Record currency sales in the BEST (Bourse E-system of trades) were registered at the Baku Interbank Currency Exchange (BBVB) on 24 July. The total operation on the USD/AZM T+0 tools was $22.965 million at an exchange rate of 4,917 AZM per 1 USD. The average daily turnover of USD operations at BBVB has reached $3.8 million since the beginning of July. The gross value of the exchange trades exceeded $69 million by 24 July – in an index that only traded $87 million between January and June. The sale volume was so impressive that it caused agitation among the population. Public opinion seemed to interpret it as a proof of that economic stability in the country is dependent on the health condition of the President.

Experts at the National Bank of Azerbaijan (NBA), for their part, explain this sharp increase of currency trade with the fact that NBA operations usually held at the open Interbank currency market have been completely altered since 1 July. Besides that, the total demand for foreign currency has risen in July. However, the statement of NBA experts does not make sense, as the BEST system was launched in July of 2002 and in spite of that, average dollar sale in Azerbaijan per day was only 2-3 million dollars. If during the last 6 months the total sale of US dollars was $87 million, then for the twenty-five first days of July, it amounted to $69 million.

Some economists suppose that an objective reason for the large trade could be an increase of salaries by 50%, and accordingly attempts by the NBA to accumulate national currency supplies for the payment of salaries. Salary increase, in its turn, resulted in rise of demand. However, NBA has the national currency reserves, making it dubious it would follow such a strategy. Secondly, the buyers’ activity in the commodity market has not seen an increase that would justify the sale of such large amounts of foreign currency in matters of days or even hours.

There is a large amount of cash in circulation, which also complicates control over transfers, since the Baku Interbank Currency Exchange is not the only place where currency exchange occurs. There is also a large currency exchange between the National Bank of Azerbaijan (NBA) and commercial banks.

The final conclusion of most specialists is that the main reason of the large amount of dollar trade was the health condition of Heydar Aliyev, the president of Azerbaijan. Heydar Aliyev was taken to Gulhane military hospital in Ankra, Turkey, on July 8. He was treated for heart insufficiency and edema of legs. On July 22, Aliyev was moved from general ward to intensive therapy. Information regarding the deterioration of his health condition became available on July 23, and the record sales in the Baku Interbank Currency Exchange were recorded the very next day, July 24.

Right after the news on the record currency sales reached the public, the opposition stated that state officials are exchanging national currency into dollars for the further wiring of funds to overseas banks. Afterwards, people started buying dollars and euros spontaneously, worrying of inflation. The situation was cooled down after the return of Ilham Aliyev, the President’s son, who was in Turkey visiting his father, and after an urgent transfer of foreign currency to the market.

This development indicates that Azerbaijani officials are unable to perform in extraordinary situations, including the absence of the President or his son in the country. Moreover, the financial situation in Azerbaijan is not so stable that the government can allow it to get out of hand. The external debt of Azerbaijan, comparing with the first quarter of this year, increased from $1.385 billion to $1.508 billion. The debt increased by 30%-35%, because the fluctuations in the values of dollars and euros in the international market. Besides that, the government has gotten new credits from IMF and World Bank for the prevention of poverty and economic development and for the Institution Building Technical Assistance.

This episode indicates a clear risk that the slightest political crisis will destabilize the economy and lead to the inflation of the national currency, the manat. In this case, Azerbaijan would be under pressure to service debts and prevent inflation simultaneously. This would leave the government with few options but to use the resources of the Oil Fund, which will aggravate relations with the IMF and other financial institutions.