by Guy Chazan
Baku - The manat, Azerbaijan's new currency, is graced with a picture of the Virgin's Tower, one of Baku's finest monuments. It is no surprise the Tower found its way onto the national banknote. Yet it could prove to be a bad omen for the new republic and its ardent quest for economic independence.
Legend has it a young princess threw herself in desperation from the top of the 90-foot tower into the raging waves of the Caspian to escape the incestuous embraces of the cruel khan, her father. Some fear that like this young bride, Azerbaijan may well be committing suicide-for in escaping the clutches of its parent currency, the ailing ruble, it could end up drowning in the stormy seas of devaluation and financial collapse.
The new leaders of Azerbaijan, who came to power in a democratic revolution last May, see the manat as a shield to protect them from a special kind of imported product-inflation. This product has been making alarming inroads of late and currently stands at 20 percent per month in Azerbaijan.
The ruble's precipitous decline and the increasing likelihood of hyperinflation in Russia prompted the authorities in the Azeri capital, Baku, to sever the republic's links with the former Soviet currency.
"Azerbaijan today has a positive balance of payments, a trade surplus and no budget deficit," says Vahid Akhundov, presidential adviser on economic affairs. "In such conditions we should not have inflation. But we are importing it from Russia, along with Russian rubles."
The manat was introduced in August as a supplement to the ruble, after an urgent cash shortage delayed the allocation of wages to thousands of workers and paralyzed the economy. But the new note soon came to symbolize Azeri aspirations for an independent economy, no longer subject to the whims and errors of Russian policy and the erratic behavior of the ruble printing press in Moscow.
"We need to get out of the ruble zone as quickly as possible, so we can carry out our own monetary and financial policy," says Sabit Bagirov, a close aide to President Abulfaz Elchibey and head of the state-owned oil and gas company. "This is the basis of our independence."
The manat has already succeeded in protecting Azerbaijan's market from inflationary interventions. Gasoline for sale in the north of the country, which was once snatched up by motorists from across the border in Georgia, can now only be bought for manats.
If the new currency really can cut short the outflow of cheaper products from Azerbaijan and the influx of inflationary rubles, then it is serving a vital financial purpose. But critics claim the manat is not taken seriously by most Azeris. "You can take your manat to market, but no-one will accept it," says opposition leader Ittibar Mamedov. "It's just a souvenir."
Government officials say they have already created a $150 million stabilization fund for the new currency and aim for internal convertibility and a fixed exchange rate in the near future.
But there are fears the manat will never accede to the status of a real hard currency. "How can it become convertible if they peg it to the ruble, which is itself a soft currency? I don't see the value of that," says one Western diplomat. "To me, it's just a nationalist symbol."
The timing of the currency reform is also under attack. Azerbaijan at present spends 30 million rubles a day on the Karabagh war, money which could have gone towards providing more stabilization funds for the manat.
But the authorities have hit on one way of backing the manat up with hard assets. A recent law specified that in the forthcoming privatization program, state property would be sold exclusively for the new notes. However, the government's critics see it as a ruse by the new political elite to prevent large-scale popular privatization, and keep state assets in the hands of the privileged few. "No-one knows how many manats have been issued," says Ittibar Mamedov. "Officials have kept most of them so they can use them to buy up all state property themselves."
But despite controversy about the currency reform, most Azeris agree it is time to quit the ruble zone. And the issue is not only inflation, but the newly-independent republic's trade relations with the rest of the world. Recently Russia centralized all payments between the former Soviet republics, creating a complex accounting system in the bowels of the Russian Central Bank and restricting the new states' freedom to trade directly with each other. "These payments should happen directly between suppliers and consumers, not through this tiny crack in Moscow," says Azerbaijan's deputy Prime Minister Vahid Akhmedov. With all payments slowly wending their way through the Central Bank, debts between enterprises and the ruble republics themselves rapidly accumulate. "Russia already owes us 12 billion rubles in unpaid debts," says Akhmedov.
Presidential adviser Vahid Akhundov claims the Central Bank's accounting system never really worked anyway, and all interrepublican trade is now carried out by the Bank on a clearing basis which is little short of good old-fashioned barter. "The Bank only allows us to buy goods to the value of the goods we deliver," Akhundov says. "There is no ruble zone, in fact. The ruble has no purchasing power. What kind of currency is it if you can't buy what you want with it?"
Hence Azerbaijan's decision to quit the post-Soviet economic community. "We will build our relations with other states on the basis of bilateral treaties, and charge them world prices in hard currency for our products," says Akhundov. The policy seems to be working. Azeri leaders have already signed trade agreements with Ukraine, Russia, Belarus, Turkmenistan and Tatarstan, and would like to augment this list with other post-Soviet states.
The deal signed with Russia allows for close cooperation in machine-building and military technology, two branches that have suffered most from the breakdown in economic ties between the two republics since the collapse of the Soviet Union. Deals like this suggest Azerbaijan's trade with other republics will continue to expand, irrespective of its attitude to the Commonwealth of Independent States. There are just too many things this small Caspian country needs from its neighbors-gas from Turkmenistan, crude oil from Siberia, industrial components from Ukraine.
It is still unclear whether Azerbaijan, with a population of only 7.2 million, is risking its neck by plunging headlong towards full economic independence. Ministers are optimistic: but the crashing waves that killed the maiden of the legend may sound as a salutary warning of the pitfalls ahead.
