Baku
Bakinskiy Rabochiy
in Russian, 15, 16 Apr 97AzerTadzh report in two parts on news conference given by Vakhid Akhundov, state counselor for economic matters; place and date not given: [15 Apr p 2]
On 11 April Vakhid Akhundov, state counselor for economic matters, held a news conference in the presidential palace on the situation in the economy of Azerbaijan in the past year and the first quarter of this year and on the progress of the economic reforms. The state counselor had earlier briefed journalists on the republic's socioeconomic situation. He said: It is now two years since Mr. President Geydar Aliyev embarked on the active pursuit of economic reforms. You know that the radical edict on the creation of a currency market was issued in March 1995. There was at that time no single currency fund controlled by the state, and currency taxes were levied on the enterprises. The President took an extremely radical step, and we embarked on the regulation of currency reserves by the market method. This was practically the first radical, very serious step. We then concluded agreements with the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development, and others. This process is up and running, as they say, and doing pretty well.These two years have truly been rich in extraordinarily important events, and very radical steps have been taken. What has been done in the two years? Let's first of all consider the indicators of the economy's dynamics and the changes that have occurred. I would like to remind you that overall domestic production declined 12 percent in 1995 and increased 1.3 percent in 1996. In 1995 industrial production declined 21.4 percent, and it was possible in 1996 to reduce the rate of the decline somewhat. Thus production declined 6.7 percent. But it was possible to emphatically prevent the 1995 rate of decline in production.
A downturn in agriculture was averted in 1996 for the first time. Agricultural production in 1995 declined 7 percent, last year it rose 3 percent.
In recalling a number of figures I would like to state that important steps really were taken in 1996, and this is shown convincingly by the indicators of the dynamics of the economy. In September 1996 even, analyzing these processes, we saw that the indicators would be even higher. True, people disagreed with us. The opposition disagreed, it stands to reason, but even people from our team, I refer to former Speaker Rasul Guliyev, did not agree with us. Both 1996 and the first quarter of the present year are behind us. We have just received the information for the first quarter, and I would like to acquaint you with these figures. I am sure that you will see that the dynamics are truly more intensive. The successes scored in 1996 are not of a tactical, artificial nature. These are long-term, irrevocable, stable dynamics and they are based on sound economic strategy. I am sure that we will continue to accelerate this process.
In the first quarter of this year overall domestic production rose 3.5 percent. For the first time in the 1990s industrial production is outpacing the indicators of previous years. True, the difference is not that substantial--0.4 percent. But you know that in the 1990s industrial production declined 20-25 percent annually, and its decline continued last year, even in spite of the fact that we were able to halt the downturn in all spheres. Finally, in the first quarter of this year, industry has emerged from the state of downturn also. Agricultural production rose 3.3 percent, freight transportation, 2 percent, commodity turnover, 25 percent, and services, 35 percent. On the whole, there is revitalization in all spheres of the economy. I am sure that we are on the threshold of revival.
Analyzing the figures, we attach significance primarily to capital investments as the catalysts of the economy. Indeed, the present investment of capital points to the future of the development of the economy. Analyzing the figures for 1996, we emphasized at that time even that, despite the 18 percent decline in investments in 1995, they unexpectedly rose in the past year 74 percent. This process continued in the first quarter of the present year as well. Compared with the analogous period of last year, investments grew by a factor of 1.5 and are continuing to grow. Bank lending to the economy is growing together with this. For example, the amount of lending in 1996, having increased 40 percent, constituted 2 trillion manat.
There are more subtle mechanisms for analysis, and they show the direction in which the economy will develop. Analyzing the structure of imports, for instance, we see that the relation significance of investment resources is rising intensively here. Compared with 1995, their proportion doubled in 1996. This is a very positive process, and we can see that it is graphically showing its results and the dynamics of the economy..
How have we achieved this, you may ask. I am pleased that we have taken no artificial, administrative action for this. I refer, for example, to such action as the forced financing of the enterprises from the budget and lending to them by the banks. We have no need of such artificial development. We are pursuing a very open policy and want the enterprises and production to develop in accordance with market relations. We have influenced the enterprises in another way. We have a number of directions of the implementation of reforms, and the goal here is undoubtedly the revival of production.
I would like to give you certain information about the main directions and principles of the economic strategy of esteemed Mr. Geydar Aliyev, President of Azerbaijan. In short, the economic activity of the President is based, on the whole, on three issues: economic stability, reform, development. This might appear simplistic, possibly, but it has beneath it a very profound logic, in accordance with which we are implementing the reforms.
