After the recent savings-obliterating devaluation of Azerbaijan’s manat, President Ilham Aliyev decided that he owes an explanation and pep talk to his worried nation.
In a televised speech, President Aliyev said on February 24 that Azerbaijanis should have seen the devaluation coming, given the geopolitical oscillations afoot in the post-Soviet world and the drop in oil-prices. He appeared to have forgotten about the fact that only a month ago he had asserted that none of this would affect Azerbaijan’s currency.
He conceded, though, that if the manat-dollar rate had held, Azerbaijan’s foreign-currency reserves could have been reduced sharply by year's end. Five hundred million dollars, he alleged, was being bought a day; he did not name a time-period.
Nonetheless, in the Aliyev theory of economics, every dark cloud has a silver lining. The manat’s former strength just shows how successful Azerbaijan’s economic reforms have been, he argued. The catch is . . . “events in the neighborhood” made it too much of a good thing.
The mighty manat’s increase in value posed a problem for economic development, he claimed, making no mention of the currency’s nearly four-year-long peg to the US dollar. “This is why we decided to devalue the manat a little,” he said.
“A little” meant the Central Bank’s February-21 decision to slash the manat’s rate against the dollar by more than a third, and against the euro by 30 percent. It already had divorced the currency from the dollar.
Although officials have claimed there's no real reason for price-hikes, Azerbaijani stores seem to disagree, according to local media. Moody's Investors Service has warned that the devaluation-cum-oil-price-dip could threaten the creditworthiness of Azerbaijani banks, as well.
Yet that doesn't faze Aliyev. He vowed to keep prices in check and shook his fist at supposed profiteers. “The state will punish those who artificially inflate prices,” he said.
He also asked citizens to look on the bright side. For Aliyev, slashing the manat’s rate against the dollar somehow means “equating” the two currencies. And that, of course, means that it will be “possible to spend more on social programs, to avoid a shortfall in budget revenue and to complete all infrastructure projects on schedule.”
How this would be accomplished if oil prices are falling and the manat’s value against the dollar weakened was not immediately apparent.
Pre-devaluation, Central Bank Chairperson Elman Rustamov told the state-run television channel AzTV that Azerbaijan would experience single-digit inflation in 2015.
“[U]sing all [the] means at our disposal, we will try to achieve this,” he said, News.az reported.
The government, though, has its reasons for trying to accentuate the positive.
In neighboring Georgia, the government is being scorched for the continued fall of the lari, the Georgian currency, against the dollar. On February 24, the National Bank of Georgia unloaded $40 million and knocked three-percent off the lari’s value (now at 2.26 lari to the dollar, compared with roughly 1.74 to the dollar for the same date in 2014).
In a country where decent paying jobs run scarce, patience such losses is running thin.
In Azerbaijan, where open critics of Aliyev’s strong-arm rule increasingly end up in prison, a similar lambasting of the government for alleged economic mismanagement has not occurred.
But the question is how long that state of affairs will last. For a government that's banked its reputation with voters on economic growth and stability, the answer could prove critical.