with its insufficient integration into the world financial markets and also insignificant dependence on the world financial institutions. Thus, in recent years the share of non-stock market exceeds the share of operations at the Baku Stock Exchange and this relationship composes 95 to 5 percent respectively.
The turnover of stock exchange transactions at the Baku Stock Market as a result of 2008 is expected at the level of AZN 7-8bln against the forecasted AZN 10bln. However, reduction in the amount of operations at the first and second stock market is explained through the growth retardation in the banking system of Azerbaijan.
Negative factor from the instability of the global financial crisis for Azerbaijan is only the delay of issuance of sovereign Eurobonds in the international markets. However, it is impossible to call it losses, but most likely vice versa.
The second most vulnerable fact for the crisis in the financial system of Azerbaijan - bank - is that it in proper time manufactured "medicine" for the threat. At the beginning of year the National Bank of Azerbaijan called on the banks to hold careful policy, taking into account the estimation of all elements of situation in the market. It warned the banks to create institutional platform prior to the beginning of an increase in the assets and operations. On the other hand, the closeness of the banking market of Azerbaijan played in favor of the country.
Several experts consider that the global financial crisis already affected the economy of Azerbaijan, and the limitations in the credit activity of local banks testify it. Currently the banks do not have a possibility to provide both consumer and entrepreneurship credits. Subsequently, the banks can even face the problem of re-paying already borrowed monies from the foreign capital markets.
With regards to the impact of the global financial crisis on the insurance market of Azerbaijan, according to the Head of Insurance Control Department of Finance Ministry of Azerbaijan, Namig Khalilov, it is impossible to exclude the negative consequences of the financial crisis for the insurance market of Azerbaijan. As known, Azerbaijan insurers re-insure part of the insured risks in the foreign re-insurance companies. If as a result of crisis, any re-insurance company, which participates in re-insurance of our insurers, becomes bankrupt and will not be able to carry out its obligations regarding the payment of insurance compensation, then this can put its Azerbaijan partners in a very difficult financial condition. In order to reduce the risks linked with the re-insurance, the insurers need to diversify their re-insurance programs, distribute re-insurance amongst possibly larger number of reliable re-insurers, not to allow the excessive concentration of the re-insured risks in one re-insurer, or to possess large own capital.
The only fact that would be serious to fear is the influence of crisis in the incomes of the State Oil Fund of Azerbaijan (SOFAR). But SOFAR proved to be fully armed. The matter is that the Oil Fund places its monies in high-rating securities and the demand for the similar securities grows in the crisis periods and their cost begins to increase. Consequently, the forecast index on the incomes of SOFAR is expected to exceed the forecasted indicators.
According to the Executive Director of State Oil Fund of Azerbaijan (SOFAR), Shahmar Movsumov, the drop in the oil prices showed the accuracy of selecting conservative approach during devising the budget of the Fund. If last year the oil price in the calculation of the budgetary forecasts was $50 per barrel, this year it totaled $70per barrel. Currently the incomes of SOCAR exceed AZN 10bln and by the end of the year they are expected to increase up to AZN 13bln. But the decrease in the costs of securities in the world markets will affects the incomes of SOFAR from management of its assets. According to our accounts and the information, obtained by us from the Norwegian Oil Fund, the losses from the beginning of the year to the present day is 3-4%.
The probability of the impact of global financial crisis on the commodity turnover of Azerbaijan would be great if not on the raw export of goods. According to the official statistics, the greatest specific weight in the export article of the country belongs to the crude oil (93.80%). As known, now boom of demand is observed in the world for the raw goods, prices of which in the world market grow. Thus, forecasted by the World Trade Organization, the retardation of an increase in world trade under the influence of the financial crisis in 2008 will not touch upon the trade of raw material, which will continue dynamic increase, which will be in the hands of the exporters of energy resources, and it means in the hands of Azerbaijan. But the fact that all commercial operations of the country are calculated in the American currency makes the economy of Republic less sustainable before the change in the exchange rate of dollar. After Italy, the USA is the second, important exporter of Azerbaijani oil and oil products.
Since the beginning of the year the USA and Japan have decreased the growth rates of the import by 7%. This tendency is connected, first of all, with the consequences of global financial crisis because the limitation of financial flows slowed down commodity turnover as well. If the import is sharply reduced in any country, then this means the impossibility of the realizing its products with the exporting countries that also leads to the appropriate decrease in the volume of their export. If the geography of import and export of the countries of the world economy is strongly diversified, the reduction of import in one country, acquiring mass character and worsening world-wide situation, will affect many states.