September 17 became “Black Saturday” in the history of the dollar in Azerbaijan. In just a few hours, the exchange rate of U.S. dollar to the Azerbaijani manat fell by almost 20% (from 4,600 manat per dollar to 3,800 manats), creating chaos and panic in the stock market. This, in turn, left thousands of people without cash, as most of the exchange points closed or refused to exchange currency. Other people rushed to sell their foreign currency for lower rates, thus further deepening the crisis.
The situation shocked ordinary Azerbaijanis, who had become accustomed to the relative macro-economic stability in the country over the past 10 years. While for several years the annual inflation rate in Azerbaijan did not exceed 1-2%, starting this year prices for basic goods began rising and the local currency began appreciating. Some economists explained this by increased government oil revenues, which in turn create an excess of U.S. dollars in the Azerbaijani market and thus appreciates the local currency. But most experts believe that it is the local monopolies, with powerful government contacts, that control the prices of goods in the market and that they raise them in order to maximize their profits.
Indeed, the fact that the rapid and unexpected appreciation of the manat occurred on a weekend raised considerable suspicion among local economists. The National Bank of Azerbaijan was closed on a Saturday and thus could not interfere with the process. Experts believe that several commercial banks agreed beforehand to withdraw manats from the exchange points and thus artificially create a shortage of the local currency, so that people would sell dollars for cheaper rates. The independent daily newspaper Echo even speculated that powerful financial groups have artificially flooded the market with extra dollars in order to decrease its value while making economic and political profits. Khalfa Huseynov, an economist for Echo, charged, “A speculative operation, which was planned beforehand by a group of people, caused this situation.”
Whatever the causes of the dollar’s collapse, the incident revealed the vulnerability of the Azerbaijani market to monopolies and financial oligarchs, as well as the chaos and disorder in the country’s banking sector. Prime Minister Artur Rasizadeh waited a full day before calling for an emergency meeting of the major banks. The National Bank announced that it would release an additional 16 billion manats ($3.5 million) into the market to try to stabilize the dollar rate. This move subsequently returned the dollar value back to 4,500 manats. In October, the National Bank plans to release an additional 250 billion manats.
The opposition newspaper Azadliq reported that local financial groups gained $10-50 million from these operations. National Bank officials have replied that they were investigating the incident and were planning to punish those banks that had artificially and independently decreased the value of the dollar. According to the law, commercial banks may not sell or buy foreign currency for more than 2% of the National Bank rate. The National Bank has threatened to revoke the licenses of those banks that violated this rule.
Nevertheless, the majority of experts believe that the incident was not purely due to market forces. “There are more non-economic reasons for the incident than economic ones,” concluded Inglab Ahmadov, head of Center for the Monitoring of Public Finances. The November parliamentary elections have further fueled the bitter rivalry between the powerful oligarchs in the country. Each of them, representing a certain ministry or state agency, has been reportedly engaged in financing and backing their own candidates for the elections, undermining the unity of the ruling party.
Whereas the dollar crash attracted most of the media and public attention this week, one political event went unnoticed. Several days ago, President Ilham Aliyev signed a decree separating the privatization agency from the Ministry of Economic Development and establishing it as a separate committee. Local analysts immediately labeled the reorganization as an attempt to weaken or punish the popular Minister of Economic Development Farhad Aliyev while favoring his rival, Kamaleddin Heydarov, the head of Customs Agency and the most powerful oligarch in the country. The rivalry between them grew last month when Farhad Aliyev (no relation to the President) accused Heydarov of harboring monopolies and artificially increasing the prices of imports as well as ruining the local economy, while Heydarov accused him (through media outlets that he controls) of financing the opposition.
The presidential decision resembles a similar decree several months ago, when control over the energy sector was taken from Farhad Aliyev and given to the Ministry of Energy. Experts believe that either the president wants to punish the minister of economic development for his independent actions or he wants to warn both sides to calm down.
Whereas it is clear that the oligarchs artificially created chaos in Azerbaijan’s currency market to defeat each other and obtain more seats for their supporters in parliament, it is still too early to tell whether President Aliyev will be able to overcome these challenges and keep these bitter rivals under control.
(Echo, Zerkalo, 525-ci Gazet, Sherg, Yeni Musavat, Azadlig, Gun Seher, September 18-20)