I believe that the most important direction is the achievement of stability of the economy and the creation in investors of confidence that their capital investments will justify themselves. It was from this that we embarked on the reforms, therefore. It was necessary first and foremost to bring down the level of inflation to world standards. You know that we have been working for two years in this direction. You probably know the figures off by heart, but I will remind you of them one more time. In 1994 the level of inflation had risen to 1,600 percent, that is, consumer prices had risen 16-fold in the course of the year. As a result of the action taken in 1995, it was possible to emphatically lower inflation, which was reduced to approximately 8.5 percent. Nonetheless, it was still too high. In 1996 we took important steps, and the level of inflation declined to 6.7 percent. I consider this a very big achievement. Despite this, we are continuing work in this direction, and the results of the first quarter testify to important advances. According to data that have just been received, whereas in the first quarter of last year the average monthly inflation level constituted approximately 1.5 percent, in this quarter it amounted to 0.8 percent. Consequently, the situation has improved by a factor of 1.5- 2 compared with last year. If it is considered that there is a process of deflation here in the summer months, I am confident that the inflation level in 1997 will be no more than 4-5 percent. And this means that in terms of these indicators we will have attained the level of the developed countries and will have the best indicator among the CIS countries, and the faith of domestic and foreign investors in our economy will grow, which is the main factor of capital investments.
You know that two paths have to be taken to stop inflation. On the one hand it is necessary to hold back on the issue of credit and to control it, on the other, to control the budget deficit and to reduce it. Very important, very necessary, and arduous work is being done in both directions. The budget deficit does not now exceed 3 percent, and the budget is, in fact, fully controlled. And this inspires in us a belief that the reduction in the level of inflation is not of a short-term campaign nature and that this is our long- term strategy. We will be taking new steps in this direction.
The establishment of stability in the economy also has to do with the value of the manat. As you know, we are a small country, and all of exports and imports are of particular significance in production as a whole here. A great deal, therefore, is determined by the price of the manat. There have been advances in this sphere also. As I said, compared with January 1996, the rate of the manat today in relation to the dollar has increased 10 percent. In other words, the level of revaluation is 10 percent. A process of stabilization is taking place here also, in my opinion. In turn, the stabilization of the rate of the manat is exerting a very important influence on the stabilization of the economy.
Very multifaceted processes are under way here, you know. We have made use of every opportunity to interest and stimulate the producer. And the main problem here is that of taxes. As you know, because we have a high taxation level, the pressure on the producer is high also, and this is preventing him expanding his production. In the summer of 1996 we prepared certain documents, therefore. The general direction of these documents is a lowering of the level of taxes and a diminution in the level of taxes to which the producer is subject. It is essential together with this, having expanded the tax base, to tackle questions connected with the budget. This is a very risky, serious step since the budget is in very bad shape. What do I mean? We cannot resolve all problems of constitutional development and social problems with the present budget. We would like the total budget to be greater, of course, and to resolve social problems first and foremost.
For the budget to receive more revenue there is usually increased tax pressure on the producer. We realized that such a step would yield no great benefit. We therefore took an entirely different route. This might appear somewhat surprising, but this step was taken by the President. There needed to be strong political will for this route to be taken. We lowered taxes. How? I should mention that, aside from payroll, we received 35 percent corporate taxes. As you know, we cut them by 50 percent as of September and then, as of 1 January, stopped deducting corporate payroll taxes completely. We created an important opportunity for the plants to reduce the pressure of overall taxes.
As we know, personal taxation amounted to 55 percent, now its maximum level is 40 percent. And this is in keeping with world standards, this is approximately the situation throughout the world. This level rises in some countries, in the Scandinavian states, for example, to 55-60 percent, but in the West European countries it constitutes approximately 40 percent. We also have stayed at the 40 percent level. We then raised the personal income tax threshold. Earlier taxes were not levied on an income of less than 40,000 manat. We raised this figure to 60,000 manat. This was the case with customs duty also. We had rates of duty constituting 30 and 40 percent. We standardized them and set the maximum customs taxes at 15 percent. This means both a liberalization of foreign economic relations and a customs policy that is in keeping with the market mentality. Thus we made many tax concessions. Compared with three months of 1996, very interesting results have been observed in two months of this year. On the whole, the forecast is being realized. Compared with the forecast, taxes have been collected 103 percent, and customs duty, 102 percent. If compared with last year, very interesting results have been achieved. In the first quarter of last year we collected 290 billion manat in taxes altogether, and in the first quarter of this year, 447 billion manat in taxes. Consequently, the tax total increased 54 percent. Last year we collected 56 billion manat in customs duty, this year, 91.7 billion manat. This indicator increased approximately 65 percent. These dynamics testify that we took the right step: On the one hand we afforded an opportunity for a lowering of taxes on the producer, on the other, there has been an expansion of the tax base, which affords an opportunity for an increased budget.
