Our Analytics 6 march — 16:36

Frank conversation with Elman Rustamov: Ilham Aliyev told us 'There should be no offended people!'



Azerbaijani media have been devoting entire pages to the question of settling one of the most sensitive issues for the society - problem loans. By the decree of President Ilham Aliyev, hundreds of thousands of citizens of the country in one day were relieved of a heavy burden - credit debts and interest on them accumulated after the devaluation of the manat, the total amount of which exceeded one billion dollars. Experts are actively involved in the discussion of this issue, come up with comments, and citizens who have fallen under the burden of problems thank the president. But one question hangs in the air: why today and how this decree was prepared. To clarify these questions, we addressed Governor of the Central Bank of Azerbaijan (CBA) Elman Rustamov.

Elman Rustamov

Usually chary of comments not related to monetary policy and problems of the banking system, this time Elman Rustamov seemed more likely to have a frank conversation. It was felt that he himself personally was experiencing great relief, as if a huge burden fell from his shoulders. And it is so, after all, the country's chief banker himself took an active part in solving this sore problem. Indeed, the decree provides for the payment of compensation to citizens whose credit load has increased as a result of the devaluation of the manat in February and December 2015. And today, opportunities are being created for the restructuring on concessional terms of both dollar and manat loans with a delay of more than 360 days.

Of course, the country's chief banker could not reveal all the details known to him, but shed light on many details. And first of all Elman Rustamov said that this decision is only part of the overall package of social reforms that the head of state plans to implement in the shortest possible time. The complex mechanism of large-scale reforms leaves the government no time for buildup; citizens cannot wait for one or another official to listen to their appeals. And this decision was just another link in the logical chain of social problems solved by the country's political leadership - raising the minimum standard of living, pensions, wages, etc.

It also turned out that the government was simultaneously considering several options to address the issue of problem loans. In particular, there were proposals to limit the top level of coverage of assistance to the population to 5 thousand dollars, as well as other proposals. In general, all these packages of proposals provided for the provision of assistance to the population, but somehow partially, incompletely, insufficiently. But on the personal initiative of Ilham Aliyev, it was decided to cover practically all of the population affected by the devaluation of the manat. And the most optimal was the amount of $10,000 (17,000 manats), which covered 95% of borrowers, including, by the way, not only those who took loans in foreign currency, but also manat borrowers, who too received certain benefits. Isn't this the highest degree of social equality, the care of the state about its citizens!

It is not difficult to imagine how President Ilham Aliyev, in his characteristic manner, said simply, but decisively: 'There should be no offended people.' That is why compensation will be paid to those citizens who have already paid loans taken before the devaluation, as well as even those who have transferred their dollar loans to manats. And how much perseverance and adherence to principles was shown by the first Vice-President, Mehriban Aliyeva, is simply beyond words. Supporting the call of the head of state that 'there should be no offended people,' she in fact defended every paragraph, every word, which could otherwise lead to a misinterpretation of the decree.

However, there may be a question about those 5% of creditors who have not fallen under the decree. But this explanation is also simple - it would take twice as much money to repay their loans, and this is too much of a burden for the state even today. The best option was chosen!

By the way, there are a lot of questions about why the authorities did not take such a step earlier, which could have prevented many complications. But here, too, the government should not be blamed. Everyone remembers what efforts the authorities made immediately after the devaluation to correct the situation. But the first fruits of these efforts could be seen only in 2017, and immediately the government began analysing the situation and searching for a way out. So work on this problem began a long time ago, which completely breaks the illusions of some opposition leaders, who claim that it was they who forced the authorities to take such a step, they say, the government was afraid of possible opposition actions. But we specifically focused on the scale of the work done so that it was clear that this work was not done in just one month or two.

Some 'experts' are completely perplexed, they say, why didn't the authorities agree to full amnesty for the debts? However, writing off debts (zeroing them out) is not the way out, which has been proven by international practice. This is not only a big burden on the budget, but also the creation of dependent skills among citizens, as well as a distortion of the philosophy of banking services, as we see in some countries.

Yes, the problem was too large and complex, and, besides, the funds were still not enough. But with the advent of economic opportunities, the mechanism was set in motion, it was decided to resolve the issue of problem loans. In general, as a result of large-scale economic reforms, very important measures have been taken recently in the social sphere. But it takes a lot of time from making a decision to its execution, especially when it comes to large-scale issues. Imagine that only from the beginning of this year began the implementation of those social projects that, say, were prepared during the past year. And in order to present their scale, let us pay attention to some figures. The increase by about 40% of the minimum wage, the minimum pension covers up to 830 thousand people. The increase in social benefits by an average of 100% covers about 600 thousand people. Registration of apartment buildings covers approximately 350-400 thousand people. Solving the problems of martyrs' families, increasing benefits and providing benefits also directly affect thousands of our citizens. Scholarships have been significantly increased, which improves the financial situation of more than 100 thousand students. More than 800 thousand people are covered by the latest decree on problem loans, which is truly unprecedented in nature, because in no country have such socially oriented steps been taken to defend the interests of citizens. By the way, the entire social package of President Ilham Aliyev already covers about 3 million people - almost a third of the country's population. That is, there is practically no family that has not felt a noticeable improvement in their lives.

Of course, taking loans in foreign currency is always risky. This was proved by the devaluation of the manat in 2015, as a result of which payments rose sharply, the people who took these loans, for objective and subjective reasons, found themselves in a difficult financial situation. But from a formal market point of view, this is the problem of those who took the risks associated with the exchange rate of foreign currency, and they themselves should have been responsible. But the Azerbaijani state always claims that it is pursuing a socially oriented policy, although some opposition circles put this position of the government in doubt. And this policy is carried out at the expense of budget funds.

Officially, more than 800 thousand people, but in reality, taking into account the guarantors, almost twice as many citizens of the country are exempted from heavy debt. Banks will soon begin to withdraw their claims against them - more than 311,000 court cases on loans worth 616 million manats. But the banks themselves will not lose. The decree will provide significant support to the country's banking sector. Banks will receive preferential loans under the state guarantee in the amount of up to 682 million manats. And in order to prevent a possible deterioration of the currency position, they will be provided with securities for a total amount of up to $215 million at an annual rate of 0.5% at the expense of the loan. In principle, this should help fully improve some banks that are now having problems with capital. As a result, cheap credit resources will appear on the market, which will actively be lent to the economy. That is, banks with skilful management will earn double from the decree. First, their balance will improve, and, second, they will receive cheap funds for lending to the economy. Well, if any of them cannot cope with the situation, then it is not the fault of the Central Bank or the government.

Yes, the decree will greatly contribute to the dynamic development of the banking sector, which will directly affect the pace of economic development in the country. After all, the funds released after removing the burden from the family budget of citizens will also be directed to consumption. That will also stimulate the growth of economic activity. And if we consider that President Ilham Aliyev has already announced the imminent start of new large-scale economic reforms, it is not difficult to guess what big changes are waiting for us in the near future.

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