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President Ilham Aliyev wrote off citizens' debts: State will pay them

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BY ELDAR ALIYEV

As previously reported, yesterday, Azerbaijani President Ilham Aliyev issued a decree on additional measures in connection with the solution of the long-awaited issue of problem loans to individuals. This issue was central to the national agenda and permanently agitated public opinion. But it will still be very difficult to determine the true social significance of this decree - the problem is so large-scale both in terms of the coverage of the population and the amount of financial resources necessary for its full-fledged solution.

It took only a few days after the loud statement by the head of state about the need to resolve this major social problem for it to be followed by a lightning decree.

In short, the essence of the decree boils down to the fact that funds will be allocated from the state budget to pay off that part of citizens' credit debts, which grew as a result of two manat devaluations in 2015. However, not all loans, but only parts of credit debts in foreign currency not exceeding 10 thousand dollars - all loans issued above the specified amount are not eligible for benefits. Although, if you think about it, then this part of problem loans, not exceeding 10 thousand dollars, constitutes the absolute majority in their total mass. Namely, 95%.

But the main plot of the decree is that the increased part of credit debts due to devaluation will be differentiated. Thus, the increased part of the loan debt taken in foreign currency until February 21, 2015 will be compensated AZN 0.25 ($0.15) per 1 US dollar. And if the loan is taken from February 22 to December 21, 2015 - 0.6 manat ($0.35) per dollar. That is, the compensation is fully consistent with the degree of devaluation in the first and second cases. Moreover, the stipulated payments should be directed mainly to the repayment of major credit debts on arrears of individuals to banks, including those in the process of liquidation.

The question may arise: what is meant by the main credit debt in the amount of up to 10 thousand dollars (17 thousand manats)? This is the total amount of the remaining part of the main credit debts, which was formed under the loan agreements concluded from January 1, 2012 until the entry into force of the yesterday's decree. Moreover, the total amount could be higher, a part of which was also repaid, but only up to 10 thousand dollars is subject to compensation. And overdue loans are loans under loan agreements concluded from January 1, 2012, and overdue for more than 360 days.

However, the exact dates and the mechanism of repayment of the part of credit debts increased due to devaluation have not yet been established. But the Financial Markets Supervision Chamber has to work out and approve this mechanism within 15 days and after coordination with the head of state. As well as to determine the benefits that will be applied to interest, penalties and pennies accrued on these amounts. In addition, within 45 days, the Chamber must determine the total amount payable on these loan debts, as well as the list of individuals to whom payments will be made, and also establish the amount of these payments for each person. Moreover, the amount of payments for each individual should not exceed 5 thousand dollars in manat equivalent.

One would like to note another interesting aspect. Banks will have to pay compensation to the debtors themselves, and they already will send this amount to pay off their loans. Apparently, this is done to exclude all possibilities for the improper use of the compensations allocated by the state. And if someone has already managed to repay the loans taken in the specified period, then the money will still be paid in order to avoid discrimination. Otherwise, what about those citizens who, despite the harsh conditions for the return of loans in the post-devaluation period, still closed their loans?

But the problem, we repeat, is too large-scale, and all the country's financial institutions are involved in its resolution. In particular, the president recommends the Central Bank to provide banks with soft loans with state guarantees in the amount of up to 682 million manats in order to restructure foreign currency credit debts (up to $10,000).

And so that this does not cause a deterioration in the currency position of banks, the Central Bank is also recommended to provide them (on the basis of the Chamber's circulation) with securities for a total amount of up to $215 million with an annual rate of 0.5%. And banks, in turn, are encouraged to offer individuals to enter into new loan agreements, but already on preferential terms. So, within a month, banks need to take measures to zero out (write off) the arrears and withdraw tens of thousands of claims on problem loans from courts. And also take other measures to alleviate the debt burden of individuals whose debts have been restructured.

Once again one would like to emphasise the high effectiveness of the measures taken by the government. But in the expert community there are individual voices with a fair, at first glance, question on their lips: why all these measures were not taken earlier, because a lot of turmoil in the economy and the banking sector arose because of problem loans, which caused social tensions? However, one should not forget about the fundamentals of economic policy in the pre-devaluation period. Only the provision of macroeconomic stability, the restoration and growth of economic development, the expansion of financial opportunities created the conditions for rendering, like in other areas, state support for the repayment of overdue credit debts of the population in foreign currency. And all this happened only recently.

Finally. As we have repeatedly noted on the basis of international practice, the responsibility for the consequences of the devaluation of the manat should be divided among all three parties - the state, banks and citizens. But, as follows from all this, a presidential decree mainly protects the interests of the ordinary citizen. Of course, the interests of banks are not forgotten either, since the presidential decree greatly increases the trust in the banking system, which has been shaken after two devaluations. The only party that as a result of this initiative loses hundreds of millions of manats is the state. But the state can not remain indifferent to the problems of its citizens, moreover, such a step will lead to further improvement of the financial system, which requires the injection of new blood into the country's economy.

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