Azerbaijan’s currency has plummeted after moving to a floating exchange rate, causing a rush on dollars and shops as customers try to buy goods before prices increase.
The manat lost 32% to the dollar yesterday following the central bank’s decision to stop protecting its value in the face of falling oil prices. The bank said it had lost more than half its foreign reserves trying to defend the currency.
But opposition leaders criticised authorities for allowing the manat to fall so dramatically.
“Azerbaijan has moved to a floating exchange rate but someone forgot to teach it how to swim,” said Natiq Cafarli, an economist and member of the opposition Republican Alternative.
Residents of Baku were angry at the sudden announcement and scrambled to convert their manats into foreign currency or durable goods.
“This is such a miserable situation for the whole nation,” one said. “Everyone wants to buy dollars and only a few [banks and exchange offices will] sell … There are almost no dollars left at exchange points.”
An employee at Baku’s Bina shopping market said the shop had had to close to avoid losing money.
Others wanting to buy dollars and euros found many exchange offices shut or not selling hard currencies, while several banks put a $500 limit on exchanges.
“This is such a disaster for us,” said another resident. “How come they decided to bankrupt people in one night?”
Several exchange offices in Baku were selling the dollar for between 1.56 and 1.59 manats within hours of the announcement, already higher than the official rate of 1.55.
The bank said in a statement the decision to float the manat was made to “protect the country’s foreign reserves”.
Baku is heavily dependent on oil and natural gas exports but prices have fallen dramatically in recent years. A barrel of Brent crude oil was selling for $36.10 on 21 December, about 33% of the price 18 months ago.
Ali Karimli, chairman of the Azerbaijan Popular Front Party, accused the government of destroying the national currency.
“It was killed by a self-centered, corrupted, and incapable government,” Karimli said. “There will be price hikes [and] the salaries, pensions, savings – everything we have in manats is now practically devalued by 55%.”
It marks the second time this year the manat has lost significant value due to government actions. In February, a devaluation caused it to lose more than a third of its value against the dollar.
Banking expert Akram Hasanov, who works at a Baku-based IJS law firm, said this earlier devaluation had compromised the currency.
“Many other countries have devalued their currencies in recent years, but nowhere has there been the serious damage to the people and entrepreneurs as [in Azerbaijan],” said Hasanov.
He said the latest devaluation would lead to the collapse of many banks. “But [the bankruptcies of the banks] will not affect the bank owners and managers, it will be ordinary depositors [who will suffer],” Hasanov said.
Just weeks before the February devaluation, the Azerbaijani president, Ilham Aliyev, called the manat “one of the most stable currencies in the world” and encouraged foreign nationals and companies to invest.
Moody’s credit rating service predicted on 21 December that Azerbaijan’s budget deficit would reach 9.2% of gross domestic product this year.
Low energy prices have also forced Russia and Kazakhstan to float their currencies freely on the market. Both the Russian ruble and Kazakhstan’s tenge are at near record lows to the dollar.