Identifier
Created
Classification
Origin
06BAKU602
2006-04-19 12:44:00
CONFIDENTIAL
Embassy Baku
Cable title:  

AZERBAIJAN: FINANCE MINISTER REPLACED BY OIL FUND

Tags:  ECON EFIN PREL PGOV PINR AJ 
pdf how-to read a cable
VZCZCXRO7796
PP RUEHDBU
DE RUEHKB #0602/01 1091244
ZNY CCCCC ZZH
P 191244Z APR 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 0188
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1586
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAIIA/CIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000602 

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/19/2016
TAGS: ECON EFIN PREL PGOV PINR AJ
SUBJECT: AZERBAIJAN: FINANCE MINISTER REPLACED BY OIL FUND
DIRECTOR AND CLOSE PRESIDENTIAL ADVISOR


Classified By: AMBASSADOR RENO L. HARNISH III PER 1.4 (B,D).

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000602

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/19/2016
TAGS: ECON EFIN PREL PGOV PINR AJ
SUBJECT: AZERBAIJAN: FINANCE MINISTER REPLACED BY OIL FUND
DIRECTOR AND CLOSE PRESIDENTIAL ADVISOR


Classified By: AMBASSADOR RENO L. HARNISH III PER 1.4 (B,D).


1. (C) SUMMARY: Azerbaijani President Ilham Aliyev dismissed
April 18 Finance Minister Avaz Alakbarov and appointed Oil
Fund Executive Director Samir Sharifov as the new Finance
Minister. A successor for Sharifov at the critically
important Oil Fund was not announced, leaving a key
institution without leadership. The removal of Alakbarov and
naming of Sharifov are one of the final pieces of the
reshuffling of the GOAJ's key economic decision-makers that
brought young, close advisors of the President to power. The
sole remaining outsider is the Chairman of the National Bank.
The full impact of the changes will not be clear until the
new Oil Fund director is named. Some observers speculate
that Sharifov will take the Oil Fund responsibilities with
him to the Ministry of Finance. END SUMMARY.

FINANCE MINISTER REPLACED BY CLOSE PRESIDENTAL ADVISOR
-------------- --------------


2. (C) Official Government of Azerbaijan television announced
last night the removal of Finance Minister Avaz Alakbarov and
the appointment of Samir Sharifov, Executive Director of the
Oil Fund, as new Finance Minister. (Sharifov's bio will be
sent septel.) According to a Deputy Finance Minister present
with Alakbarov on the evening of April 18, the minister heard
the news of his dismissal from the television during a dinner
with IMF representatives. The minister was visibly shocked.
He reportedly excused himself from the dinner, explaining
that he had to empty his desk at the ministry. (President
Aliyev told the Ambassador April 16 that he planned cabinet
changes in the coming weeks. The delegation list for
Aliyev,s upcoming trip to Washington may indicate further
changes; both Sharifov and International Bank of Azerbaijan
Chairman Jahangir Hajiyev are included on the list, while
Alakbarov had been noticeably absent.)


3. (C) A contact at the Oil Fund told EconOff that Sharifov

had been expecting to be named to a ministry position for the
past several weeks, though not necessarily the Finance
Ministry. The contact added that he was unaware of
Sharifov's possible replacement at the Oil Fund. Sharifov
has also been an active negotiator with Kazakhstan on the
long-awaited Intergovernmental Agreement (IGA) to bring
Kazakh crude into the Baku-Tbilisi-Ceyhan pipeline. It is
unclear how Sharifov's role in the negotiations will change.
Sharifov speaks excellent English and is extremely
comfortable dealing with Western interlocutors. He also has
excellent managerial skills. For these reasons, he was a
valuable GOAJ spokesperson to the international community and
IFIs.

