AZERBAIJAN: PRESIDENTIAL ECONOMIC ADVISOR'S

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000731

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/18/2016
TAGS: ETRD ECON EFIN PREL PGOV PINR AJ
SUBJECT: AZERBAIJAN: PRESIDENTIAL ECONOMIC ADVISOR'S
PERSONAL INFLUENCE DIMINISHES

REF: (A) BAKU 724 (B) BAKU 718

Classified By: ACTING DCM JOAN A. POLASCHIK PER 1.4 (B,D).


1. (C) SUMMARY. Acting DCM paid a courtesy call on
Presidential Economic Counselor Vahid Akhundov May 15 to
discuss economic and financial developments in Azerbaijan.
Akhundov, in his current position since the early 1990s,
discussed the Government of Azerbaijan's efforts to manage
its oil revenue and keep inflation low. He reiterated the
GOAJ's intention to join the World Trade Organization and
commented on Azerbaijan's pension system and anticorruption
efforts. Once a leading economic decision maker, Akhundov
appears to have fallen out of favor and is no longer a
leading economic voice in the GOAJ. During the meeting,
Akhundov made several comments that indicated he was not up
to date on several key issues, including several erroneous
comments. In addition, recent personnel moves and statements
by President Ilham Aliyev indicate that the government is
shifting to a more Western leaning economic decisionmaking,
significantly diminishing Akhundov's role and influence over
government economic policy making. END SUMMARY.


2. (C) On May 15 Acting DCM, EconOff and USAID economist met
with Presidential Economic Counselor Vahid Akhundov to
discuss economic and financial trends in Azerbaijan.
Akhundov has been in his position since the early 1990s.
Once a leading economic decision maker, Akhundov appears to
have fallen out of favor and is no longer a leading economic
voice in the GOAJ. Economic Development Minister Babayev
specifically removed Akhundov's name from a budget and
macroeconomic seminar organized by the Embassy in April,
remarking that he had not "seen Akhundov in months." In
addition, Akhundov did not travel with President Ilham Aliyev
to Washington in late April.

OIL REVENUE MANAGEMENT AND INFLATION
--------------


3. (C) Akhundov recognized that Azerbaijan's growing oil
revenues will impact GOAJ economic policies and decision
making. He reiterated that the GOAJ wanted to keep inflation
low and attempt to manage the effects of "Dutch Disease."
Akhundov noted that there is growing pressure from different
ministries to spend more of the government's oil revenue on
social and infrastructure projects. He stated that creating
an economically sound and balanced policy would be difficult,
adding that the GOAJ would welcome help from the U.S.
Embassy. Acting DCM noted that the U.S. is assisting the
GOAJ with its macroeconomic forecasting and budgetary
processes at the Ministries of Economic Development and
Finance. Akhundov said that the government wanted to
increase public investment in physical infrastructure
projects such as roads and power generation investments. He
specifically said that the GOAJ wanted private sector
investment in managing the country's water and gas utilities.
Akhundov admitted that public financing was not always
efficient and said that the government needed private
investment without mentioning privatization.

WTO ACCESSION EFFORTS
--------------


4. (C) Regarding Azerbaijan's efforts to join the World Trade
Organization, Akhundov said that the GOAJ efforts had
recently accelerated, noting that the MFA and Ministry of
Economic Development had the lead for the government.
Akhundov stated that in principle the GOAJ had no objections
to joining the WTO and was reviewing the next steps and
requirements. He added that agriculture is a priority area
for the GOAJ and admitted that agriculture subsidies would
have to end (a position not shared by the MFA and MED
officials who are leading Azerbaijan's working party
meetings).

SOCIAL PROTECTION FUND
--------------


5. (C) A/DCM raised a business community concern regarding
the payment of social security taxes by expatriate workers to
the Social Protection Fund. Akhundov indicated that
expatriate workers should be able to transfer any retirement
savings accumulated in Azerbaijan to their home countries'
pension systems. The Chairman of the Social Protection Fund
explained to the Charge the concept in a previous meeting
(REF B). Akhundov cited the example of the two million
Azerbaijani citizens working in Russia who will be able,
according to him, to transfer their retirement savings to the

BAKU 00000731 002 OF 002


Social Protection Fund in Azerbaijan. Akhundov acknowledged
the problem of noncompliance with income tax regulations,
indicating that many retired individuals will not have access
to pensions upon retirement since they had not reported to
the government accurate income statements.

GOAJ ANTICORRUPTION EFFORTS
--------------


6. (C) Akhundov admitted that corruption remained a serious
problem in Azerbaijan and is more of a disincentive to direct
foreign investment than taxes. He noted that the GOAJ has
raised salaries, reduced taxes and worked to make more
transparent the system but even these efforts have not
reduced overall corruption. He added that the GOAJ has
worked to improve transparency in the banking sector, citing
reforms at the National Bank to combat money laundering.
Akhundov indicated that creating a more liberal and efficient
government should increase transparency and eliminate
corruption. He ended the meeting by stating that the GOAJ
was working hard on resolving the corruption issue and is on
the right track.

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


7. (C) Akhundov used to be a key economic decision maker in
the government. Recently, however, it has become apparent
that his influence has diminished, perhaps to the point of
being out of decision-making entirely. It took the Embassy
several months to get a meeting since Akhundov was reportedly
on an extended "vacation." During the meeting, Akhundov made
several comments that indicated he was not up to date on
several key issues and he actually made several erroneous
comments. Recent personnel moves and statements by current
President Ilham Aliyev indicate that the government is
shifting to a more Western leaning economic decisionmaking,
significantly diminishing Akhundov's role and influence over
government economic policy making (REF A).
HYLAND