The Voice of Mirza Xazar

Shahin Abbasov: 10/27/08

Azerbaijan is experiencing a severe credit crunch, which experts say could send the country into a recession.

Azerbaijan had been enjoying explosive growth in recent years, driven mainly by the rapid rise in energy export volume. [For background see the Eurasia insight archive]. As recently as October 13, during a presidential-campaign-related cabinet meeting, President Ilham Aliyev expressed confidence that Azerbaijan would not be severely impacted by the global economic crisis; he urged state-owned and privately held companies to keep on investing in ventures "both within the country and abroad."

Aliyev's upbeat comments came just two days before he secured reelection as president. [For background see the Eurasia Insight archive]. http://www.eurasianet.org/departments/insight/articles/eav101608bf.shtml "Our state budget will continue to grow and neither the global crisis nor developments in the region will affect the government's plans," he said.

Earlier in October, Heidar Babayev, the minister for economic development, assured the public that Azerbaijan possessed sufficient cash reserves to fend off a threat to the country's financial system. However, his calculations were based on the belief that the price of oil would remain at or above $90 per barrel. The price has plummeted in recent weeks, standing at $62 per barrel on October 27.

Despite the ominous warning signs, Aliyev seems reluctant to acknowledge that circumstances are growing more unfavorable. During a ceremony held in connection with his October 24 inauguration for a second term, Aliyev continued to project a "steady-as-she-goes" aura for Azerbaijan's economy. "In the coming years, we must not contend ourselves with the attained success," he said. "The country has strengthened its potential owing to the implementation of infrastructural projects and profound reforms."

Outside the halls of power, entrepreneurs and bankers are thinking in a very different way. At street level, optimism has ceded ground to realism. Since late summer, it has been difficult for individuals and small businesses to gain access to credit. And those lucky enough to obtain loans have had to pay starkly higher interest rates.

The main problem in Azerbaijan is one of excessive demand for capital. Whereas the financial systems in the United States and elsewhere have buckled because a mass of people could no longer repay their debts, only about 2.5 percent of Azerbaijani borrowers find themselves in a similar position. In Baku and other booming areas of the country, there is simply not enough cash to keep on fueling the fast pace of growth.

Anar Khanbekov, Baku-based financial analyst says that situation is linked with global financial crisis. "Until recently, Azerbaijan's leading banks used to attract a lot of relatively cheap foreign loans. However, now foreign credits are either not available or they are much more costly, and it has created problems for many banks," he told EurasiaNet in an interview on October 26.

According to Khanbekov, several leading Azerbaijani banks are starting to experience liquidity pressure. "Of course, the situation here is yet incomparable with what is going on in the European banking market. Our banks do not face serious threat of bankruptcy. However, if the country's banking sector showed phenomenal growth during last five years ? now we will be observing serious decline in profitability of banks," he said.

A top manager of one of Azerbaijan's leading commercial banks told EurasiaNet that the financial institution's customers were growing nervous about the safety of their assets. "There is not panic yet, but several clients who were not able to get credit in our bank took their money out," the bank officer admitted.

The National Bank of Azerbaijan (NBA, central bank) has taken action to reassure depositors and loan-seekers alike, issuing a statement that called speculation about a banking crisis as nothing more than "media rumors." The government has yet to see a need to develop a stabilization plan. However, Elman Rustamov, the NBA chairman, said on October 24 that officials would "provide banks with direct financial aid, if necessary."

Financial regulators had been primarily concerned in recent years with keeping inflation in check. But at present they seem intent on reestablishing a steady flow of money throughout the market. In mid October, the NBA reduced its discount lending rate from 15 percent to 12 percent, and it lowered reserve requirements for banks.

Zohrab Ismayilov, chairman of a Baku-based think tank called the Public Association for Assistance to Free Economy, says the rate cut will not be able to solve the problems facing Azerbaijani banks. "However, [the cut] will alleviate pressure on some banks, thus giving the entire financial system more confidence," Ismayilov told EurasiaNet in an October 26 interview.