OIL FUND LEADERSHIP UNKNOWN
--------------


4. (C) Sharifov's appointment as Finance Minister creates a
critical vacancy at the Oil Fund. On more than one occasion,
international rating agencies have noted to EconOff the
critical importance of retaining Sharifov as Executive
Director of the Oil Fund since it gave them confidence that a
capable manager and leader was in charge of the country's oil
wealth. Most economic and financial observers also agree
that Sharifov's leadership and close relationship to
President Aliyev have made the Oil Fund, and its USD 1.5
billion in assets (NOTE: Oil Fund assets are projected to
reach between USD 60 and 120 billion by 2016),a transparent
institution free of typical corruption and bureaucracy. One
observer noted, however, that Sharifov's skills were being
wasted at the Oil Fund because the amount of active hand-on
management was limited following the intensive work required
to set up the Fund.


5. (C) Since Sharifov handled daily Oil Fund operations and
public relations personally, there is no obvious choice of
successor from within the institution. While the Minister of
Finance already plays an active role of the GOAJ Oil Fund
advisory group, the GOAJ may attempt to have the Ministry of
Finance oversee more closely the Oil Fund. One IFI observer
noted that National Bank General Director Shamar Movsumuv may
be a possible candidate to replace Sharifov. Movsumuv, a
close Embassy contact, speaks excellent English, has studied
at Harvard University, and is held in high esteem by the
international donor community.

GOAJ's NEW ECONOMIC TEAM
--------------

BAKU 00000602 002 OF 002




6. (C) The dismissal of Alakbarov is one of the final steps
in the GOAJ's reshuffle of the principal economic
decision-makers. The current key economic ministers,
Economic Development Minister Babayev and Finance Minister
Sharifov, are now closely aligned with President Aliyev. The
remaining "outsider" is National Bank of Azerbaijan Chairman
Elman Rustamov, who was appointed in 2005 for another
five-year term. In October, the GOAJ removed Economic
Development Farhad Aliyev and replaced him with Heydar
Babayev, a close confidant of President Aliyev.


7. (C) While the removal of Alakbarov came as an unexpected
surprise, it was widely known that he was a skilled
technocrat who occasionally clashed with other ministers,
such as Babayev, over GOAJ's economic policy. At a recent
budget-planning seminar organized by the U.S. Embassy and
attended by Babayev, Alakbarov and Rustamov, the differences
of opinion among the three officials were clear. Babayev
openly disagreed and rebutted both statements and proposals
made by Alakbarov and Rustamov. In recent meetings, Sharifov
has made comments regarding GOAJ spending and economic goals
that are extremely similar to Babayev's. Both Babayev and
Sharifov support increasing government expenditures to
accelerate economic development. Based on the closeness of
Babayev and Sharifov to President Aliyev, one can assume that
the President is leading this spend-thrift economic policy.


8. (C) The international donor community and IFIs have always
viewed Alakbarov and Rustamov as trustworthy interlocutors
working to maintain economic stability and move the country
twards sustainable economic and financial developmet. In
preparation of the 2006 State Budget, howver, both officials
were marginalized and their views on potential economic
problems ignored. The removal of Alakbarov has most likely
been planned for several weeks and, despite his five-year
appointment, Rustamov is most likely the next government
official that will be removed.

OIL FUND TO FINANCE MINISTRY?
--------------


9. (C) While there would be considerable conflict of interest
in transferring oversight and management of the Oil Fund to
the Ministry of Finance, it would enable Sharifov to maintain
control over a key institution. The local IMF resident
representative told EconOff that it would not be
inconceivable to have such an arrangement and that it may
maintain important continuity and market confidence.

COMMENT
--------------


10. (C) The replacement of Alakbarov, appointed in 1999 by
former President Heydar Aliyev, with Sharifov, a personal
friend of current President Ilham Aliyev, is the latest in a
not-so-subtle shift of power away from old-guard, clan-based
allies of the former president. Aliyev clearly values the
advice of close friends and allies over those of his father's
cabinet and, as we have remarked before, is steadily changing
over the government, minister by minister. Whether these
allies and friends will turn out to be the true reformers we
hope for remains to be seen. What is clear is that the
changes are an overt attempt to put in place suave
interlocutors, mostly English-speaking, and comfortable with
Western colleagues -- much like Aliyev himself. He is also
building a team whose loyalty to him is not in question,
unlike many members of the Old Guard. We predict, as we have
before, that this trend will continue, in a timing and
methodology known only to the President.
HARNISH