In two months a mission of the IMF is expected to visit Baku to discuss with the Azerbaijani government an issue on proposing of a program on future cooperation Stand-by. The program envisages support to macro-economic stability through regulation of problems linked with the current operations of the payment balance. It would be impossible to mull the issue scheduled for last year, as the term of implementation of the program on Poverty Reduction and Growth Facility (PRGF) expired in July 2005 and then the parliamentary elections were held in the country.
During the last mission of IMF, which came to Azerbaijan to hold in 2005 consultations in accordance with Article 4, the sides discussed different forms of cooperation in the perspective. In compliance with the agreement, IMF will annually send to Azerbaijan a full mission for consultations over the bilateral control over the economy of member-states. The mission will present a report on its conclusions to the Executive Council of the IMF, while it is also possible to hold one or two more short-term missions a year to review the key elements of the macro-economic strategy of official bodies of the country. Besides, the IMF is ready to render large-scale technical assistance to Azerbaijan further.
As to Azerbaijani government, we are ready to carry out a Stand-by program, but not to receive IMF loan, Avez Alekperov, the Finance Minister stressed. The cooperation can be continued through holding consultations.
As soon as the official bodies take a decision to appeal with requesting of concluding a Stand-by in support to the economic programs, they will have to prepare a letter of intention to state their economic and financial policy, which is to contain quantitative criteria, as well as a schedule of different structural reforms. Further a request by official bodies on preventive agreement on Stand-by is to be adopted by the IMF Executive Council.
Tough Azerbaijan officially refused from any financial assistance by the IMF and refusing from the sixth installment of the PRGF last summer, the IMF still hopes that Azerbaijan would like to receive credit under Stand-by. Basil Zavoico, the head of the Baku office of the IMF, also hints on it in the press. According to Zavoico, in difference to previous years, an agreement will be concluded with the government under Stand-by to use the credits only in extreme cases. One of such cases might be sharp fall in oil prices, when the funds were required to cover the public budget. In this case the credits will be reserved for Azerbaijan. If they are unused the government will not pay interests for them.
It raises a question, however. Why does the IMF do it, if the funds will lay dead in the BBAs accounts? Moreover, according to forecasts for next year the world oil prices will increase. Besides, the Finances Ministry has a reserve account for cases of fall in oil prices. Respectively, there is no need for implementing such programs with the IMF with the value of $10-20m. The Logics hints that the IMF is interested in changing Azerbaijan to a debt bondage with respect to dictate own terms in the form of recommendation and in this way to strengthen as a leading world creditor.
Azerbaijan has numerously stated that it gives preference to cooperation with the Fund only on the base of common programs, which envisage only consultative assistance and without credit obligations. Though the Azerbaijani state officers attentively listen to the world creditor, they do not hurry to implement them without any exclusion. There are several reasons for it. Firstly, rise in economy, which has been observed for the past few years and sufficient currency reserves. Secondly, the IMFs financial policy, carried out in several countries, discredited itself. Moreover, the consultations by the IMF also have lost their actually.
Nevertheless, the current mission of the IMF remains to be important for Azerbaijan.
Today the IMF realizes that the government holds firm position and it will take too much to persuade the government to take credit under Stand-by. This is a new form of cooperation between the IMF and the government, and therefore, the negotiation process will delay. I think within a year the talks will complete, Zavoiko noted. The issue should be accorded, as the value of the program will be small and the credits in this respect would be comparatively cheaper.
The common strategy is that the foreign debts should not be regarded as easy one and analyze the need for the capital. It is necessary to take credits only for strategically important projects, in particular infrastructure projects. Coming out from this position, many sate officers assure that first it is necessary to settle accounts with the IMF ahead of schedule. The timely repayment of debts would bring dividends to Azerbaijan at the IMF.
In the end of 2006 the Azerbaijani government increased repayment of debts in IMF credits on one program STF, which was allocated for covering the export deficit of the trade balance. According to the Ministry of Finances, it was one of the first stabilization credits totaling 58.5 SDR. In the initial stage of cooperation in 1995-1997 the programs Stand-by and STF were the first of their kind, under which the country started receiving IMF credits. The repayment of debts under both programs has been complete.
The National Bank of Azerbaijan, which carries out payments out of the currency reserves of the country, is charged in implementing commitments set by the IMF. In 2005 $46.6m was repaid under the IMF credits and consequently, as of 1 January 2006 total debts to this financial institute under three programs (ESAF, EFF and PRGF) was decreased to $164m.
However, the reserves of the county can be increased by $23m more last installment of IMF on ESAF and EFF credits‚ as well as $18m last program on PRGF. In the first case they refused Azerbaijan to allot a tranche of the credit in connection with the non-implementation of the recommendations made by the IMF, while after the government refused to the next installment of the PRSC. The government intends to repay debts in 2008-2010 and after not to use the IMF credits.
For the time being the IMF enjoys definite rights on Azerbaijan and regards its participation in the countrys economic life as important. In particular, it estimated the tasks that the Azerbaijani economy is to resolve in 2006 and in the subsequent period. The key task is to ensure the balance between the governments aspiration for rapid development of infrastructure and increase of living condition of people and necessity of avoiding the extreme public expenses, which would inevitably lead to pressures either on prices, or nominal exchange rates, which can undermine the competition capacity of non-oil sector of economy. The official bodies are recommended to trace the macro-economic outcomes of a rise in expenses and in case of necessity, timely take correction measures, including cut in planned expenses. It is necessary to recall that programs financed by the IMF over the subsequent 10 years, contributed its shares in the development of the Azerbaijani economy in the direction of market economy.