Azerbaijan: Currency unilaterally devalued by 33%

In a surprise move, the Central Bank of Azerbaijan devalued the manat by 33.5% over the weekend. The devaluation came flying in the face of earlier government rhetoric that it would be able to maintain the stability and value of its currency with the precipitous decline in oil prices over the past six months, coupled with major devaluations in neighbors like Russia, Georgia, and Turkey. The official rate now stands at 1.05 manats per dollar, which in the released statement stated that the Central Bank wanted to “support diversification of Azerbaijan’s economy, strengthen its international compatibility and export potential as well as provide balance of payments sustainability.”

This is probably the first large economic decline for President Ilham Aliyev, who has overseen the expansion of Azerbaijan’s economy several fold in the past decade. Exchange offices in Baku stopped selling dollars in the wake of the devaluation, and independent news agency Turan dubbed the event “Black Saturday.” This will likely only accelerate the shift of domestic consumers to change their currency into dollars. The move, while painful, will also lower costs for the country’s oil industry, including SOCAR and BP which operate the largest oil fields and need to buy equipment denominated in dollars.

Most banks in Azerbaijan have ceased to allow exchange of manats into dollars – which has counterintuitively prevented bank runs and helped banks stay open over the weekend.

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News Briefs:

  • US Secretary of State John Kerry announced he is speaking with close allies to consider additional sanctions on Russia in the wake of the continued conflagration in Ukraine which has made a mockery of the ceasefire deal that he and German Chancellor Angela Merkel worked to achieve. On Russia, he stated that “Russia has engaged in an absolutely brazen and cynical process over these last days… we are talking about additional sanctions and other efforts.”
  • Migrant workers from Central Asia are now leaving Russia in droves, causing a shortage of labor available for menial tasks in some of Russia’s biggest cities. 30% of workers from Uzbekistan or Tajikistan who left Russia to spend New Year’s with family have not returned, according to various governors of urban oblasts. This probably has to do with decreased purchasing power given the migrants’ meagre wages.
  • An explosion in Kharkiv, Ukraine’s second largest city, has more or less reignited the lethal aid debate for Western powers, due to the lack of any evidence that a ceasefire has been upheld in eastern Ukraine. Kiev immediately labeled the attack a terrorist operation. Despite this, cooperation between separatist forces and Kiev took the form of the largest prisoner exchange since the beginning of the conflict.
  • The Pentagon has announced it is considering a slower withdrawal from Afghanistan “because the new Afghan government is proving to be a more reliable partner,” in a statement from US Defense Secretary Ash Carter. Carter also announced that the administration is “rethinking” its counterrorism mission in Afghanistan. This reverses previous rhetoric and facts on the ground that show that Afghanistan is devolving back into a low intensity civil war. Afghan President Ashraf Ghani comes to Washington next month, when this matter will likely be discussed.
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