Caucasus States Insulated From Russian Crisis

TBILISI (Reuters)– The Caucasus mountain states of Azerbaijan–Armenia and Georgia–legendary for instability in recent years–on Wednesday shrugged indifference at the financial turmoil engulfing former colonial master Russia.

Officials in all three countries said they saw little or no spill-over effect from Russia’s effective devaluation of the ruble on their comparatively small but steadily growing economies–currently posting some of the most impressive growth rates in the former Communist world.

Ironically–part of the reason is that myriad ethnic and civil conflicts have cut regional trade and economic ties with Russia to paltry levels and forced them to find new partners–primarily in the West.

"Our economy is tied to Russia’s only to a certain degree–between us there is little active trade," said Temur Basilia–chief economic adviser to Georgian President Eduard Shevardnadze.

Georgia’s main trade route with Russia along the Black Sea has been blocked for six years by a bloody conflict with Abkhaz separatists. Basilia said only the Abkhaz–who have spurned the Georgian lari in favor of the continued use of the ruble–were bound to feel any effect.

Russian investment in all three countries is dwarfed by that of European and other countries and–there is little currency trade using the ruble. Regional treasury bill yields have remained stable during the crisis. "We don’t see much effect since there are few operations with the ruble," said Central Bank President Irakly Managadze.

Managadze said that in the case of Georgia–a country of 5.5 million which does not have a single automated teller machine–the lack of a full-fledged market served as an insulator against world financial shocks. Georgia–like Armenia and Azerbaijan–does not yet have a full-fledged stock market.

Georgia’s lari currency now trades at about 1.35 to the dollar–down only slightly from its launch at 1.23 in 1995.

Authorities first had to fight public distrust of the new currency by offering five-year jail terms to anyone buying and selling in rubles–and the tactic has paid dividends.

Georgia is expecting a jump in GDP of 11.3 percent this year–the third straight year of double-digit growth. Inflation is near zero.

Devaluation? In neighbor Azerbaijan–the onset of a huge boom in foriegn investment in the country’s Caspian energy reources has left officials worrying the manat currency is gaining ground too fast against the dollar and other currencies.

The World Bank has warned it could spur a ‘Dutch Disease’ scenario in the former Soviet republic of eight million–in which domestic demand – and hence a strengthening currency – makes sectors of the economy other than oil uncompetitive.

"The crisis in Russia won’t have a serious effect on the economy of Azerbaijan," said Bekhruz Allakhyarov–chief of securities at the finance ministry–echoing a tone similar to his Georgian and Armenian colleagues.

Trade with Russia was drastically curtailed when it slammed shut its border with Azerbaijan during the 1994-96 Chechen war–in what it said was an effort to prevent mercenraries and arms filtering through to the Chechen fighters. Others say the measure enriched corrupt customs and border officials.

Russia took the same step on its only other open border with Georgia and surface and rail trade between Moscow and its former colonial outposts in the Caucasus has never fully recovered.

Landlocked Armenia has no common border with Russia–conducting its trade with it through Georgia. Officials there also saw little reason for concern.

"We haven’t seen and don’t expect in the future any dangerous tendencies for the Armenian financial market as a result of the situation in Russia," Arman Vartanyan–director of financial operations at the Central Bank–told Reuters.


Related posts

Discussion Policy

Comments are welcomed and encouraged. Though you are fully responsible for the content you post, comments that include profanity, personal attacks or other inappropriate material will not be permitted. Asbarez reserves the right to block users who violate any of our posting standards and policies.