Modernization and diversification of economy

The doctor of economic science of Russia, Turkey and Azerbaijan, head of the macroeconomic research center ForexClub (Azerbaijan), Professor Zakhid Mamedov, spoke to VK about the results of the year in the economic sphere of Azerbaijan.

-          A deep economic crisis is observed in Europe. Could this factor influence the economy of Azerbaijan in 2012?

-          The world financial crisis, which has been developing since 2007, is the major trend, which defines the economic situations in most countries of the world. Almost every country, despite its involvement in the world financial system, is undergoing a crisis. There are no common recipes for overcoming the crisis. Various anti-crisis measures aimed at stabilization of the financial, real and state sectors of economy and reduction of the terms for achieving pre-crisis levels.

Several years ago the global crisis shattered the basis of the world economic picture. It made financial and banking structures reconsider their activity and try to find new solution for relevant problems.

In those days the crisis threatened the economy of Azerbaijan in four directions.

First. Blocking foreign sources of financing for banks of the second level and reduction of the pace of credit liquidity, which can lead to a reduction of business activity.

Second. Fall of exchange commodity prices, reduction of export currency earnings, which leads to a reduction of imports and an increase of the negative foreign balance of the country. General characteristics of the economy of Azerbaijan define its high sensitivity to foreign markets. It is connected with a great share of the oil sector.

Third. Reduction of production in the real sector of the economy, which leads to a reduction of the pace of GDP growth and an increase of unemployment.

Fourth. Attack on the manat, devaluation and speculative outflow of capital, reduction of living standards.

As a result of measures taken by the Central Bank before the crisis, the pace of high and risky growth of bank assets were limited; the system of regulation of foreign debts was launched; capitalization and the level of financial reservation were increased dramatically; norms and regulation limits were hardened. Refinancing of foreign debts was provided. The sum of protected deposits was enhanced up to 30 thousand manats; the inter-banking monetary market began its operation with guarantees from the Central Bank.

As a result the exchange value of the manat was increased and oil fund revenues were accumulated. Growth of foreign financial responsibility of Azerbaijan, along with liberalization of monetary legislation and strengthening of the manat stimulated capital inflows and increased the attraction of the Azerbaijani banking sector to foreign investors.

A reduction of inflation and a growth of competitiveness gave an impulse to rapid development of new promising kinds of financial services.

-          What can be said about the current situation and the problems in development of the banking sector of Azerbaijan?

-          Despite the global banking crisis, the banking sector of Azerbaijan is growing. In general in the banking sector the level of sufficient capital (the relation between owned capital and assets) is 17.7%. It characterizes the backing of the bank assets with its own capital.

By November 1st, 2010, foreign investments were present in the capital reserves of 23 Azerbaijani banks. This year the number of credit organizations, which increased foreign share in the capital reserves, grew. In 7 banks this level was equal to 50-100%.

Today the joint banking assets of Azerbaijan are about 60% of the banking assets of the South Caucasus. The main role in the Azerbaijani banking sector is played by the state control bank – the International Bank of Azerbaijan (IBA). The IBA enhances its presence in other post-Soviet countries. Moreover, the bank has offices in Europe (London, Frankfurt-on-Maine, Luxembourg), in the USA (New York), and in Asia (Dubai).

In general, the financial situation of Azerbaijani banks is stable and positive. Azerbaijani banks should continue institutional development, which will positively influence the banking system and contribute to economic growth. Considering the necessity for an increase in financial confidence of the banks and providing their successful development, banks should take measures on enhancing capitalization, attracting foreign investments, forming reserves in active operations, reducing risks and providing balanced growth. As a result of the anti-crisis program, the financial stability of the banking sector has been improved.

The priorities of the social-economic development of Azerbaijan are modernization and diversification of the economy. That is why the main element of the future policy should be reforms, which enable solutions to the key problems of the global financial crisis and reforms of the economy’s modernization.

Interview by Pamin Naziyev, Baku. Exclusively to VK