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). 
 
¶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