Khanbekov, Ismayilov and other experts believe the credit crunch will have a severe effect on non-energy-related sectors of Azerbaijan's economy, especially the construction sector. "Leading construction companies could face the threat of bankruptcy," Ismayilov said, adding that a collapse of the construction sector could have a disastrous cascade effect on the economy. He noted that during the January-August period this year, construction firms received roughly $560 million loans from the banks. Many of those loans look very shaky at the present time. More broadly, the rise in living standards, which had been zooming ahead, now looks set to come to a screeching halt. Over the past three years, consumer loans had ballooned. During the first half of 2008 alone, banks issued consumer loans totaling $2.8 billion, and according to NBA statistics credit was involved in 25 percent of consumer spending.

Now with consumer goods retailers starting to feel squeezed, some have taken the unprecedented step in Azerbaijan of offering rebates. One auto dealer in Baku, for example, is offering to give $2,500 back to any customer willing to pay all-cash for a car.

If government intervention is eventually needed, the Aliyev administration may find that its options are limited by the drop in global energy prices. "The economy will not be able to develop without banking credits and demand for consumer goods will also decrease. But low oil prices will restrict the government ability to improve situation," Ismayilov said.

Editor's Note: Shahin Abbasov is a freelance correspondent based in Baku.

http://www.eurasianet.org/departments/insightb/articles/eav102708_pr.shtml

Shahin Abbasov: 10/27/08

Azerbaijan is experiencing a severe credit crunch, which experts say could send the country into a recession.

Azerbaijan had been enjoying explosive growth in recent years, driven mainly by the rapid rise in energy export volume. [For background see the Eurasia insight archive]. As recently as October 13, during a presidential-campaign-related cabinet meeting, President Ilham Aliyev expressed confidence that Azerbaijan would not be severely impacted by the global economic crisis; he urged state-owned and privately held companies to keep on investing in ventures "both within the country and abroad."

Aliyev's upbeat comments came just two days before he secured reelection as president. [For background see the Eurasia Insight archive]. http://www.eurasianet.org/departments/insight/articles/eav101608bf.shtml "Our state budget will continue to grow and neither the global crisis nor developments in the region will affect the government's plans," he said.

Earlier in October, Heidar Babayev, the minister for economic development, assured the public that Azerbaijan possessed sufficient cash reserves to fend off a threat to the country's financial system. However, his calculations were based on the belief that the price of oil would remain at or above $90 per barrel. The price has plummeted in recent weeks, standing at $62 per barrel on October 27.

Despite the ominous warning signs, Aliyev seems reluctant to acknowledge that circumstances are growing more unfavorable. During a ceremony held in connection with his October 24 inauguration for a second term, Aliyev continued to project a "steady-as-she-goes" aura for Azerbaijan's economy. "In the coming years, we must not contend ourselves with the attained success," he said. "The country has strengthened its potential owing to the implementation of infrastructural projects and profound reforms."

Outside the halls of power, entrepreneurs and bankers are thinking in a very different way. At street level, optimism has ceded ground to realism. Since late summer, it has been difficult for individuals and small businesses to gain access to credit. And those lucky enough to obtain loans have had to pay starkly higher interest rates.

The main problem in Azerbaijan is one of excessive demand for capital. Whereas the financial systems in the United States and elsewhere have buckled because a mass of people could no longer repay their debts, only about 2.5 percent of Azerbaijani borrowers find themselves in a similar position. In Baku and other booming areas of the country, there is simply not enough cash to keep on fueling the fast pace of growth.

Anar Khanbekov, Baku-based financial analyst says that situation is linked with global financial crisis. "Until recently, Azerbaijan's leading banks used to attract a lot of relatively cheap foreign loans. However, now foreign credits are either not available or they are much more costly, and it has created problems for many banks," he told EurasiaNet in an interview on October 26.

According to Khanbekov, several leading Azerbaijani banks are starting to experience liquidity pressure. "Of course, the situation here is yet incomparable with what is going on in the European banking market. Our banks do not face serious threat of bankruptcy. However, if the country's banking sector showed phenomenal growth during last five years ? now we will be observing serious decline in profitability of banks," he said.

