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Azerbaijan: Recent Economic Developments and Policy Issues in Sustainability of Growth

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  • Singh, Rupinder

    ()
    (BOFIT)

  • Laurila, Juhani

    ()
    (BOFIT)

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    Abstract

    The macro economic stabilisation in Azerbaijan has been successful. Following cessation of conflict with Armenia, and decline of GDP by 60 per cent from 1990 to 1995, the government in effect implemented a big-bang reform process in 1995. The inflation rate has now declined to the lowest rate of any transition country and important reforms in the monetary-fiscal mix have been undertaken. The second plank of first generation reforms, liberalisation, has also been successfully implemented with liberalisation of prices, the trade and foreign exchange regimes and virtual completion of small-scale privatisation, although the onset of the Russian crisis in 1998 has impacted negatively both internal and external balances. The paper presents the current economic picture for Azerbaijan and then assesses economic policy issues facing the country. Azerbaijan is well endowed with natural resources, particularly oil but also gas. The second part of the paper considers the question by focussing on policy issues related to the potential flow of oil-based monies into Azerbaijan. The possibility of the “Dutch Disease” syndrome impacting Azerbaijan through a rising real exchange rate on the non-oil sector is not considered to be a problem at present but is expected to become a policy concern in the medium- to long term. Structural reforms in public finance to deal with expected surpluses are lagging and are necessary in the next phase of the transition of Azerbaijan. Moreover, significant reforms are required in banking – privatisation, improvement in regulation and supervision and in the implementation of supporting legal rights, given the current lack of financial intermediation.

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    Bibliographic Info

    Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 5/1999.

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    Length: 53 pages
    Date of creation: 14 Sep 1999
    Date of revision:
    Handle: RePEc:hhs:bofitp:1999_005

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    Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
    Phone: + 358 10 831 2268
    Fax: + 358 10 831 2294
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    Web page: http://www.suomenpankki.fi/bofit_en/
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    Related research

    Keywords: Azerbaijan; economic development; oil; Dutch Disease; transition economies;

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    References

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    1. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
    2. Eastwood, R K & Venables, A J, 1982. "The Macroeconomic Implications of a Resource Discovery in an Open Economy," Economic Journal, Royal Economic Society, vol. 92(366), pages 285-99, June.
    3. Willem H. Buiter & Douglas D. Purvis, 1980. "Oil, Disinflation, and Export Competitiveness: A Model of the "Dutch Disease"," NBER Working Papers 0592, National Bureau of Economic Research, Inc.
    4. de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "From plan to market : patterns of transition," Policy Research Working Paper Series 1564, The World Bank.
    5. Kornélia Krajnyák & Jeromin Zettelmeyer, 1997. "Competitiveness in Transition Economies," IMF Working Papers 97/149, International Monetary Fund.
    6. Christoph B. Rosenberg & Tapio Saavalainen, 1998. "How to Deal with Azerbaijan's Oil Boom? Policy Strategies in a Resource-Rich Transition Economy," IMF Working Papers 98/6, International Monetary Fund.
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    Cited by:
    1. Kutan, Ali M. & Wyzan, Michael L., 2005. "Explaining the real exchange rate in Kazakhstan, 1996-2003: Is Kazakhstan vulnerable to the Dutch disease?," Economic Systems, Elsevier, vol. 29(2), pages 242-255, June.
    2. World Bank, 2003. "Azerbaijan Republic : Poverty Assessment, Volume 2. The Main Report," World Bank Other Operational Studies 14719, The World Bank.
    3. Bernardina Algieri, 2011. "The Dutch Disease: evidences from Russia," Economic Change and Restructuring, Springer, vol. 44(3), pages 243-277, August.
    4. Laurila, Juhani & Singh, Rupinder, 2000. "Sequential reform strategy: The case of Azerbaijan," BOFIT Discussion Papers 8/2000, Bank of Finland, Institute for Economies in Transition.

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