After independence Azerbaijan suffered from the mismanagement of the economy by the former Soviet Union. The country applied severe monetary and fiscal policies in order to stabilize the economy. Inflation was reduced from upwards of 1000 percent to single digit rates. The fiscal system, banking services, and exchange system were entirely overhauled. Azerbaijan remained in the Russian ruble zone (a monetary system used by the former Soviet countries) until 1993. Leaving the zone
|Trade (expressed in millions of US$): Azerbaijan|
|SOURCE: United Nations. Monthly Bulletin of Statistics (September 2000).|
|Exchange rates: Azerbaijan|
|manats per US$1|
|SOURCE: CIA World Factbook 2001 [ONLINE].|
marked the beginning of effective economic policy making. The manat became the only legal currency after January 1994.
The first 2 years of stabilization included tight monetary and fiscal policies, overseen by the central bank, the Azerbaijan National Bank. The gradual liberalization of prices caused interest rates and the exchange rates to become more realistic and led to a more stable financial situation. In order to prevent the currency from over appreciation due to high oil-related capital inflows, the exchange rate was also managed by the state. Oil-related foreign capital inflows increased the amount of foreign currency in the Azerbaijani money markets. These inflows, and the sharp decrease in inflation, caused the appreciation of the manat over foreign currencies. Therefore, to control the balance of payments and make the country's export-driven sectors more competitive, the government chose to depreciate the national currency by launching a managed float policy.
With the drop in oil prices during 1998 and 1999 and the tight monetary policies of the previous decade, the annual average inflation rate slowed to-8.5 percent in 1999, compared to 1,664 percent in 1994. Since then, basic foods such as bread, vegetables, meat, and dairy products have become more accessible to Azerbaijanis. There are no stock exchanging facilities in Azerbaijan.
|GDP per Capita (US$)|
|SOURCE: United Nations. Human Development Report 2000; Trends in human development and per capita income.|