History of the Baku Oil Industry. Part 63

After the discovery of oil fields, Baku became a special place, where various economic and political interests of international coalitions, industrial clans and leaders were concentrated and clashed. VK begins publishing chapters from the book by Ismail Agakishiyev "History of the Baku Oil Industry and the Second Oil Boom (second half of the 19th century - beginning of the 20thcentury)" The book presents a historical analysis of the emergence and current state of the Azerbaijani oil industry.

The economic strategy of the country relied on political and economic stability, rather than economic reforms. One of the main directions was providing economic stability of the country, establishing confidence among investors and the profitability of investing in its economy. By 1995 the economic crisis turned into an economic collapse. Gained oil bonuses of 1995 were allocated to compensation of 71% of budgetary deficit, while in 1996 the oil bonuses compensated the whole deficit of budget.

The negative consequence of the crisis was monopolization of economy, pilfering of state property, boosting of foreign debt, increase of corruption. In July the government admitted these factors as obstacles for economic development. By 1996 the budgetary deficit reached 342.5 billion rubles.

The other dangerous factor of the country’s development was macroeconomic instability. The government considered the struggle against it the top priority. And in the early 1990s the authorities began to provide economic reforms. However, promotion of Azerbaijan in the market system was an unreasonable policy in the early 1990s, which led to stagnation in the country. One of the main negative aspects was galloping inflation which covered all post-Soviet states after the dissolution of the USSR. It was beneficial for certain businessmen who gained huge capitals and vicious for the rest of the population and the state budget.

By 1994 the inflation rate reached 1600% in Azerbaijan, i.e. consumer prices boosted in 16 times during one year. In 1995 due to taken measures the inflation rate was reduced to 8.5%; in 1996 it was 6.7% - a great achievement. The National Bank of Azerbaijan conducted certain changes in the banking system of the country: unreliable banks were closed; banks which belonged to people who were close to the new authorities were opened and strengthened. The result of the provided policy was establishing of a common banking system managed by “our people.” In 1990-1992 one could found a bank with a statutory fund in $5 thousand. The International Monetary Fund recommended increasing the sum of a statutory fund to $1 million. By the beginning of 2001 the IMF demanded to increase the volume of statutory funds to $5 million.

Fulfillment of IMF’s recommendations led to deficit of the budget. Foreign experience had to be applied in Azerbaijan very carefully, as approaches and methods are different for different countries. The IMF didn’t consider socio-economic and political condition in the country sometimes, and made too strict requirements. Experience of Germany, Japan, and China became a bright example of implementation of international achievements which considered national peculiarities of a country. Of course not all founders of banks had opportunities to fill their statutory funds with $1 million. Another important question was who owns private banks. It was a leverage of “cleaning” the banking system. The administration of the National Bank obeyed to the president and let only representatives of the power own banks. They could fill statutory funds artificially and then get necessary sums from the National Bank as credits. Other banks were closing or being sold for small sums of money. The number of banks reduced, only major banks remained. The pre-Aliyev period when business existed separately from the state came to an end.