VZCZCXRO9167
RR RUEHAG RUEHDBU RUEHDF RUEHIK RUEHLN RUEHLZ RUEHVK RUEHYG
DE RUEHKB #1147 2151015
ZNR UUUUU ZZH
R 031015Z AUG 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 0948
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES
RUEHAK/AMEMBASSY ANKARA 1681
RUEHIT/AMCONSUL ISTANBUL 0446
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS BAKU 001147 
 
SIPDIS 
 
SIPDIS 
 
COMMERCE FOR U/S LAVIN 
DEPT FOR EUR/CARC 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ENRG EPRT PREL AJ IR RU
SUBJECT: AMBASSADOR'S INTRODUCTORY CALL AT NATIONAL BANK OF 
AZERBAIJAN 
 
 
¶1.  SUMMARY:  During the Ambassador's July 28 introductory 
call on National Baku of Azerbaijan (NBA) President Elman 
Rustamov, Rustamov said Azerbaijan's year-to-date growth 
hovered around 40%, while inflation over the last six months 
was nearly six percent.  Rustamov reviewed the progress that 
Azerbaijan has achieved in the economic and banking sectors, 
but admitted that much work needs to be done.  Rustamov said 
that economic reform will act as a catalyst to political 
reform and because of this pursuing economic reform is 
important.  END SUMMARY. 
 
¶2. During a July 28 meeting the National Bank of Azerbaijan 
President Elman Rustamov briefed the Ambassador on 
Azerbaijan's recent economic growth.  He reported that 
Azerbaijan has seen approximately 40 percent growth in its 
overall economy and 90 percent growth in the energy sector. 
He also said that the 2006 budget will increase by 
approximately 90 percent.  The level of foreign currency held 
in the central bank has doubled (time period not stated).  He 
said that over the past six months inflation has been six 
percent.  Rustamov reported that of the entire finance 
sector, 90 percent is in the banking sector. 
 
¶3.  Despite the rapid economic growth in Azerbaijan, there 
were still no foreign banks in Azerbaijan that did 
significant business.  Rustamov said that foreign banks were 
welcome in Azerbaijan, and seemed perplexed as to why more 
foreign banks were not operating in Azerbaijan.  He then 
agreed with the Ambassador that this was likely the result of 
what is viewed by potential banks as a poor business and 
legal climate.  Rustamov laid out the following priorities 
for the NBA in the coming years:  ensuring financial and 
macroeconomic stability through better coordination of 
macroeconomics policy, increased transparency in the banking 
sector, strengthening of the national bank so it can have the 
modern, classical functions of a central bank, solving the 
basic problems of the banking sector and privatization of 
banks.  Rustamov said that with the continued cooperation of 
the World Bank, European Bank for Reconstruction and 
Development, and USAID, that the path of liberal reforms that 
has been started in the banking sector will continue. 
 
¶4.  Rustamov was proud to report that Azerbaijan has the best 
electronic payment system amongst the CIS countries.  He also 
mentioned that the "postal bank" project and microcredit are 
two important projects for the regions of Azerbaijan that 
will make a big difference in the lives of ordinary people. 
Rustamov said that these are only two areas where the banking 
sector is having positive impacts on other sectors of the 
economy.  Additionally, the NBA has established banking 
programs at a university in Baku. 
 
¶5.  On the negative said, Rustamov said that there remains a 
very large informal economy in Azerbaijan, which hinders some 
reform efforts.  For example, one of the reasons that the 
recently passed law on mortgages has not been successful is 
because while most people have enough income to qualify for 
the mortgage, they do not have enough legal income that can 
be officially verified, which results in a large number of 
individuals not qualifying for a mortgage.  Rustamov said 
that while NBA was currently involved in the mortgage 
process, this function would be separated from the Central 
Bank on one or two years. 
 
¶6.  (SBU)  COMMENT:  The NBA's ability to manage fiscal 
policy will be key to the GOAJ's ability to stave off 
inflation and Dutch Disease over the next few years.  The 
weak overall banking sector, combined with a recent GOAJ 
decision to nearly double the 2006 budget (septel) make the 
NBA's task all the more difficult.  END COMMENT. 
HYLAND