IMF APPROVES LOAN TO BAKU.

Azerbaijan, in late December, took another step toward integration into the international economy when it received a loan package of $64 million from the IMF in support of its economic reform efforts. The package caps a good year for the Azerbaijani economy, which saw, among other things, significant increases in oil production, foreign investment, and Gross Domestic Product. (Reuter, December 23)

The loan package reflected the IMF’s satisfaction with Azerbaijan’s reform efforts since 1995, when the country first adopted a stabilization plan approved by the Fund. Yearly inflation rates have dropped from 1,600 percent in 1994 to 4 percent in 1997; and the 61 percent decline in GDP recorded during 1991-1995 has given way to growth of 1 percent in 1996 and 5 percent last year. The IMF forecasts 7 percent GDP growth for Azerbaijan in 1998, and 9.6 percent growth in the year 2000.

Still, Azerbaijan’s growth prospects face a number of serious possible impediments. First, a recurrence of warfare with Armenia could put at risk the oil revenues and foreign investment that are expected to power the Azerbaijani economy in the future. Second, prospects for transporting the increased oil output to world markets, especially through neighboring Russia and Iran, remain uncertain. Third, Azerbaijan’s oil wealth could produce an unbalanced form of economic development, in which other industries not related to petroleum would lose out to the oil sector and thereby damage Azerbaijan’s longer-term economic prospects. Fourth, the allure of the country’s oil wealth could convince the autocratic regime of President Haidar Aliev to abandon further reform of Azerbaijan’s still tightly controlled economy. Nevertheless, when compared to the economic devastation that faced the country in 1992-1994, these problems seem quite minor by comparison.

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