Official Azerbaijan struggles to come to terms with shadow inflation

Official Azerbaijan struggles to come to terms with shadow inflation
by Simon Ostrovsky

Agence France Presse — English
November 14, 2004 Sunday 3:42 AM GMT

BAKU Nov 14 — He wasn’t sure at first, but about a month ago
a shopkeeper in a district on the outskirts of the Azeri capital
noticed that the loaves of bread he stocks were getting smaller.

“You see? It weighs 240 grams (8.4 ounces),” said Elshin, who preferred
not to give his last name. “They’re making the bread smaller so that
they don’t have to sell it at a higher price,” he said as he placed
the bread on an electronic scale.

Like a whole range of consumer products, the round, flat bread, a
staple in Azerbaijan, is feeling inflationary pressure unacknowledged
by the Azeri government but obvious to ordinary people for more than
a month.

For years the bread’s price has stood at 500 manat (10 cents), but a
month ago a standard loaf weighed more than twice as much as it does
now for the same price, Elshin said.

“Only in Azerbaijan could they have come up with this.”

Consumer prices have gone up in the past month by as much as 40 percent
on everything from butter to taxi fares, but the government seems loath
to admit it and official statistics are not registering the change.

At the same time public sector wages and pensions have remained
stagnant, putting many products out of reach for the poor.

Refugees from Nagorno-Karabakh, where Azerbaijan and its rival
Armenia waged war in the early 1990s, are an especially vulnerable
group hardest hit by the rising prices.

“I can’t afford to buy the most basic things anymore,” said 80-year-old
Jafar Shirinogly, since 1993 a refugee from the Agdam region, which
is currently under Armenian control.

Shirinogly said high oil prices, which have been a boon for
oil-producer Azerbaijan, have not led to an increase in his 20-dollar
monthly pension. “The oil is not for us, our rulers are too corrupt.”

Azerbaijan’s president, Ilham Aliyev, told AFP the growth in prices
was natural and there was little that could be done to stop it.

“This is all not a very good phenomenon, neither the government nor
the president are satisfied with this situation, but let’s not make
this out to be a tragedy,” he said.

While prices have risen noticeably over the past month, opposition
parties said it was the government’s sudden decision to raise fuel
prices by as much as threefold earlier this month that really triggered
the crunch on other consumer goods.

“The government should create a stable social net for the population
before taking these steps,” said Gulamguseyn Aliyev, deputy chairman
of the People’s Front party in Azerbaijan’s parliament.

On Wednesday, police disbanded a protest against higher fuel prices
staged by the party near city hall in Baku, arresting 16. The
protesters were released the same day.

Economists agree in part with the People’s Front — Azerbaijan
recently caved in to the demands of the International Monetary Fund
to get its domestic fuel prices in line with world market value —
but an unusually high level of corruption in the Azeri economy is
also to blame for the inflation, they say.

The government claims inflation has remained static at a rate of six
percent, but Nazim Imanov, an independent economist in Baku, said
high levels of corruption have led to a real inflation rate that is
closer to 10 percent.

“No large transaction in Azerbaijan goes through without a bribe
being paid to an official, so when officials start asking for more,
overall prices go up,” he said.

Corruption effects the prices in subtler ways, too, according to

“Officials inflate costs for state-funded projects so that they can
stick the remainder in their pocket — they are essentially increasing
money inflow, which also leads to inflation,” he said.

“This is especially true for a country that is getting oil windfalls.”

A recent study by Transparency International, the global corruption
watchdog, gave Azerbaijan one of its lowest overall “clean” scores,
ranking it 140th on a list of 146 countries.

But big business and the government are willing to turn a blind eye
to the corruption and the inflation that comes with it if it means
there can be stability, said Rena Safaraliyeva, executive director
of Transparency International in Azerbaijan.

“This is unacceptable if we want to develop the economy outside of
the oil sector,” Safaraliyeva said.

Economists say inflation in healthy doses is good for the economy,
because it makes local products cheaper to buy with foreign currency,
which encourages exports.

But according to Imanov, prices are growing in dollar values as well,
erasing any gain a depreciating manat could have given domestic
producers interested in export.

“The dollar and the manat are both so widely used here that they are
interchangeable, so when prices grow in manat, they grow in dollars
too, this is a very rare phenomenon,” he said.