Azerbaijan Dealing With Authoritarianism, A Shrinking Economy And A Falling Currency

Ilham Aliyev is the fourth and current President of Azerbaijan and has been in office since 2003. His recent appointment of his wife to the position of First Vice-President, indicates his family plans to hold onto power for the foreseeable future. The tightening political and economic grip of the President, is turning Azerbaijan into an authoritarian society.

A country wide referendum was held in September of 2016. One the 29 changes proposed to the constitution and supposedly passed by the electorate, was the creation of the political position now occupied by the President’s wife. Another one was to extend the duration of the presidential term.

The republic of Azerbaijan is strategically located, sharing borders with Armenia, Georgia, Iran and Russia. In the territory of Nakhchivan, which is separated from the rest of the country by Armenian soil, there is a common border with Iran and Turkey.

Azerbaijan with a population of 9.5 million people has a GDP (Gross Domestic Product) of $53.4 billion USD (United States dollar) and a GDP in Purchasing Power Parity (PPP) of $169.4 billion USD.

The oil rich nation of Azerbaijan has been in recession since 2016. The economy shrank by 3.8% last year and growth is expected to be contract an additional 0.1% of GDP in 2017. Amazingly, before the recent economic downturn, the country had positive growth every year since 1995.

Government spending has amounted to 37.6% of the total output and public debt is at 36.1% of GDP.

Previous economic mismanagement of the country and outright corruption, has forced a more conservative fiscal and monetary policy in the last couple of years. The national budget has remarkably remained in balance, despite the recent economic and monetary turmoil.

Inflation has reached double digits. This was the result of the near collapse, in international crude prices in 2015 and 2016. The banking sector remains under severe pressure, with sizable non-performing portfolios. It is estimated that there is already,more than $2 billion USD loans in default.

Azerbaijan devalued its currency twice in 2015, after the central bank used near $10 billion USD of foreign exchange reserves,in a futile effort to defend the manat. The value of the currency plunged by a third in February of that year, and another third in December of 2015.

Three quarters of Azerbaijani foreign currency reserves have been already used in various attempts to stabilize the manat. At the beginning of this year, reserves were down to the equivalent of just $4 billion USD.

The central bank insists the manat will continue to float freely this year against other currencies, but they have made a similar pledge before.

Azerbaijan relies on gas and oil, for 95% of national exports. Near 80% of government revenues are derived from fossil fuel sales and this sector alone, comprises 40% of the GDP.

President Aliyev is trying to modernize his nation, but wants to maintain a strong grip on national politics. He has recently made attempts to appeal to the country’s rising middle class, by again promising further economic reforms.

In one endeavor to curry favor with the populace, the President has introduced public service bureaus. These one stop shops, can provide citizens with most needed official documents. The advantage of these new facilities, is that the need for bribery to conduct personal business, has been largely eliminated.

In a further play for support among younger Azerbaijanis, he also removed the chief of security. This organization succeeded the local KGB, when the country was still part of the Soviet Union. It was once headed by Mr. Aliyev’s father, who later became President of the country from 1993 to 2003. He would then be followed by his son.

The Aliyev family has played a dominant role in the republic of Azerbaijan, for nearly half a century. Critics of the regime, claim that the President Aliyev is now attempting to establish a quasi-monarchy in the country.

In last year’s referendum, the Central Election Commission reported an approval for the constitutional changes at 91.2% of the electorate.

Independent observers witnessed numerous and widespread violations. This included employees of the Commission and representatives themselves, caught on camera stuffing ballot boxes. The result of the final vote is therefore meaningless and lacks any real legitimacy.

The lack of credibility on the part of the government over the issue of the referendum, is quite evident. The escalating repression against dissenters and what remains of the independent media, leaves little doubt, that democracy is in retreat throughout Azerbaijan.

Furthermore, the judiciary is corrupt and inefficient. It remains largely subservient to the President Aliyev and the ruling party, New Azerbaijan. Outcomes often seem predetermined and opposition politicians are subject to arbitrary arrest, physical violence and other forms of intimidation, against themselves and their families.

This is becoming a common practice in the former republics of the Soviet Union. This is especially the case in Central Asia. It has already happened in Kazakhstan,Tajikistan and Turkmenistan.

The same phenomena can be seen occurring in Belarus and in Russia itself.

During the years when international oil was priced far higher, the country invested in major infrastructure projects. The groundwork for a more modern economy therefore, already exists. The problem remains with human capital. The ongoing government interference in business and the economy, continues to stifle entrepreneurship.

It has also hampered further domestic investment by not only locals, but from foreign sources as well.

The regional clans which control large segments of the economy, continue to believe that market reforms are possible, without the need for any real political changes. Elites within Azerbaijan, continue to use the model of Malaysia, as the template for the future of their country.

The years of authoritarian government, has prevented the creation of a bureaucracy, that is capable of any real reform. Local leaders remain cautious, so they do not move too far ahead of the prerequisites of the national government.

A further risk to the development of Azerbaijan, is the ongoing territorial dispute with neighboring Armenia. The disagreement over who should control the enclave of Nagorny Karabakh, has recently flared to a number of military skirmishes, on the border between the two countries.

