BAKU, Azerbaijan, June 23
By Eldar Janashvili - Trend:
The growth of the volatility index (VIX, or 'fear index') to historical records suggests that global investors avoid risky assets, and more than $100 billion have been withdrawn from developing countries, Executive Director of the Azerbaijani Center for Analysis of Economic Reforms and Communication (CAERC) Vusal Gasimli said, Trend reports on June 23.
According to Gasimli, this complicates attracting investment from developed countries to close deficit in Azerbaijan’s balance of payments. The reason for such deficit in the first quarter of this year was the formation of a deficit of $1.4 billion due to capital and finance flows.
"Countries with security cushion, such as Azerbaijan, can compensate for deficit in the balance of payments by using reserve assets, but reducing the real effective exchange rate in countries that do not have such an advantage is one of the limited methods of preventing the deficit in the balance of payments," Gasimli said, stressing that a decrease in the volatility index by 10 percent also reduces the real effective exchange rate of national currencies of developing countries by an average of 2.5 percent.
“International practice shows that the country residents' investments in local assets also positively affect the real effective exchange rate of the national currency,” he said adding that in developed countries, for example, in Japan, investments in local assets play an important role in financing the economy.
He also noted that it would be effective to invest in shares and bonds of numerous companies, which are traded on the Baku Stock Exchange and the over-the-counter transactions market, as well as in the notes and bonds of the government and the Central Bank of Azerbaijan, in real estate and other assets, and even in local startups of Azerbaijani residents.
According to him, the real effective exchange rate of the country’s national currency is positively affected even by replacing part of the external debt with internal one, in accordance with the state debt strategy, and even by borrowings in manat from investors such as Asian Development Bank (ADB).
“Investments in local assets largely depend on the development of market infrastructure in the country, and in particular on mediation institutions. Today, there is a need in the country to develop investment funds, investment companies, brokers, crowdfunding and crowd investing platforms,” Gasimli concluded.
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