This is a very important problem. I am telling you about this in detail so that you know that this is by no means a simple process. Each step here is attended by definite risk. We are taking a multitude of such steps. Structural changes are the second main direction. When I say "structural changes," I refer primarily to privatization and agrarian reform. And much has been done in this sphere also. Small- scale privatization is under way at this time. There is no problem as such here, in my opinion. But there are and should be tactical problems, tactical difficulties. More than 9,000 small-scale facilities have already been privatized, and this process is continuing. There are now other problems. These have to do with the implementation of large-scale privatization. You know that vouchers are being issued and that all the requisite documents have been examined, and some have been approved, some will be approved in the next few days. I have no doubt that this process will begin within two or three months, and we will be taking important steps in large- scale privatization.
Agrarian reform is another direction. In accordance with the new law, 18,000 new farms have been created here. I would like to remind you once again that agrarian reform with us is based on radical principles and that the buying and selling of land is possible. You know that Russia and certain other CIS countries have not agreed to this. But we have. In my opinion, we have done the right thing since it would be difficult to ensure the efficiency of agriculture without the creation of a land market. Processes are under way here also. Abbas Abbasov, first deputy prime minister, held a news conference recently. According to our information, despite the difficulties in this sphere, the strategic line is being implemented, on the whole. We will strive for structural changes here also.
These structural changes have to do not only with privatization. There are other directions also. For example, we are opening up the enterprises to outside management. This also, in my opinion, will help the structural changes. We are creating joint ventures with premier overseas companies. And this is giving the structural changes a definite boost. We are taking these steps, and I believe that, although there are many difficulties here, the strategic line is being realized.
Institutional changes are the third main direction. There are, truly, many problems here. The main purpose is the creation of an institutional structure, a managerial system, and a mechanism so that we might switch to a system of self-regulation. Such a system, which would regulate and finance itself, is the main purpose of the change in the institutional structure. We have taken several steps in this direction. Certain concerns like, for example, the Bread Products Concern, the Industrial and Commercial Concern, the Usluga Concern, and others have been abolished. And the Ministry of Material Resources and the Azenerzhi and Azerigas companies have been converted into joint-stock companies. We are performing a considerable amount of work in this sphere.
I would like to tell you that this is not a formal direction. Much will depend on this direction. I would like to remind you that each time that snow fell in Baku, lines would form at the bread stores. You probably noticed that this year there was a great deal of bread in the bread stores and of different types. Why? Because there is competition. We have made certain changes.
Competition has been established between publicly owned and private companies. Following the privatization of the stores, a system of self-regulation was established, in fact. And this led to a process of self-management. Earlier, before the wheat had grown and ripened, the bread situation would be fraught here and tens of millions of dollars would be spent on the purchase of grain. Today we have a situation where we do not know how to keep the wheat and flour that we obtained--no one is buying them.
So the upgrading of the managerial system and the structure and the creation of a new institutional structure are producing great benefits. The bureaucratic structures impeding economic activity must undoubtedly be eliminated. We have taken several steps in this direction. The President is currently considering certain documents and edicts. I am sure that several further new steps will very shortly be taken in this direction.
There has to be a change in the functions of other ministries. Their functions will be brought into line with market thinking. I may cite as an example the Ministry of Foreign Economic Relations. As you know, we are liberalizing all foreign economic relations, and both legal entities and individuals are now virtually completely free, there are no quotas or licenses, they have all been eliminated. Now cotton and sausage and other goods are bought and sold virtually without restriction.
There is no doubt that there are problems also. But these are problems of growth, and they will be resolved. The state's policy is geared to the avoidance of all bureaucratic structures and difficulties impeding the development of the market.
The social sphere is a field with a multitude of problems. The populace is, truly, in a grim situation. The President understands this. But you will agree that there are two paths here. You could, availing yourself of the printing presses, sharply raise pay by way of inflation. But I consider this the wrong way. The other way--the sole correct and incontestable way--is to find opportunities, a source, and implement social measures only from real sources. This is the direction in which we are working. In the first quarter of 1997 pay increased roughly 36 percent compared with the corresponding period of 1996. But this is a real increase and a real advance since price movements have stopped and inflation has diminished. Certain publicly funded pay categories were increased last July 20 percent, in October, 40 percent, and in February, 50 percent. Work is being performed and will go further in this direction. But the increase in pay will not lead to inflation since inflation has a negative impact primarily on needy families. The prevention of inflation is an important social measure, therefore.
