An Emerging Markets Crisis? (Part 1 of 5: Azerbaijan)

Rather than just posting about rotten schools in Jakarta ad finitum, I thought I would do a series of posts about an under-reported aspect of the world in early 2016. That’s the slow motion emerging markets crisis which has been causing a lot of worry in so many countries over the past 12 months or so. What most of these countries have in common is that they were resource-rich, commodity-based economies that boomed when prices hit record highs last decade, but have now entered a deep funk.

Indonesia was perhaps one of the earliest countries to start to fall into this pattern. As late as 2011, the rupiah was at Rp8,500 to the $, but after that point it started a slow and steady decline, hovering around Rp11,500 by the time Jokowi was elected President in late 2014. From there, the rupiah fell precipitously to a 17-year low of around Rp14.700 before recovering marginally to its current rate of around Rp13.900 to the USD. This is still very low by historic standards, and it makes TEFL work in Indonesia very low-paying, but at least it has stabilized for now. That is not the case in Azerbaijan, where the situation now looks truly dire.


The oil-rich former Soviet nation of Azerbaijan is not one that receives a lot of coverage in the Western media. However, there have been a lot of newsworthy developments there of late. On December 21, 2015, the manat plummeted 32% on a single day after the government finally removed a peg to the US dollar. The government had spent more than half the nation’s cash reserves trying to defend the peg, so they were finally forced to give in. The currency had enjoyed a massive boom including double-digit GDP growth for multiple years last decade, transforming the capital Baku within a short space of time. High-end retailer Harvey Nichols even opened in Baku and the city became known for its large numbers of new sports cars. But now the country’s oil-dependent finances are being severely tested, with the commodity down to around $30 a barrel.

Since then, things have deteriorated rapidly. Over the last week violent clashes broke out several times between riot police and thousands of demonstrators who took to the streets to express their discontent against price hikes and unemployment. Traditionally strongman ruler Ilham Aliyev has allowed few signs of dissent, so these protests show how rapidly things are changing. Others expressed fears that the weak value of the manat would threaten the banking sector’s stability and lead to loan defaults as a majority of mortgages and loans in the nation of 9.5 million people are dollar-denominated.

It has often been suggested that Venezuela was the likeliest country to default on its debts or have mass protests in 2016, but perhaps Azerbaijan is getting there first. It remains one of the countries to watch in the coming months.



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