Azerbaijan in safe zone from ruble

By Gulgiz Dadashova

The year 2014 is coming to an end with hot discussions on lower energy prices, weakening of Russian ruble and neighboring countries’ efforts to protect themselves against the effects of Russia’s economic crisis.

Positive or negative, the developments in the region, have always affected the regional players. “About Russia’s case, there is no doubt that it is bad news for Azerbaijanis, generally for those living and working there or doing business with Russia,” said Eyyub Huseynov , Chairman of Free Consumers Union of Azerbaijan.

Experts and journalists say the fall of ruble will affect the post-Soviet countries. For the time being, economic stability is only observed in Turkmenistan and Azerbaijan.

Indeed, the depreciation of ruble will affect currencies of former Soviet states. But as the Central Bank of Azerbaijan assured, Azerbaijan’s currency – manat is strong enough and the bank has already taken the necessary measures to maintain the stability of the manat. Anyhow, Azerbaijan should be ready for bad case scenarios.

“But there is no doubt that the country will see an increase in the prices of goods that are imported from Russia. To date, at least 20 percent of the imported goods, mainly agricultural food products are imported from Russia,” Huseynov said.

Energy-rich Azerbaijan is a stable regional player in the background of tough economic realities in the region. Although the lower oil prices will slightly affect its economy, the country has a good and stable fund to keep its currency manat stable against the dollar. Moreover, Russia is not the main trade partner of the country, so its economy is not dependent solely on Russia which is hit by Western sanction.

The ruble has lost about 40 percent against the dollar this year, the second-worst performance of all currencies tracked by Bloomberg, after the Ukrainian crisis.

The ruble rose 2 percent to 53.4400 per dollar after reaching 80.10 on December 16, the weakest level on record.. The ruble rebounded as tax payments and speculation Russian exporters are being pushed to sell foreign currency outweighed concern that the sovereign’s credit rating will be cut to junk. S&P said it’s considering cutting Russia to below investment grade for the first time in a decade as a looming recession spurs concern that the nation’s banks will face mounting bad loans.

The financial turmoil is aggravating the pain in Eastern Europe caused by the trade confrontation between the 28-member EU bloc and Russia.

“Russia is our biggest market and such drastic currency drops usually lead to refraining from sales for a while until people get psychologically adjusted to the new prices,” Bloomberg reports citing Chief Executive Officer Ognyan Donev. “We’ve already seen this in Kazakhstan and Ukraine.”

Indeed, the manat rate is stable enough and the Azerbaijani authorities don’t expect any surprises regarding it in 2015.

The Russian ruble crisis was felt more strongly in Armenia, which is isolated from regional development project due to its aggressive policy.

Russia’s currency has still dropped 8.6 percent this month, the most against the dollar among 174 foreign-exchange values, followed by the Armenian dram’s 6 percent depreciation.

Economic experts believe that the prices in the Armenian markets have taken a sharp rise this year compared with the previous years, linking it to the dram and ruble devaluation, as well as the dollar’s significant appreciation in the world market.

The Armenian dram’s overwhelming depreciation has resulted in an increased demand for dollar in the country. As of December 25, one dollar was sold for 461 drams in Armenia, while many exchange offices in Yerevan refused to sell dollars and euros.

The Georgian lari also continues to depreciate against the U.S. dollar hitting its lowest rate over the last four years. As of December 23, one lari was valued at $1.89252.

Huseynov said Kazakhstan, Belarus, Ukraine, and Armenia are the countries to be badly affected by the Russian economic crisis. “Especially Armenia, as this has always played the role of a dependent economy. Armenia doesn’t play any special role in Russian economy. On the contrary, Russia has acquired the remaining Armenian enterprises which are in a “frozen” state.”

“As for Kazakhstan and Belarus, their businesses are operating in the interests of Russia. Therefore, what is taking place in Russia will be reflected on them. For example, the fall of national currencies in neighboring countries is the result of this dependence.

“Belorussian President Lukashenko said that henceforth Belarusian goods will not be sold in the rubles any more, but in the dollars. I think this statement proves the deep crisis underway in these countries,” Huseynov said.

Economist Ogtay Hagverdiyev shared Huseynov’s view saying that Azerbaijani economy is not deeply linked with the Russian market and that is why Azerbaijan will be able to remain in a safe zone.

“Azerbaijani migrants working in Russia sent their families a little more than $1 billion last year. About 600,000 migrant workers will return home due to the recent developments, but many others will remain there changing their lives based on the prevailing conditions in Russia. They will keep on sending money to their families by raising the prices of their goods and services. Therefore, the problem is not so acute for them and their families,” Hagverdiyev said.

Meanwhile, the International Monetary Fund warned on Monday of the risk of Russia triggering a fresh phase of the global financial crisis as the plunge in the value of the rouble claimed its first banking victim. Russia’s central bank threw a $530m (£340m) lifeline to Moscow’s Trust Bank, the IMF said.

Sberbank, Russia’s biggest lender, was forced to deny any report that it had suspended taking new requests for car loans and mortgages.

Russia’s biggest oil firm, Rosneft, eased worries that it could collapse under the West’s sanctions saying that it had made a $7bn debt repayment from its cash reserves. But Rosneft announced separately that a deal to acquire an oil trading business from Morgan Stanley had been terminated after it refused clearance by the US regulators, the Guardian reported.

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