I would like to tell you that I view the dynamics of our economy with optimism. But this by no means signifies that we have no problems. We have very many problems. The problem is not that there be no difficulties. The economy is a living organism, it should have problems. The main issue is that, having detected these problems in good time, we find the right path and take new steps. This is the policy we are pursuing. The President has the strong political will to ensure that we go on to the end by way of these reforms. And we will take this path. Thank you for your attention.
[16 Apr p 2]
State Counselor Vakhid Akhundov then answered the journalists' questions.Question: Speaking of the country's economic situation, you presented many optimistic figures. We find this gratifying also. Can you say in which direction mainly the foreign investments coming into our country will be channeled? And a second Question: How do things stand as regards the privatization of the enterprises of the companies that were abolished by presidential edict?
Answer: The main sums of capital are at this time undoubtedly being channeled into the oil sphere, but the overall proportion of the other sectors is increasing also. But I have to mention one fact: The influx of capital into the oil sphere does not mean that this is not influencing other branches. President of Azerbaijan Geydar Aliyev recently considered matters having to do with the structure of the "Karabakh," and it was revealed that in connection with this project 80 percent of the capital allocated for operations in 1996 remained in our country. Consequently, agreements have been concluded with other enterprises and organizations of Azerbaijan, and they are enjoying income. So despite the fact that the main capital is at this time going to the oil company, we need to try to ensure, therefore, that as much of this capital as possible remain within Azerbaijan. Then this capital will move on to other sectors of the economy--iron and steel industry, mechanical engineering, construction--and, in accordance with the market economy, will create certain opportunities there also and boost their development. As you know, for example, in the field of oil-related services big capital has been invested in transport, on the part of overseas companies included.
As far as the liquidated enterprises are concerned, the major enterprises will not be auctioned off. I know that the Property Committee is performing a great deal of work to convert them into joint-stock enterprises. This is a complicated process, you know. Since for the issue of shares of each enterprise a stock-taking has to be conducted before all else. The stock-taking has to include the debts of the enterprise itself and take into consideration who is in debt to the latter. After this entire valuation process, shares, which are to be put on the securities market, are to be issued. This work is being performed, and I am confident that it will be completed as soon as possible.
Question: Approximately 40 percent of society has received privatization checks. Despite certain successful steps in the sphere of privatization, the adoption of legislative documents is somewhat behind. What is the reason for this, in your opinion? A second Question: You said at a previous news conference that there would hardly be bureaucratic obstacles in the pursuit of agrarian reform. But the information obtained from the localities testifies to the opposite. Why is action not being taken?
Question: You have reported that the tax pressure has diminished. But an additional tax was imposed on organs of the press as of 2 January of this year. How do you explain this heavy burden for the press?
Answer: You are referring to the investment funds and the national depositary system, are you not? I cannot agree with your opinion. We have the documents, they are being worked up. We shall try to complete the work as quickly as possible so that the President can confirm them. I would like you to agree with one thing: Privatization is a historical process. I assure you that the present process will be analyzed in 10 years' time also. It would be wrong, therefore, to turn this process into a type of sport. We ourselves must undoubtedly be sure that the documents are workable. This has to be approached with a full sense of responsibility. Second, I have to assure you that the President does not simply sign documents, he reads them and asks questions.
I have to acknowledge that we have not negotiated this privatization path. There are misgivings, and they need to be checked out. I do not believe that this process is being held up deliberately. It is simply that we want the finished documents to be the right ones and to be operative. As far as bureaucratic barriers are concerned, I also live in this environment and cannot say that there is no bureaucracy. I know that there is a bureaucracy here. And not only here but throughout the world also. Perhaps I meant that we were trying to prevent bureaucracy at a high level-- in the preparation of the agrarian reforms and the consideration of legislative instruments. The President has signed a multitude of documents and the Reform Commission, the President's staff, and the cabinet have done a great deal of work. We have really tried to ensure that there be no bureaucratic barriers in this work and that the documents be prepared at the proper level.
