Analysis Materials 20 December 2005 12:04 (UTC +04:00)

The government decided

On 15 December 2005 the Azerbaijani Prime Minister, Artur Rasizade, and senior economist of the International Monetary Fund (IMF) Department for Near East and Central Asia, Vitaliy Kramarenko. The meeting actually sets up the new history of the relationships between the IMF and the Azerbaijani government, the initial pages, which says that further cooperation with the IMF will continue under Stand-by program‚ which stipulates regulation of problems linked with the current operations of the payment sheet. The program will benefit only consultative assistance, while no financial aid is planned.

How the start was

The Azerbaijan-IMF relationships with 13-year history and Stand-by was one of the first programs‚ considered for 1995-1997 and offered stabilization credits for Azerbaijan. Then the objectives were quite different and the program targeted support to small-scale privatization, liberalization of foreign trade and different reforms. Under the program Azerbaijan received credits in the amount of SDR 58.5m and repaid them in 2004. The rest programs of the IMF were carried out through approval of loan in exchange to implementation of recommendations and as of 1 July 2005 the debts to the IMF made up $194m.

Program financed by the IMF over the past 10 years have actually contributed to the development of Azerbaijan in the direction of the market economy. Initially the programs were directed at ensuring the macroeconomic stability, but later their major direction was to assist the implementation of structural reforms. There are considerable achievements in the maintenance of single-digit inflation, even though single-digit inflation was fiscal in 2004.

Culmination of events

The last program implemented with the IMF was the PRGF which ended on 4 July 2005. Under the program Azerbaijan received 5 credit installments with the total amount of 54.71m SDR of 80.45m SDR of the planned. The government reused from the sixth credit of IMF in summer. It was not so surprising, as the government had numerously states the country did not need in IMF loans and can use the currently reserves for this respect. "These funds do not assume so much importance for us and we can do without them,” Rasizade stressed.

"We have enough funds and they are well managed. We are not interested in the credit, but we only want to continue successful cooperation with the IMF," Finance Minister Alakbarov clarified.

Refusal of the Azerbaijani government did not make upset the IMF. Basil Zavoico, the head of the Baku office of the IMF, said that refusal from the last installment was actually a reply to some directors of the institute, who urged that Azerbaijan possesses enough funds, in particular, oil revenues, and it would be better to direct the finances to needy country.

In fact …

Many requests and ultimatums were sounded in a dialogue between the IMF and Azerbaijan. Azerbaijan was frequently late with the tasks, while many requirements were, as a rule, not implemented. However, the government took appropriate steps to meet the IMF halfway in some issues. Except some milestones, the IMF management was almost satisfied with the activities of the Azerbaijani government in the sphere of social reforms and structural changes

Refusal from the PRGF credit released Azerbaijan from the commitment of development through the IMF’s scheme. One can state with confidence that Azerbaijan refused from the unacceptable terms of the credit, which were to be implemented for approval of credits.

…but service to service

For the first time upon Azerbaijan’s entrance to the IMF the cooperation continued without programs and financial support. Review of the currency regime is implemented by IMF experts annually. In compliance with the last review, the IMF is satisfied with the level of macroeconomic stability and speedy economic growth. The IMF’s consultations turned out invaluable during the discussion of the 2006 public budget. The IMF’s major notes concerned the 2006 public budget was rapid increase of the public expenses and sharp rise in the financial deficit in the non-oil sector.

The IMF also presented to Azerbaijani government a draft memorandum under technical assistance in fighting with money laundry. Azerbaijan on its part presented to the IMF its proposals on the directions which the country would like to receive assistance. These are law-making and institutional directions. Azerbaijan also asked the IMF for technical assistance on some directions, in particular, monetary policy of the National Bank of Azerbaijan.

The discussions between Namik Nasrullayev, the chairman of the Accountancy Chamber, and the IMF Deputy Director for Middle East and Central Asia Department (MCD), Vitaliy Kramarenko, were based on management and control over use of investment flows (the investments and currency profits from their assimilation), which will repeatedly grow from 2006.

"The IMF adopted an approach of the Chamber to the issue, as well as an approach to the development of law on state financial control. On our part, we put forward an issue on desirability of the IMF assistance in the application of a notion and practice of efficiency. Menwhile, no issue on technical assistance was discussed, as it is not part to IMF mission,” Nasrullayev underlined

Let’s choose a new method

Today Azerbaijan wishes to receive from the IMF only consultative support. The Azerbaijani government gave the IMF to understand that it wills only to receive technical assistance and interact on the terms of Article 4 of the IMF Charter, which set up that the IMF was involved in compiling annual reports on economic situation in the country and does not envisage approval of credits. Though the last IMF mission led by Kramarenko with deep hope proposed to the Azerbaijani government to consider a financing program, it received official refusal.

Julian Berengot, the IMF Deputy Director for Middle East and Central Asia, stated that the Azerbaijani government at present does not need the implementation of programs, which envisage financial assistance from the IMF, and therefore, the institute is currently designing proposals on the new program for the Azerbaijani government. IMF intends to offer several similar projects to the government after the completion of annual review on the relevance of the country to obligations set by Article 4 of the Charter of the IMF.

As to Basil Zavoico, the head of the Baku office of the IMF, now when the program on assistance to poverty reduction program is complete, Azerbaijan immediately passes to an observation regime. The IMF mission will pay visit to Baku, send their recommendations to the authorities on the best way of implementation of the stabilization and structural reforms. However, the consultations are not based on any conditions and require from Azerbaijan concrete steps. Access to technical assistance and organization of courses for journalists, managers and MPs.

So, the new level of interactions between the IMF and the Azerbaijani government suits both sides, what will happen in future is matter of time.