Ailing economy
2015 was a tough year for Azerbaijan. The economy took a tumble after the falling prices. The government had to grapple with the rising debt but spent lavishly on an extravagant sporting event.
President Ilham Aliyev approved the state budget at 19.438 billion manats for 2015. The external debt was $6.478 billion as of January 1, 2015 ($5.081 billion manats at then-rate of exchange).
After a nearly 60 percent drop in crude oil prices, the Central Bank of the Azerbaijan Republic (CBAR) devalued the currency by 33.5 percent to dollar on February 21, 2015 and began using a dollar-euro basket to manage the exchange rate. The manat was set at 1.05 to the dollar and 1.19 to the euro. The CBAR announced that it had spent 2.2 billion in only two months (December and January) defending the manat and eating into its foreign currency reserves. After the devaluation, Azerbaijan’s external debt rose to 6.801 billion manats.
The year ended with CBAR shifting to a floating currency regime to equalize the balance of payments, protect the country’s foreign exchange reserves, and ensure international competitiveness of the economy. The move set off panic among local citizens. The manat devalued by 98% in only 10 months.
20/02/2015
USD = 0,7862
Euro = 0,8934
21/02/2015
USD = 1,0500
Euro = 1,1950
21/12/2015
USD = 1,5500
Euro = 1,6850
European Games: extravagance amid crisis
While the economy continued to suffer, Azerbaijan played host to the inaugural European Games. The official cost of the Games was estimated at $1.2 billion, but experts say the number was much higher. By some accounts, the government spent 3.5 billion manats on the European Games since 2013. Azerbaijan also covered travel and accommodation expenses for participating athletes.
The damage of the European Games doesn’t stop here. On May 19, a residential building caught fire in the Binagadi district of Baku. The building was covered with a cheap, inflammable but “look-good” material used as part of a Baku “beautification” campaign. Sixteen people died, including 4 children. Sixty were wounded. This was the second fire incident in just one year caused by the usage of cheap plastic material to decorate the Azerbaijani capital ahead of the Games.
The exorbitant costs took a toll on ordinary citizens and resulted in massive lay-offs.
The 2015 budget was based on the assumption that oil prices would remain at $90 per barrel. But with the prices as low as $40 per barrel and the subsequent currency devaluation, the government had to make adjustments. The government transferred 5.6 billion manats to the state budget for three quarters of 2015. The State Oil Fund of Azerbaijan (SOFAZ) needs to transfer 10.3 billion to the government budget, which seems like a tall order. On October 1, SOFAZ’s assets totaled $34.738 billion with a decrease of 6.38 percent (2.3 billion) compared to the beginning of 2015.
What will SOCAR do next?
On December 15, SOCAR chief Rovnag Abdullayev signed a decree aimed at optimizing SOCAR’s expenses due to the gradual fall in oil prices.
Under the order, financial resources should be allocated toward profitable activities that require “less financing.” The order also contains measures aimed at scaling down welfare projects, sponsorship and charitable activities, and other business expenses.
In the coming year, major changes are expected in SOCAR’s activities. In order to reduce costs associated with SOCAR’s business, the activities of most missions will be covered by other relevant entities.
Aside from financial news, the year ended tragically with a deadly fire on the SOCAR-operated Guneshli oilfield where seven workers perished on December 4. As a result of rescue operations
,
33 persons were saved. On December 6, President Ilham Aliyev declared a day of national mourning. The search of 23 persons continues. On December 17, SOCAR announced that fire on the platform was completely extinguished.
Elections without democracy and cabinet purge
Another significant event took place on November 1 when the Azerbaijanis cast ballots for a new parliament. To no one’s surprise, the ruling New Azerbaijan party secured at least 70 seats in the 125-seat assembly. The election took place amid widespread accusations that the government cracked down on dissent, jailed opponents and human rights activists.
The government did not allow the OSCE’s Office for Democratic Institutions and Human Rights (ODIHR) to field the necessary number of observers, preventing the ODIHR from monitoring the elections.
On October 17, Ilham Aliyev dismissed National Security Minister Eldar Mahmudov without any explanation. After Mahmudov’s dismissal and arrests of high-ranking security officials, some businessmen accused the ex-minister and his team of blackmailing and extortion. Less than a month later, Aliyev also fired Minister of Communication Ali Abbasov.
The cabinet purge followed a series of legal amendments. On September 30, President Ilham Aliyev signed an order on application of the law on amendments to the Code of Administrative Offences of the Republic of Azerbaijan. Pursuant to this order, the parliament raised the existing fines up to 20 times, including fines for abusing journalists’ rights and free media, penalties for false testimonies during legal proceedings, and wiretapping.
Sanctions against Azerbaijan?
On December 16, Helsinki Commission Chair and US congressman Chris Smith introduced the landmark Azerbaijan Democracy Act aimed at denying U.S. visas to senior members of the Azerbaijani government.
“We recognize that there are important national security and economic ties that exist between our two countries, but the United States can no longer remain blind to the appalling human rights violations that are taking place in Azerbaijan,” said Mr Smith. “Journalists and activists are routinely arrested and imprisoned; opposition politicians are in jail and elections are not free and fair; human rights lawyers have been harassed and disbarred; and religious freedom is under attack. The Azerbaijan Democracy Act demonstrates that the United States takes human rights and fundamental freedoms seriously, and that we will not compromise when faced by a government that represses the political opposition, the media, and religious minorities.”
In addition to denying U.S. visas to senior leaders of the Government of Azerbaijan, those who derive significant financial benefit from business dealings with senior leadership, and members of the security or judicial branches, the Azerbaijan Democracy Act also expresses the sense of Congress that financial penalties should be considered. Sanctions could be lifted when the Azerbaijani government shows substantial progress toward releasing political prisoners, ending its harassment of civil society, and holding free and fair elections.
“It is unacceptable that senior members of the Azerbaijani government are free to visit the United States while courageous women and men like investigative journalist Khadija Ismayilova, attorney Intigam Aliyev, opposition politician Ilgar Mammadov, and activist Anar Mammadli are locked away in prisons with inadequate access to legal or even medical assistance,” Rep. Smith said. “If they can pay the price for standing up for human rights, the least we can do is to stand with them.”