That there are problems locally, this is possible. I believe that it is essential to take serious action in this connection. I also receive various letters and I send them off immediately to the appropriate organizations and ask for action to be taken. There may, you know, be difficulties in this process. Our job is to respond to all warning signals and appeals and to do everything possible so that people may acquire the land that is due them without problems. Concerning value-added tax. I said that we were lowering the tax rates to lessen the pressure. But we are broadening the tax base. This means that every conceivable restriction is being abolished, for the press included. After all, the press is, in fact, engaged in commerce. The sale of sausage, newspapers, gold--there's no difference. With restrictions being lifted for some, things become more difficult for others. The restrictions should be eliminated as far as possible, in my opinion. And this would afford an opportunity in the future to set value-added tax not at 20 percent but at 10 percent and lower. You know that paying tax is the duty of every citizen. All the world's taxpayers take pride in this, the army is supported and the state is created thanks to this. Citizens should be proud that they pay taxes, therefore. But for this the quantity of the taxes has to diminish.
Question: The people are now placing big hopes in the privatization checks. But the black market is not justifying these hopes. What action is the state taking in this connection? Why have the investment funds not yet been created?
Answer: First, I wish to say that reduction in the value of the checks is not a precise term. The reduction in the value of the checks on the black market has to do with the impatience of their holders. The value of the checks is not determined by the value of the enterprise. The value of the checks depends on the dividends that are received in the future from the income of the enterprise whose shares are sold. We first have to issue the checks. Without having issued a large part of the checks, we cannot conduct check auctions. This process will begin after a large part of the public has received the checks. I have mentioned that we are considering the statute on investment funds. I am sure that we will approve it, if not this week, then next. But this process will depend not only on the statute but on the corporatization of the enterprises also. The shares must be ready so that we can put them up for auction, the checks and the shares must "meet," that is. That's were the real price of the checks will be established. In one cup of the scales there should be the checks, in the other, the shares. A situation has been created today where approximately 3 million checks have been issued, but there are no shares as yet. The value of the checks has undoubtedly dropped, therefore. The Property Committee is working in this sphere, and I am confident that the shares of particular enterprises will have been prepared before the end of the month. Then the situation will necessarily change.
Question: The date for the payment of mutual debts was set for last November. It was then extended until 1 April. This date also has now passed. What is the situation in this sphere? The second question has to do with financial stability. No one can deny that the price of the manat has stabilized and that the level of inflation has fallen, these are facts. But how correct is it to speak about financial stability under conditions of the existence of mutual debts and when wages are not being paid?
Answer: The domestic debts are, indeed, a very complex problem. In preparing the presidential edict we knew that we would encounter these difficulties. But the situation today is as follows. In August-September, if you recall, the domestic debts constituted 24 trillion manat. True, it was said that this figure was 40 trillion manat, but this was not the case. It is simply that in making incompetent calculations, having added receivables to the accounts payable, people artificially overstated the sum total of the debts. That is, I owe you, and you owe me, and the difference, for example, is five manat. But they put them together and said that the debt was 10 manat. According to the information available on 1 April of this year, the sum total of outpayments amounted to 16.5 trillion manat. I believe that there is no alternative to this path. That is, let no one sell his wares on credit. The presidential edict speaks about this also. The debts had diminished somewhat as of 1 January. They constituted, I believe, 12 trillion manat. A further 2-3 trillion manat were added in the past three months. This has to do with the winter period, I believe. Because the new debts appeared mainly in the fuel and energy sphere. The only way is to pursue a drastic policy--no one should be sold anything on credit terms. The main purpose of the edict is to ban the release of goods on credit. It is impossible by any other way to establish financial discipline. I recently met with Tofik Azizov, chairman of the commission, and we will once again seek solutions.
The International Monetary Fund and the World Bank, having assembled the prime ministers and finance ministers of the CIS countries, discussed this problem two years ago in Washington. The representatives of all states said that there were no problems here. The main problem is financial willfulness since, unless payment is backed if only by way of a letter of credit, no one releases the commodity. However difficult, we also shall go this route, I believe. It is essential, therefore, to monitor fulfillment of the Presidential edict even more keenly. There is no other way. Now about the second question. Note the results of the first quarter. The number of enterprises that are operating profitably has risen to approximately 80 percent, and they are showing a profit of 480 billion manat. The rest are operating at a loss of 21 billion manat. The main problem today is how to use the profit. We are encountering a multitude of instances of the profit going into the pockets of various people, and the enterprise remaining in an invidious position. This problem exists in all countries of the CIS. We have, therefore, created a treasury, whose main job is to verify all agreements. I cannot agree with you on the issue of a diminution in enterprise profit. According to the information available to us, there are very few such enterprises. It is possible that there have been certain changes. Having to do with what? As you know, prior to 1 January of this year we did not include pay in the prime costs. Now pay is included in prime costs, and there is virtually no disbursement of corporate tax. This is a structural change, which is, at the same time, to the benefit of the enterprise.
