The last two weeks in Azerbaijan have been characterized with special activity of international financial organizations, in eager rivalry offering their services. They are the International Monetary Fund (IMF), who arrived in the county with a mission and the World Bank with new projects, and the European Bank for Reconstruction and Development (EBRD), which offers credit for the reconstruction of the Azerbaijan hydro-power station in exchange of the requirements forwarded. Such interests by the international financial organizations are not accidental. It once more testifies for rise of local economy, while there are still risks for large-scale development.
The IMF undertook a task of fencing Azerbaijan from any type of risk, threatening the macroeconomic stability and without interests. The sides did not come to such a resolution immediately. The discussions have lasted from last year when the government officially refused from the sixth installment of the IMF under the PRGF and from any type of financial assistance of the organization, further form of cooperation with the IMF were concentrated on Stand-by program, which envisages the resolution of problems linked with the current cooperation of the payment balance.
During the visit of the IMF mission headed by Vitaliy Kramarenko, the deputy director of the IMF Department for Central and Middle East, the Azerbaijani government has finally announced on its choice: Baku prefers the consultative form of cooperation, on the base of programs without accompany of credits. The IMF will hence assist Azerbaijan as required. The Azerbaijani government only asked for technical assistance in three directions: improvement of the national accounting system, the budget classification, and management over debts. The assistance is calculated for the nearest 12 months, which also includes of arrival of a special mission on estimation of consumer price index.
Yet it unknown how far it is sincere, but the IMF is satisfied with form of cooperation. Kramanrenko said that the government observes the IMFs recommendations and therefore, close dialogue between the Azerbaijani government and the IMF will be continued.
However, the first impression of obedience and model conduct of Azerbaijan, should be accepted not as Azerbaijans agreement with all commentaries and recommendations by the IMF. Azerbaijan is not the weak country, which obediently took credits in exchange to requirements unacceptable for the country. Over many years of cooperation with the IMF Azerbaijan acquired relevant experience and got a practice of conduct with this organization, forwarding own requirements and rejecting non-profitable proposals. The bright example for current discussions between Azerbaijan and the IMF, during which the government exactly voiced its disagreement with the IMF on many aspects of the macroeconomic development of the country and put forward its viewpoint against the IMFs forecasts.
Disagreements
During the meeting of the mission with Prime Minister Artur Rasizade the discussions on inflation expectation were of tougher character. Thus, the IMF warned the government of sharp increase of expenses of the 2006 public budget, as it could result in double-digit inflation. Vitaliy Kramarenko, the head of the mission, said that the growing expenses of the government from the oil sector cause necessity for sale of currency in the local market. It necessitates cut in expanses for achievement of objectives on the pace of inflation. A problem of inflation is linked with its indefiniteness, including the factors not linked with the Azerbaijans expenses changeability of the global cross-rates, prices of industrial resources and capital flow. Without corrections Azerbaijan will find difficult to maintain the inflation in the boundary of 10%, Kramarenko stressed.
The government takes a different standpoint in this respect considering that the monetary-credit indices enable to apply anti-inflation measures in the late stage. To decrease risks the government plans to increase emission of short-term notes by the National Bank and state short-term bonds of the Finances Ministry. In this connection the forecasts by the government envisages up to 8% - inflation by the end of the year. As a result of the first quarter, it has not exceeded 4.6% since last December and 5.5% in the annual calculation. If the measures designed are unable to retain the growth of liquidity, the government is ready to appeal to the IMF for consultations.
The IMF mission also visited the National Bank of Azerbaijan (NBA) to discuss the perspectives of application of a innovative practice of the world central banks transition from the resolution of the money base to the resolution of consumer inflation. Kramarenko noted that among system of Azerbaijan is not large and for the level of monetization lags the banking sectors of Russia, Ukraine, Kazakhstan and Estonia. In this respect the NBA were given some recommendations: to attach more attention to the resolution of the monetary-credit policy, consolidation of the banks, establishment of rivalry in the banking market, which will beneficially affect the banking sector.
However, the Director of the Monetary Policy Department of the NBA, Khagani Abdullayev, in reply to these recommendations by the IMF, thinks that it would be impossible to apply this practice in Azerbaijan fully, as the NBA is not major responsible body for the regulation of inflation. As a result the NBA confirmed its readiness for transition from regulating the money mass to regulating the inflation on easy scheme, which will specify and support the target of basic inflation, Abdullayev said. The term of transition is not indicated due to necessity of the resolution of some technical and market problems. The application of a new scheme depends on the development of the monetary market. In this respect it is necessary to make the NBAs rates a real instrument of regulation, which is impossible without the development of the interbank crediting market. On the other hand it is necessary to increase the authenticity of macroeconomic forecasting by the NBA. So, with the assistance of the Swiss Banks experts begins the process on development of 5-6 economic models against the one currently existing, Abdullayev underlined.
Although, recommendations and consultations by the IMF found their supporters. During the consultations the IMF found the common viewpoints with the commercial banks. No doubts, it directly concerned the interests of the commercial banks. The NBA must offer equal facilities for all banks and achieve cut in the level of concentration, Kramarenko noted.
The IMF hinted at 2 manifestations of irregularities in the banking sector full guarantee of the country on deposits in 2 state-owned banks and preservation of deposits of the state enterprises only for private banks. The NBA is drafting a Law on insurance of deposits to cancel the inequality while guaranteeing the deposits. The NBA also should stimulate the state enterprises for placement of deposits in other bank, but not only the International Bank of Azerbaijan, Kramarenko stressed.
Silence is gold
Many attempts taken by the IMF to worm the perspective plans on the macroeconomic policy out of the government were not successful. The IMF mission was interested in the governments plans on increase of forecasts for 2006. Former Finance Minister Avez Alekperov stated indefiniteness in the issue, while stressed that by the end of April they will get determined whether to reconsider the budget, or leave it in the previous level. The issue of correction of the public budget of Azerbaijan in 2006 for increase was under consideration.
The sides did not discuss the privatization of private banks the International Bank of Azerbaijan and Capital Bank. This painful issue in many cases has become an apple of discord between the IMF and Azerbaijan.
The IMF was interested in the process of Azerbaijans entrance to the World Trade Organization (WTO). They were informed on the countrys standpoint, which was demonstrated in the talks of the working group in Geneva from 26 to 31 March 2006 on the bilateral and multilateral basis with the United States, Canada, Turkey, Japan and the European Union.
Thus, this visit of the IMF mission was very rich. However, it would be wrong to say that the mission achieved its objective. To the very end the IMF thought that a regular control and technical assistance to Azerbaijan could be supplemented with a special financial support. The Government has firm position and the IMF should respect them.