Although Nagorny Karabakh is technically part Azerbaijan, it is mostly inhabited by Armenians. Although the enclave is completely surrounded by Azerbaijan, the people who reside there refuse to recognize the authority of the central government in Baku, the capital of Azerbaijan.

The bitter conflict that erupted in the early 1990’s between Armenia and Azerbaijan, left the region largely free from control of the latter. It also resulted in the death of at least 30,000 dead and upwards of one million people displaced from their homes.

By the end of the war in 1994, Armenians controlled between 14% to 16% of Azerbaijani territory. The four United Nations Security Council Resolutions, demanding the immediate withdrawal of Armenian forces, have been largely ignored.

Armenia has received continuous support from Russia, in the ongoing dispute. Although Russia has aided Azerbaijan as well, they clearly favor the Armenian position. Russia remains both a mediator and a party to the conflict, by arming both sides.

In April of 2016, well armed troops from Azerbaijan decided to strike and recapture a couple of hills. The offensive cost about 200 lives on both sides.

Militarily the maneuver mattered little. However, psychologically the skirmish now known as the four days war, had a massive impact in Azerbaijan. It was the first military victory, since the country’s humiliating defeat some 22 year ago. The military success of Azerbaijani forces, was widely celebrated throughout the country.

The danger remains that the Aliyev government may be tempted to push for further territorial gains, in an effort to shore up his flagging popularity.

There is also trouble concerning Nakhchivan. The territory as aforementioned, is an autonomous area belonging to Azerbaijan. The Kari district remains remains under control of Armenian forces as a result of the previous war in the 1990’s.

The peace in Nakhchivan remains tenuous and quite dangerous. Back in the 1990’s Turkey had threatened to declare war on Armenia, if there was a major offensive into Nakhchivan. Thousands of Turkish troops were moved to the border at the time, to back up the warning.

Russia issued its own warning during the crisis. They issued a statement that a third party intervention into the dispute, could well trigger a Third World War. To make their position clear, Russian troops based in Armenia, increased their presence on the Armenian-Turkish border.

In an additional provocation to the crisis, Iran conducted military exercises near the border with Nakhchivan, in a effort to provide a further admonishment to moves by Armenian forces.

Although the Turkish military did engage in some heavy mortar fire along the border, the presence of Russian troops prevented an escalation in the fighting.

For its part, Armenia did not launch an further attacks in Nakhchivan and the crisis was defused.

The period of political instability in Azerbaijan that followed these events, did push the country in a new direction. The Parliament would ultimately turn to Heydar Aliyev, the father of Ilham. He was invited to return from exile in Nakhchivan, to lead the country in 1993 and so a political dynasty was born.

Step by step democratic freedoms and rights, have been dismantled by President Ilham Aliyev. His first presidential election in 2003, saw him win by a margin of 76.84%. In his re-election in 2008, the total vote count secured him an even higher count of 87%. The opposition parties boycotted the election, accusing the President and his party of rigging the ballots.

The following year, a constitutional referendum was approved, that abolished term limits for the President and gave increasing authority to the government, to restrict the freedom of the press.

Also in 2009, President Aliyev in violation of the Constitution, removed the presidential consecutive term limit.

The 2010 parliamentary elections, produced a legislature completely loyal to the President and the New Azerbaijan Party. For the first time in the modern history of the country, not a single candidate from the two main opposition parties was elected.

Repeated protest against his rule in 2011, led to the government in using force to crack down on the dissenters. Individuals would be threatened, attacked or imprisoned. This brought the resistance movement inside the country, to a virtual halt.

The 2013 presidential elections, gave Aliyev 85% of the vote, allowing him a third five year term. A day before the election, a smart phone application run by the Central Election Committee itself, showed the President winning re-election by 72.76% of the vote. This suggests that elections results were already decided by the Committee, working with the government.

Azerbaijani officials in response, insisted these results were in reality, from the 2008 election. However, the presidential candidates listed were from the 2013 election.

It was at this point that President Aliyev was openly criticized by the United States as well as Amnesty International, for political corruption and voter fraud. Both parties cited election irregularities. The persecution of political activists, journalists and the actual imprisonment of election monitors, removed any semblance of democratic governance.

President Aliyev remains quite controversial both inside Azerbaijan and abroad as well. A number of analysts describe him as the head of corruption in Europe. International monitors have identified the President and his government, as one of the most corrupt in all of Europe.

The President and his family have amassed an enormous fortune. They secretly own huge stakes, that give them control over the largest businesses in Azerbaijan. These include banks, insurance firms, a television station, construction companies, gold mines, public utilities and many more.

The family also owns shares in many big offshore companies. The Aliyev’s have a property portfolio that may run into the hundreds of millions of dollars. Their teenage son alone, owns property in Dubai worth over $40 million USD.

The escalating corruption on the part of President Aliyev, his family and his close political supporters will continue to weigh on the growth and development of the country.

As the global economy increasingly relies on an informational and high technology construct, nations like Azerbaijan, will find it progressively more difficult to be competitive.

As in all commodity based economies that have not diversified, the natural gas and oil in Azerbaijan, will eventually be depleted.