Question: An objective of the Russian-Azerbaijan Economic Commission is the settlement of questions concerning assets outside of the Azerbaijan Republic. How is this matter be resolved? I refer to the SOCAR assets in Astrakhan. Second Question: What is your opinion of the 50 percent reduction in the pensions for working pensioners and how, generally, should this matter be resolved?
Answer: Russia and ourselves also have other questions that require a mutual solution. I refer to financial matters, debts included. These matters were comprehensively discussed recently during a Russian delegation's visit to Baku. But a situation has arisen, unfortunately, where certain documents have been prepared by lower authorities, but no specific decision has been adopted. This has to do with the Russian side's attitude toward these matters. Despite our repeated appeals concerning the illegality of this position, there has been no result. The situation is the same when it comes to the zero option of debt payment. I would like to mention that the mutual arrears are mainly equal. Despite the fact that the documents have been reconciled at deputy minister of finance and deputy chairman of the national Bank of Russia level, it has been impossible, unfortunately, to resolve these matters at a high level. The difficulty is that contradictions arise between certain ministries of Russia and even between different levels of one and the same ministry. It is very difficult to negotiate, therefore. We, for our part, are approaching this matter with great responsibility and expressing a readiness to negotiate at any level. We have applied specifically on the matter of debts to the Government of Russia and the Ministry of Finance and are ready to resolve this matter.
As far as the pensions are concerned, I have to say unequivocally that we wish to pursue both tax and customs and social, pension policy at the level of international standards. Because this is the world's tried-and-tested path. There are very few countries in which working pensioners are paid a pension. The issue has been framed this way: Either you work and are in receipt of pay or you are a pensioner. Working pensioners are paid a pension only in countries like ours. As you know, prior to the 1980s, working pensioners could receive a pension for two or three months. The pension was not paid for the remaining period. This had to do with the fact that the demographic situation of the USSR had deteriorated sharply in that period. Major enterprises were being built in Russia's cities, and there was no one to work at them. The payment to working pensioners for two or three months of a pension together with their wages was an incentive to increase the labor force. But in Azerbaijan the situation was different because 28 percent of labor reserves was not engaged in socially useful labor. As you can see, despite the different situations in Russia and Azerbaijan, there was just one law in the USSR. It has persisted this way until this time. We are doing this now not to make good the budget deficit, on the contrary, we are allocating supplementary funds to improve pensioners' social position. What are we proposing? Approximately 600,000 persons, who retired long since, receive 25,000-30,000 manat a month. It is very hard to live on this money. Working pensioners, on the other hand, not only are in receipt of wages, they can each month set these off against their pensions. You will agree that pay is rising in all spheres. We propose, therefore, reducing the pension for working pensioners by 50 percent and increasing by a factor of approximately 2.7 from these funds and funds allocated by the government the pension for nonworking pensioners. These are truly needy people, and the pension is their sole means of subsistence. I believe that this is a just measure from the social viewpoint. In addition, the retirement age is to be raised gradually. An age of 65 has now been established in Georgia, for example. This is what it is in all countries, in the main. We, though, are switching to this gradually, such is the President's policy. I cannot understand why the National Assembly is delaying consideration of this matter.
Question: You have spoken of the positive indicators of the current economic reform. Does the International Monetary Fund see things this way, does it deem Azerbaijan to be a state pursuing a stable policy?
Answer: Our opinions coincide, I believe, we rely on the same figures, our statistics are clear. The figures that I have given are absolutely correct, they have the same data also. Their opinion is positive, I believe, they expressed their opinion openly during the recent meeting with the President of Azerbaijan. We recently concluded a new agreement with the International Monetary Fund. This is a three-year program. I assure you that, had they not believed us, they would not have agreed. Negotiations are currently being conducted with the World Bank on SAC credit, we will receive approximately $70 million. Work is being performed in this sphere with the European Bank for Reconstruction and Development also, and projects for investments in water supply and power engineering are being prepared. We have a good relationship, I believe, with all international organizations. They can see that, among all the CIS countries, Azerbaijan's indicators are no worse than the others and that in terms of the level of inflation and other indicators we are ahead of Russia even. I believe that they are very pleased to be working in Azerbaijan.
