The practice of the mutual relationships between the International Monetary Fund (IMF) and Azerbaijani government shows that the opinions of the sides do not always coincide. If several years ago the government preferred silence, now with its developing economy and absence of problems in serving to foreign debts the country can bravely keep its position. It would be relevant to remind the relevant to recall the non-privatization of two state-owned banks: the International Bank of Azerbaijan (IMF) and Kapitalbank. Thus, Azerbaijan's refusal from the IMF's credit under the Poverty Reduction and Growth Facility (PRGF) were more probably linked with a will of getting rid of very persistent and contradictory Recommendations by the IMF and have an opportunity for independent selection and development of socio-economic policy not refusing the assistance and consultations, but orders from out.
This time the forecasts regarding growth pace inflation, that splashed on the eve of the discussions over the 2007 public budget, served as an apple of discord between the IMF and the Azerbaijani government According to IMF's forecasts, by the end of 2006 the consumer inflation in Azerbaijan will be two-digit in the amount of 12%. The forecast made in April
2006, will justify itself in the end of 2006. It is realistic with the consideration that the growth pace of consumer prices in August was 12%," Vitaliy Kramarenko, the head of IMF mission for Near East and Central Asia, has stated recently. He related the rise of inflation with considerable rise in public expenses (as a result of correction of budget forecast in 2006 the public expenses rose 70%) and conversion of currency in this respect. He called increase of currency revenues to the public budget as one of reasons impacting on the inflation and stressed that not the government should keep the currency.
In condition of increase of revenues from oil production the maintenance of inflation on the 1-digit level has become a major problem for Azerbaijan. Nevertheless, the Azerbaijani government does not agree with the IMF's and holds absolutely different position in this respect. The government states that the monetary-credit indices enable to apply anti-inflation measures in the later phase. Thus, the Government plans to increase emission of short-term bonds by the National Bank of Azerbaijan and T-bills by the Finances Ministry to reduce the risks. The volume of the securities market increases, POS-terminal are established in the trade facilities, control over use of the budget funds. The government is sill considering export of capital as a mean in connection with the expected currency revenues. In 2006 a total of $1.2 -1.3bn will be exported out of the country for the purchase of equipment and other goals.
In accordance with the official statistic, beyond the IMF's calculations, in January to September of 2006 the consumption inflation in Azerbaijan comprised 7.3% as compared to 2005. The consumer price index rose 6.2% as compared to December 2005, 10.3% - as compared to September 2005, 0.9% - august 2006. Over 30% of entire inflation in Azerbaijan was caused by monetary factors.
As to the first recommendations, the government agrees that the forecasts for inflation the coming 6 months due to changes in the country's economy is exact and decided to think over compiling another kind of forecasting. Such milestones enable the IMF to judge that the Azerbaijani government accepts the recommendations proposed by the Fund and a lose dialogue between the government and IMF will be continued. In the process of development of 2007 public budget the government chose the conservative forecasting of inflation. The forecasting of inflation for 2007 was maintained on the level of forecast made for 2006, 9%. It is necessary for the preservation of economic stability, absence of cut in community incomes amid rise in inflation, Heydar Babayev, the Minister for economic Development, says.
The government is sure that its actions are right. At present the annual inflation of 9% is optimal. We try to open new jobs, increase the special weight of budget expenses in the GDP, which constitutes 17-18%. We cannot stand silent and not increase the budget expenses not to stimulate the inflation. We should put a very good budget base for the years to come, the chairman of the standing parliamentary commission, Ziyad Samedzade, underlined.
At the same time the government does not rule out the necessity for deep analysis, as rise in incomes in money incomes by 30-40% affects on the level of inflation. It is necessary to improve the method of inflation, more precisely define goods which affect on the consumption basket and level of inflation. Respectively, there should be a large coverage. A light inflation on the level of 4-6% stimulates economy, flow of investments. For instance, 13-15%-inflation in the South Korea promotes boom in economic growth.
Nevertheless, the difference in the forecasts on major socio-economic indices, provided by Azerbaijan and IMF, harbors a very serious problem, affecting the country's prestige, especially if the foreign estimation is low by several points. The reasons for such difference should be investigated in from general opinion on methodology of calculation to literate argumentation of the positions. It turned out that during the calculation of inflation Azerbaijan and IMF use different methodology of collection of data on consumer price index (CPI), which leads to relevant disagreements.
At present the CPI is calculating inflation on the base of consumption basket formed of 585 goods and services. The calculation of the CPI is carried out the base of two methodologies: one envisaging artificial cut of inflation ratio, whereas the second increase of this figure and shortly it is planned to apply the third method of CPI calculation, which stipulate the averaging-out of prices. However, Veliyev urges it is a very difficult system.
The IMF does not regard such method of calculation as wrong. The IMF recommends making calculation on the base of good turnover, whereas the specialists of the State Statistics Committee are based on the calculations per population of the country. The IMF asserts that 50% of all goods turnover falls on Baku. The big number of enterprises and organizations out of Baku, which acquire computers, machine, furniture, existing in Baku actually increase the goods turnover here as compared to regions. On the other the head of the State Statistics Committee urges that such method of calculation of the CPI is unacceptable for Azerbaijan, as while calculating inflation they took into consideration only the purchase of goods purchased by population. Finally, the Azerbaijani government asked the IMF for technical assurance for estimation of general methodology of calculation of the CPI.
So, Azerbaijan takes every opportunity fight with inflation. Though rise in growth pace of the inflation does not pose any danger for economic stability of the country, the government is to be fully armed. In accordance with the forecasts, the inflation will increase in 2007-2010 and the government will have to demonstrate delicate art of handling the situation.