U.S. ANALYSTS ON AZERI MANAT RATE DROP: “HOW ILHAM ALIYEV WILL EXPLAIN IT TO SUPPORTERS?”

Turan Information Agency
February 24, 2015 Tuesday

A.Raufoglu
Washington, DC

24.02.15/Turan: Azerbaijan appeared headed last Saturday for the
“worst economic turbulence in its independence, raising fundamental
questions about the future of the country as investors’ trust in its
basic institutions seemed to be eroding fast,” TURAN’s Washington
correspondent was told by an economy analyst who recently returned
from his trip to the oil-reach Caspian country.

The sudden drop in the Azeri Manat for 33 percent against the dollar
is “a sign that Azeri policymakers feel they have few options left
to fight the crisis,” said a source on the condition of anonymity.

“President Ilham Aliyev yet remains popular in the country, according
to his advisors who convinced recent U.S. scholars visiting their
country, but his rule has long been predicated on a basic bargain with
supporters to provide economic prosperity and stability in exchange
for political activity:The question is how he will explain current
Manat drop to his supporters,” the analyst said.

Aliyev did not publicly address the crisis on Monday, but
pro-government media speculates that he might change the decision of
the Central Bank.

Another analyst, Martin Spechler, a veteran professor of economics at
Indiana University, believes that a drop in the Manat rate is “not out
of line with other energy exporters and economies with fairly close
relations with Russia, where the Ruble has fallen even more than 35%!”

“The consequence will be higher prices for imports and in Azerbaijan,
inflation, because you import so much: A higher interest rate will
hold capital within the country to some extent, but of course it
will also retard development of small business,” he told TURAN’s
Washington correspondent.

“It will make luxury purchases by the elite of Baku more expensive,
too,” he said: “But Azerbaijan has the talented people necessary to
live in a somewhat smaller economy that will rely on domestic sources
of food and fiber.”

A possible bright spot, added Spechler, is that “this will make
reforms and diversification of Azeri industry more pressing and will
discourage an arms build up in preparation for war with Armenia.”