Question: You said that the level of inflation in the past year declined to 6.8 percent. Throughout this period the value of the US dollar fell monthly for the whole year. It could in this case be concluded that the consumer price, if counted in dollars, grew 13-15 percent. A research center in Russia makes its calculations in just this fashion.
Answer: If so, why are you approaching the matter one- sidedly? Let us in this case take wages also. We are saying that average monthly pay has increased 36 percent. If counted in dollars, 43 percent. The 36 percent that I quoted is expressed only in manat. Were I to convert the increase in pay into dollars, you would then be right. I would like to mention in addition that we are not controlling price dynamics, you know this full well. The sole role of the state is to prevent monopolization. An increase in prices depends on the monopolies. Our main objective is to create competition on the manufactured goods market. If we can secure this--we cannot do this as yet, unfortunately--prices will fall approximately 25-30 percent. But a situation has arisen at this time where the wholesale sale of certain commodities is in the hands of several companies, and they are playing with these prices. The Committee for Antitrust Policy should look into this. Because money is being taken from the public's pocket.
Question: The spokesman for the World Bank in Azerbaijan has spoken about structural reforms taking place in this bank, noting that this applies to Azerbaijan as well. Azerbaijan is currently attributed to the same department as the Central Asian countries and is forced to seek donors in Asia. How correct is this at a time when Azerbaijan has become a part of economic integration with European countries, and is the Government of Azerbaijan expressing its opinion to the World Bank?
Answer: There has been no official communication to us in this connection but we are au fait with events and are following this process. Second, there is Tansu Yurukoglu's department in the World Bank, which is called the Department of Central Asia and Azerbaijan. Third, various matters are considered in groups.... We are part of the Switzerland group. We are represented on the Board of Directors by the representative of Switzerland. Fourth, we receive credit from the European Bank and would like to receive it from the Asian Bank also. We have taken certain steps in this direction, but we have been told that we pertain to Europe. We have been working with Tansu Yurukoglu's department for four years now. We will undoubtedly be given an official response. But I see no problem here.
Question: Short-term Azerbaijan Government bonds have been sold on the currency market for approximately two years now. Despite the fact that our country has set course toward the market economy, it does not have a stock market. This problem has arisen in connection with the sale of the checks also. I would like to know your opinion on this matter. Second
Question: A principal factor of the increase in the mutual arrears is the fact that electric power is being sold to the enterprises at high cost, and to the public, on the other hand, at a different price. The International Monetary Fund also is raising the question of the elimination of this difference. What can you say in this connection?
Answer: The short-term bonds have been issued not in the form of securities but in written form. This method was employed in Russia, and subsequently, with us. But I would note that this is the wrong way, and pressure is, in fact, put on the budget. They are issued from the budget at interest. They subsequently acquire 15-20-30 percent a month. It would be better, in my opinion, to secure the budgetary receipts specified by the forecast. Short-term bonds are to be auctioned in the very near future. Why? Because in March we fulfilled the tax collection requirement 103 percent and the customs duty collection requirement 102 percent. Consequently, there is no need to overload the budget. The process of short-term bonds will not last long, in my opinion. And this is good. True, it is highly profitable to the banks because the main problem at this time is the dependability of credit. The banks want to give the treasury 15 percent since they know that this is a 100 percent guarantee. Russia pursued this policy for a long time and even brought in and distributed bonds from America and Europe in order to pay pensions. But you will agree that paying pensions at the expense of such debts is not the best method. Importing bonds from abroad and using them as capital investments is another matter. But spending this money is wrong. Concerning a stock market. The newspapers also are writing about this--a stock shop, a stock market. The law permits the creation of check shops, why is it necessary to wait for the state to become involved? This is wrong. The state should not involve itself in commerce, it can only assist. Business people should take the initiative, and whatever it is within our power to do, we will help. The public could buy and sell checks in civilized fashion here. As soon as the state involves itself in this, black markets emerge everywhere. Possession of checks and shares could signify negative processes. State management bodies should be connected [as published] with commercial organizations. On the basis of the Presidential edict we are detaching the commercial offices within these bodies. There was, for example, the Azervneshtorg organization at the Ministry of Foreign Economic Relations, we detached it, and now it is independent and may privatize or become a stock company. The stock market should be given legal and procedural assistance. The market should emerge of its own accord, without the assistance of the state. It may be registered with the Ministry of Justice. A law was adopted recently, and the cabinet was commissioned with announcing an approved list of licenses. If stock markets are on included on this list, they may obtain a license, if not, they may undergo registration. As far as sources of energy are concerned, I am of the opinion that the prices should be market prices, to whomsoever it is sold. The point is that the Azerenerzhi stock company is a natural monopoly, and for this reason the state regulates energy prices. Second, the prices of electric power for the public and for industrial enterprises are different. The price per kilowatt-hour for the public is now approximately 50 manat. For the price to be brought up to the industry level, it should be raised to 120 manat. A drastic increase in the price would be difficult for the populace, it should be raised gradually.