A top manager of one of Azerbaijan's leading commercial banks told EurasiaNet that the financial institution's customers were growing nervous about the safety of their assets. "There is not panic yet, but several clients who were not able to get credit in our bank took their money out," the bank officer admitted.

The National Bank of Azerbaijan (NBA, central bank) has taken action to reassure depositors and loan-seekers alike, issuing a statement that called speculation about a banking crisis as nothing more than "media rumors." The government has yet to see a need to develop a stabilization plan. However, Elman Rustamov, the NBA chairman, said on October 24 that officials would "provide banks with direct financial aid, if necessary."

Financial regulators had been primarily concerned in recent years with keeping inflation in check. But at present they seem intent on reestablishing a steady flow of money throughout the market. In mid October, the NBA reduced its discount lending rate from 15 percent to 12 percent, and it lowered reserve requirements for banks.

Zohrab Ismayilov, chairman of a Baku-based think tank called the Public Association for Assistance to Free Economy, says the rate cut will not be able to solve the problems facing Azerbaijani banks. "However, [the cut] will alleviate pressure on some banks, thus giving the entire financial system more confidence," Ismayilov told EurasiaNet in an October 26 interview.

Khanbekov, Ismayilov and other experts believe the credit crunch will have a severe effect on non-energy-related sectors of Azerbaijan's economy, especially the construction sector. "Leading construction companies could face the threat of bankruptcy," Ismayilov said, adding that a collapse of the construction sector could have a disastrous cascade effect on the economy. He noted that during the January-August period this year, construction firms received roughly $560 million loans from the banks. Many of those loans look very shaky at the present time. More broadly, the rise in living standards, which had been zooming ahead, now looks set to come to a screeching halt. Over the past three years, consumer loans had ballooned. During the first half of 2008 alone, banks issued consumer loans totaling $2.8 billion, and according to NBA statistics credit was involved in 25 percent of consumer spending.

Now with consumer goods retailers starting to feel squeezed, some have taken the unprecedented step in Azerbaijan of offering rebates. One auto dealer in Baku, for example, is offering to give $2,500 back to any customer willing to pay all-cash for a car.

If government intervention is eventually needed, the Aliyev administration may find that its options are limited by the drop in global energy prices. "The economy will not be able to develop without banking credits and demand for consumer goods will also decrease. But low oil prices will restrict the government ability to improve situation," Ismayilov said.

Editor's Note: Shahin Abbasov is a freelance correspondent based in Baku.

http://www.eurasianet.org/departments/insightb/articles/eav102708_pr.shtml

The European Union (EU) is a multinational union, established in 1993. The EU is made up of twenty-seven Member States. First, the EU was established as the European Economic Community in 1957 by the Treaty of Rome and has since undergone many changes. The EU has a single market between member states with common trade policy. Important EU institutions and bodies include the European Commission, the European Parliament, and the Council of the European Union, the European Court of Justice and the European Central Bank, among others.

The end of War World II brought the idea for the unification of Europe, now known as the EU, but some individuals or groups also known as the world rulers needed to conduct an experiment before the formation of an important super power such as the EU. And soon, they succeeded; the right person for them was Josip Broz Tito leader of Communist Party and lifetime President of the Socialist Federal Republic of Yugoslavia (SFRJ). With the Royal family in exile and a post war atmosphere in Europe, Tito became famous, an ideal partner for this experiment.

Many will wonder why Yugoslavia? The answer is very simple; besides the Union of Soviet Socialist Republics (USSR), which was too powerful to play with, Yugoslavia was the only post war country in Europe with multiethnic and multicultural population, and Member Republics.

In 1945, from the remains of the Kingdom of Yugoslavia; the Democratic Federal Republic of Yugoslavia was proclaimed, headed by Tito. Tito becomes Prime Minister and Minister of Foreign Affairs.

