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Eurasia Review
February 26, 2015 Thursday
Developing Economies Face Higher Hurdles - OpEd
The world is changing rapidly and economic changes are catching up
with political decisions.
The fluctuating price of oil and Russia's surge into Ukraine have
contributed towards broad currency volatility and made it to difficult
to expect "good" economic performances from developing countries.
Experts have already warned that more dramatic changes are to be expected.
If Saudi Arabia, the world's largest oil exporter, pointed to some
positive signs in the global crude market it still falls short of a
real recovery and will not make up for the losses energy-dependent
countries faced in 2014.
"Oil demand is growing and the market has turned calm," Saudi Arabia's
Oil Minister Ali Al-Naimi told the press in recent comments. And
though prices have indeed risen slightly many experts have said that
recovery remains tied up to political will and geo-politics.
Plummeting oil prices have affected most of the entire post-Soviet
region. Countries in the region have recorded sharp currency
devaluations due to a number of reasons arising from Russia's policy
towards Kiev and its subsequent economic difficulties.
The former Soviet states are economically interdependent and heavily
depend and rely on Russia to keep their respective economy afloat.
Such countries have faced aggravated difficulties.
Azerbaijan - the last survivor
Azerbaijan has faced increased pressure on its currency - the manat,
due to declining in energy prices and a slowdown in the Russian
economy.
Azerbaijan - the third-largest oil producer among the Soviet nations -
devalued its national currency at 1.05 against the dollar, compared
with 0.78 earlier, as falling oil prices have put the country's
finances under pressure.
This decision aims to "stimulate the diversification of Azerbaijan's
economy, strengthen the international competitiveness of the economy
and its export potential, as well as guarantee stability in the
balance of payments", stressed the Central Bank of Azerbaijan.
Fitch Rating supported Azerbaijan's efforts in handling its inflation problem.
"The Azerbaijani manat rate depreciation will assist fiscal and
external adjustment to the lower oil price," Fitch Ratings wrote in
its February 26 report.
"The sharp appreciation of the manat's real effective exchange rate as
a result of the depreciation in 2014-2015 of the Russian rouble and
Turkish lira would, if sustained, have hampered efforts to develop the
non-oil economy in Azerbaijan," the statement read.
However, the depreciation of the Azerbaijani manat will hurt banking
sector capitalization, Fitch Ratings confirms. The banks have large
numbers of foreign-currency denominated loans and are exposed to
losses on short FX positions.
The core of Azerbaijan's devolution story is that the country's
economy is still dependent on the energy revenues. Since 2011, it had
pegged its currency to the U.S. dollar. As oil prices fell, the peg
became expensive to maintain. Brent crude, the benchmark grade for
more than half the world's oil, has dropped about 45 percent since mid
2014.
The recent devaluation of the Azerbaijani manat has given rise to
uncertainty. But since the Azerbaijani government highlighted the
long-term benefits of its sudden policy shift, confidence has been
restored. The authorities believe the non-oil sectors will benefit
from the 'corrected' exchange rate and will boost diversification of
exports.
"The manat devaluation and move to a more floating exchange-rate
regime is credit negative for Azerbaijani banks," Moody's Investors
Service warned instead.
Standard & Poor's lowered the outlook on Azerbaijan's BBB- credit
rating to negative on Jan. 30, citing the oil-price decline and
pressure on the manat from "weaker terms of trade."
Most affected economies
Ukraine's hryvnia has become the worst performing currency, having
lost another 11 percent of its dollar value. The National Bank of
Ukraine has acted inappropriately when in an attempt to control its
exchange rate the central bank began floating the currency and
recorded its greatest losses in reserves.
The central bank has imposed foreign-exchange limits on importers in a
bid to curb its outflows, Governor Valeriya Gontareva said in Kiev as
quoted by Bloomberg.
Kazakhstan has also been under pressure to devalue the tenge currency
and its companies have struggled to compete after Russia, the
country's biggest export market, after the value of the ruble dropped
by 46 percent last year. Kazakhstan cut this year's economic-growth
forecast to 1.5 percent, based on oil averaging $50 a barrel, compared
with a previous estimate of 4.8 percent.
Kazakh policy makers allowed the tenge to devalue by 19 percent in
February 2014. The currency, which has traded in a band around 185 per
dollar for the last 12 months, weakened 0.2 percent to 185.28 as of
6:45 p.m. in Almaty, Bloomberg reports.
Former Soviet republics, including Belarus, Tajikistan, Azerbaijan,
Turkmenistan, Georgia and Moldova also devalued their currencies as
they tried to adjust to the ruble's decline. The fate of the
currencies of Georgia and Azerbaijan are less extreme, compared to the
fate of Armenian dram.
Devaluation of the Georgian lari started in November 2014 and so far
the value of the local currency has depreciated by 30 percent. The
exports of Georgia, with less than $2.5 billion in foreign reserves,
in January were 20 percent lower than the year before.
Georgians held a protest rally on February 25 to call for the
resignation of the Georgian government due to the sharp depreciation
of the national currency.
The central bank of Armenia, which emerged to be the most Russian
dependent country of the South Caucasus region, has raised its
refinancing rate 3.75 percentage points in two months to stem the
dram's 14 percent decline against the dollar in the past 12 months.
The financial turmoil in Armenia is threatening almost all people,
from the authorities to ordinary citizens. The weakening position of
the dram and a fall in exports by 30.4 percent after joining the
Eurasian Economic Union could herald a further economic collapse.
The post Developing Economies Face Higher Hurdles - OpEd appeared
first on Eurasia Review.
