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 Press release - World Bank Group Supports Reforms In Azerbaijan (WB)

 Press release date: 23.08.1995

The World Bank
1818 H Street, NW, Washington, D.C. 20433, USA
News Release No. 96/004 ECA

Contact: Jan Pakulski
Phone: (202) 473-1797
Fax: (202) 522-2633


WASHINGTON, August 23, 1995 - The International Development Association (IDA) yesterday approved a credit of SDR 41.6 million ($65 million) to support Azerbaijans stabilization program and economic reforms.

The Rehabilitation Credit focuses on supporting structural reforms in Azerbaijan and complements the Governments efforts to restore macroeconomic stability. The structural reforms are related to privatization, corporate governance and enterprise restructuring, private sector development, pro-competition and anti-monopoly policies, and the banking sector. Changes in the above areas will be accompanied by the development of the social protection system.

The Governments privatization program covers practically all small and most large and medium-size enterprises. Approximately two-thirds of state assets in the productive sector are to be privatized in the first stage of the privatization.

  • Small-scale privatization: over 8,000 small enterprises with a total employment of about 80,000, and accounting for about 5 percent of state-owned assets are to be privatized in 1995. Priority will be given to trade, services, food, transport, and construction enterprises. Privatization will also focus on demonopolization.
  • Mass privatization: the privatization of large and medium-size enterprises is planned for late 1995 along with the distribution of vouchers for the mass privatization program in 1996 which will cover about 800-1,000 medium-size enterprises. Case-by- case privatization of larger enterprises will also be initiated. Social assets of enterprises are envisaged to be privatized either as part of the enterprise, or separately, or to be transferred to local authorities.

In addition to privatization, the Government intends to implement a comprehensive program of enterprise restructuring of state-owned enterprises. This program is still being designed, but it is expected to:

  • reduce and eliminate Government financial transfers that cover operating losses of enterprises and impose strict financial discipline on them;
  • improve the lending policies of the state-owned commercial banks and limit the access of loss-making state-owned enterprises to credit from these banks;
  • enforce bankruptcy and improve payments discipline of enterprises;
  • isolate the largest loss-making enterprises from the banking system and speed up their restructuring, down-sizing or liquidation;
  • improve corporate governance of enterprises which will remain in the public sector.

Private sector development forms an integral part of the Governments economic transformation strategy. On the legal front, new legislation and amendments to existing legislation will be introduced allowing the free transfer and mortgaging of residential and commercial real estate. The Government will set up a proper system of titling, property registration and cadastre arrangements by the end of 1995. To create a simplified registration system for new businesses and to establish a transparent legal framework, the Government will remove barriers to entry and establish open procedures for registration with minimum licensing.

The legal framework for a two-tier banking system in Azerbaijan was established in 1992. Following this, the number of private commercial banks mushroomed due to low entry requirements. Later the minimum capital requirements were increased which, along with mergers and closures, consolidated the number of commercial banks to 192 by April 1995. The Government has already taken steps to level the playing field for private and state banks. Reserve requirements for all banks were unified at 12 percent. Credit auctions were started in March 1995. Since July 1995 all refinancing and credit have been provided through the credit auction market. Following a diagnostic study, which is financed by the IDA Institution Building Credit, the Government will restructure, privatize or sell the state commercial banks.

The creation of a competitive market environment is essential for the success of enterprise reform and private sector development. The Governments activity in this area will focus on two aspects.

  • Promoting competition: state supply offices will be privatized into a network of competing suppliers and enterprises will be free to buy from any sources; the break-up of monopolies will be enhanced; commodity markets will be developed and private traders will be encouraged in the agricultural sector; competition will be promoted during the corporatization and privatization of farms and agro-processing enterprises.
  • Preventing the abuse of monopoly power: amendments to the existing anti-monopoly legislation will provide legal basis to investigate and seek judicial remedies to the abuse of monopoly power; the Government also intends to regulate the legal framework for public utilities and natural monopolies as well as for mergers, acquisitions and holding companies.

The Azerbaijani Government has recently accelerated price and trade liberalization and pursued to develop a social safety system that is compatible with a market economy. The undertaken efforts cover the following main areas:

  • consumer subsidies and cash compensation;
  • pensions;
  • unemployment benefits;
  • family and sickness allowances;
  • social assistance to refugees and displaced persons.

The Rehabilitation Credit will be provided in the form of foreign exchange which will be sold in the auction market to help finance imports needed by the economy. From the revenues generated by the sale of foreign exchange to importers, it will also provide local currency resources which will serve as non-inflatory financing for the state budget.

The credit is extended at standard IDA terms for a period of 35 years, and it carries no interest rate.

IDA, a World Bank affiliate, provides assistance to the worlds poorest countries on highly concessional terms. Azerbaijan joined the World Bank in September 1992. The Rehabilitation Credit is the fourth operation supported by the World Bank Group in Azerbaijan.

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