The experiment begins; one State with six republics, one army, one currency, one federal police, one federal Government and Law, one passport, no borders and a visa regime among republics, and most of all: every Republic had their own Government with all vital institutions. Still, one very important thing for this experiment was the fact that Yugoslavia had different cultures and religions among state members, such as: Orthodox, Catholic and Muslim. The way the population is going to live in these circumstances was essential for the future of the EU.

In 1948, Tito makes one interesting move, highly motivated; he becomes the first socialist to defy Stalin's leadership in COMINFORM also known as Information Bureau (Inform biro). This move by Tito gains him good positions with all Western powers, of course his old friends, but bad relations with the USSR. For good results and loyalty to the West, in London, in 1954, Yugoslavia gets zone B from Free Territories of Trieste by treaty based on the "Memorandum of Understanding".

On the other side, with the first results of the experiment, formation of the future European Union begins with European Coal and Steel Community (ECSC) in 1952. Let us not forget that coal and steel were, and still are, very important in war and industry. Very important founding member of this Community was West Germany. A few years later, the Treaties of Rome in 1957 created two more communities: the European Economic Community (EEC) and European Atomic Energy Community (EAEC or EURATOM). The EEC and EAEC later merge into EEC in 1967.

Strangely, but as previously arranged, Tito choose for the SFRJ to be free Eastern European country, independent from the USSR, and neither member of Warsaw pact nor NATO, however in 1961, Tito puts Yugoslavia to be a founding member of the Non-Aligned Movement (NAM). Membership in NAM did not affect the experiment since Yugoslavia was the only European country in the Movement at that time, but it did affect future of Yugoslavia.

Time is running, and in the beginning of eighties, Tito dies, although, the experiment continues. The West needs a few more years before final announcement of new European Union. Europe is rapidly altering; many countries have joined the EEC.

At the beginning of nineties, Europe is about to change forever. In Yugoslavia a new government is forming headed by Slobodan Milosevic, the experiment is about to end, mission is about to be accomplished. World rulers are entering the final phase before the formation of the EU. With the USA battling Gulf War in Middle East, in Europe, history has been written; Germany's reunification takes place in 1990, followed by; dissolution of the Union of Soviet Socialist Republics in 1991, dissolution of Socialist Federal Republic of Yugoslavia in 1992, dissolution of Czechoslovakia in 1992, and wide spread fall of communist monopoly.

As planned, the new Europe comes into being in the year 1993, and with no threats on the way, a new star was born, the European Union. Just a few months after termination of the USSR in which America had a big influence, the USA got a new rival; the EU. This rival will become more influential and powerful than any other country or Union in the world, more powerful than the old USSR.

Tree questions arise from this: First, did world rulers decide to put European Union instead of the USA as a leader of a free world and first super power? Second, who are those rulers and where were they coming from? Third, what about Yugoslavia?

Answer for the first question is yes, they did, and as planned, the USA was used. Second: We will never know who they are, but they are definitely coming from Germany, they are not Jewish as many think, if they were Jewish then they would have had their own State long time ago.

Third: if we turn back and look through European history, Yugoslavia lost everything, it's like she never existed; she was just an experiment. Germany, on the other hand was not defeated in the WW II as many think, she played very smart; waited and planned to return stronger than ever, and she did through the EU, as leader and strongest Member State. Germany was, and still is the Union's biggest net contributor; with the biggest economy, she is responsible for about 23% of the EU budget. Same is with Japan and the USA; it looks like Japan was also not defeated in the USA-Japan war. Now, Japan is the strongest independent economic and industrial power on the earth, most Japanese products is represented in the USA. In contemporary days, power is not measured through weapons, rather through strongest industry.

After this successful experiment, will the EU have an equal rival in the future?

It will; a true rival for the EU will be a future Union with lots of money and same religion among member States as an advantage (maybe, Union of Islamic countries?).

However, maybe we are being deceived with the EU; perhaps the EU is just another world experiment before the launch of another giant Global Union.

Ivan Simic

Belgrade, Serbia