Question: How much in the way of funds has the state spent to maintain the value of the manat? The second question pertains to the three-year IMF program. Why, in your opinion, is it being kept secret? An answer has not been given even to the questions of certain deputies of the National Assembly.
Answer: According to the details available to me, the National Bank's contribution to the currency market is very narrow, no more than 10-15 percent. Since there has now been an increase in the sources of receipts of dollars in Azerbaijan. As you know, several oil companies are now operating, and approximately 500 offices of overseas companies have been opened. The National Bank does not intervene in every auction. It intervenes only when there is an adverse situation and it has not taken part in some auctions at all. What's the point of artificially supporting the value of the manat? This may be achieved primarily by curbing the issue of credit and, on the other hand, by way of controlling the budget deficit. There is no reason for the program to be kept secret. The prime minister has authorized familiarization with it. Much in the program is of a technical nature. It is possible that we will change certain points with which we disagree. This is a framework document. There has been no instruction to keep it secret. You can familiarize yourself with it at the National Bank and at the Ministry of Finance. Its main part is composed of a privatization program. One part pertains to agrarian policy, another, to credit policy, that is, it consists of various parts. The privatization program has been discussed and published, it contains nothing that is secret. Exactly the same with the "Land Reform" law. Our credit policy is known to all. We have nothing to hide from the people. Journalist: It is said that the program was prepared by IMF experts and does not, therefore, reflect all the interests of Azerbaijan.
Answer: This is a very erroneous opinion. Their experts made suggestions, it is true. We are working on these suggestions. We have no experience in this sphere, and we invited experts in for this reason. But their suggestions have undergone lengthy discussion--the ministries of economy and finance and the cabinet are studying them, and we are studying and discussing them. I assure you that only 5-10 percent of their suggestions, possibly, will be adopted. I would not say, therefore, that this is a program of the International Monetary Fund. It is a memorandum of the Azerbaijan Government compiled by our experts. Overseas experts are helping us. And not only from the IMF. We are inviting experts from the TACIS and the European Bank for Reconstruction and Development. The memorandum observes, for example, that it is necessary to update the law on bankruptcy. This is a requirement of the IMF, and it is correct. We also are supporters of the bankruptcy process being of a legal nature under the conditions of the market economy. This work is being performed at our behest by experts of the European Bank for Reconstruction and Development and is being financed by the TACIS. There is much in which we lack experience, in the process of determination of bankruptcy included, and it would be wrong for our specialists to tackle this. Outside specialists are being invited in this case, there being no other way of studying world experience.
Question: Are the enterprises that will be selling their shares known at this time? I refer to the monetary sale of shares.
Answer: Small-scale enterprise will be put up for such a sale, as a rule. It is impossible to sell the shares of large-scale enterprises in this way. They will be joint- stock, therefore. Fifteen percent of the shares will be distributed among the enterprise employees, and an absolute minimum of 50 percent will be transferred to stock markets or check auctions. Based on the presidential edict, the enterprises of the liquidated companies and also the enterprises of companies converted into stock companies are to be joint-stock enterprises. Specialists of the State Property Committee are handling this. It is hard to say specifically at this time which enterprise is prepared to become a joint-stock enterprise. By the end of April, in any event, approximately 50 enterprises will have put their shares up for auction. This is what I am hoping.
Question: Will these be enterprises of one sector or various sectors?
Answer: The sector concept existed in the Soviet Union. The West does not have this concept. If an enterprise can manufacture various products simultaneously, it does so.
Question: How do things stand as regards the repayment of the credit of the Turkish Ex-Im Bank? Some of it was to have been returned in March.
Answer: I do not recall the exact date, but the repayment time was extended. There is no problem here. Were it demanded, we could pay it since the state of Azerbaijan's currency resources permits this. Unless I am mistaken, the payment time has been extended for two years. I believe that the negotiations in connection with this credit are to continue, there are instructions from the President to this effect since credit on such terms does not satisfy us. We shall try to ensure that the Azerbaijani state can use this credit independently.