From: Emil Lazarian | Ararat NewsPress
February 26, 2015 Thursday
Developing Economies Face Higher Hurdles - OpEd
The world is changing rapidly and economic changes are catching up
with political decisions.
The fluctuating price of oil and Russia's surge into Ukraine have
contributed towards broad currency volatility and made it to difficult
to expect "good" economic performances from developing countries.
Experts have already warned that more dramatic changes are to be expected.
If Saudi Arabia, the world's largest oil exporter, pointed to some
positive signs in the global crude market it still falls short of a
real recovery and will not make up for the losses energy-dependent
countries faced in 2014.
"Oil demand is growing and the market has turned calm," Saudi Arabia's
Oil Minister Ali Al-Naimi told the press in recent comments. And
though prices have indeed risen slightly many experts have said that
recovery remains tied up to political will and geo-politics.
Plummeting oil prices have affected most of the entire post-Soviet
region. Countries in the region have recorded sharp currency
devaluations due to a number of reasons arising from Russia's policy
towards Kiev and its subsequent economic difficulties.
The former Soviet states are economically interdependent and heavily
depend and rely on Russia to keep their respective economy afloat.
Such countries have faced aggravated difficulties.
Azerbaijan - the last survivor
Azerbaijan has faced increased pressure on its currency - the manat,
due to declining in energy prices and a slowdown in the Russian
economy.
Azerbaijan - the third-largest oil producer among the Soviet nations -
devalued its national currency at 1.05 against the dollar, compared
with 0.78 earlier, as falling oil prices have put the country's
finances under pressure.
This decision aims to "stimulate the diversification of Azerbaijan's
economy, strengthen the international competitiveness of the economy
and its export potential, as well as guarantee stability in the
balance of payments", stressed the Central Bank of Azerbaijan.
Fitch Rating supported Azerbaijan's efforts in handling its inflation problem.
"The Azerbaijani manat rate depreciation will assist fiscal and
external adjustment to the lower oil price," Fitch Ratings wrote in
its February 26 report.
"The sharp appreciation of the manat's real effective exchange rate as
a result of the depreciation in 2014-2015 of the Russian rouble and
Turkish lira would, if sustained, have hampered efforts to develop the
non-oil economy in Azerbaijan," the statement read.
However, the depreciation of the Azerbaijani manat will hurt banking
sector capitalization, Fitch Ratings confirms. The banks have large
numbers of foreign-currency denominated loans and are exposed to
losses on short FX positions.
The core of Azerbaijan's devolution story is that the country's
economy is still dependent on the energy revenues. Since 2011, it had
pegged its currency to the U.S. dollar. As oil prices fell, the peg
became expensive to maintain. Brent crude, the benchmark grade for
more than half the world's oil, has dropped about 45 percent since mid
2014.
The recent devaluation of the Azerbaijani manat has given rise to
uncertainty. But since the Azerbaijani government highlighted the
long-term benefits of its sudden policy shift, confidence has been
restored. The authorities believe the non-oil sectors will benefit
from the 'corrected' exchange rate and will boost diversification of
exports.
"The manat devaluation and move to a more floating exchange-rate
regime is credit negative for Azerbaijani banks," Moody's Investors
Service warned instead.
Standard & Poor's lowered the outlook on Azerbaijan's BBB- credit
rating to negative on Jan. 30, citing the oil-price decline and
pressure on the manat from "weaker terms of trade."
Most affected economies
Ukraine's hryvnia has become the worst performing currency, having
lost another 11 percent of its dollar value. The National Bank of
Ukraine has acted inappropriately when in an attempt to control its
exchange rate the central bank began floating the currency and
recorded its greatest losses in reserves.
The central bank has imposed foreign-exchange limits on importers in a
bid to curb its outflows, Governor Valeriya Gontareva said in Kiev as
quoted by Bloomberg.
Kazakhstan has also been under pressure to devalue the tenge currency
and its companies have struggled to compete after Russia, the
country's biggest export market, after the value of the ruble dropped
by 46 percent last year. Kazakhstan cut this year's economic-growth
forecast to 1.5 percent, based on oil averaging $50 a barrel, compared
with a previous estimate of 4.8 percent.
Kazakh policy makers allowed the tenge to devalue by 19 percent in
February 2014. The currency, which has traded in a band around 185 per
dollar for the last 12 months, weakened 0.2 percent to 185.28 as of
6:45 p.m. in Almaty, Bloomberg reports.
Former Soviet republics, including Belarus, Tajikistan, Azerbaijan,
Turkmenistan, Georgia and Moldova also devalued their currencies as
they tried to adjust to the ruble's decline. The fate of the
currencies of Georgia and Azerbaijan are less extreme, compared to the
fate of Armenian dram.
Devaluation of the Georgian lari started in November 2014 and so far
the value of the local currency has depreciated by 30 percent. The
exports of Georgia, with less than $2.5 billion in foreign reserves,
in January were 20 percent lower than the year before.
Georgians held a protest rally on February 25 to call for the
resignation of the Georgian government due to the sharp depreciation
of the national currency.
The central bank of Armenia, which emerged to be the most Russian
dependent country of the South Caucasus region, has raised its
refinancing rate 3.75 percentage points in two months to stem the
dram's 14 percent decline against the dollar in the past 12 months.
The financial turmoil in Armenia is threatening almost all people,
from the authorities to ordinary citizens. The weakening position of
the dram and a fall in exports by 30.4 percent after joining the
Eurasian Economic Union could herald a further economic collapse.
The post Developing Economies Face Higher Hurdles - OpEd appeared
first on Eurasia Review.
From: Emil Lazarian | Ararat NewsPress