Azerbaijan's central bank said on Thursday it had banned the sale of foreign exchange in standalone bureaux de change run by commercial banks in a further move to support the oil exporter's faltering currency, the manat. The initiative, outlined by a bank spokesman, was taken with the recent plunge in oil prices exerting huge pressure on the public finances and currencies of oil-dependent countries in the former Soviet Union, raising the risk of social unrest.
The interior ministry said on Wednesday police and soldiers had detained 55 people earlier this week for holding unsanctioned protests. It described those arrested as "radical" political activists and religious extremists. "Azerbaijan's economy is not so much heading as hurtling towards a crisis," said Chris Weafer, a senior partner at Macro Advisory in Moscow.
Oil and gas account for 75 percent of the Azeri state's revenues. The central bank has been tightening restrictions on sales of foreign currency since cutting the manat loose last month after Russia and Kazakhstan took similar steps to try to preserve their reserves. Exchange bureaux in Turkmenistan, a major ex-Soviet gas producer, also stopped selling foreign currency this week. The price of benchmark crude oil has now fallen almost 75 percent since June 2014 to below $30 a barrel. Such a steep fall inevitably raises pressure on Azerbaijan's political system.
President Ilham Aliyev's party swept the board in a parliamentary election in November, a vote the mainstream opposition and international monitors shunned. Rights groups accuse the government of curbing freedoms and of silencing dissent, while the opposition complains of harassment, a lack of access to air time and draconian restrictions on campaigning. The government denies wrongdoing.
In Baku, the Azeri capital, many currency exchange booths had stopped operations before the central bank publicised its ban. One booth owner, who declined to be named, said he had closed three days ago. "The central bank sent a letter with an order to close all bureaux de change," he said. The central bank had already said this month that anyone wanting to buy over $500 must present their identity card. A Reuters reporter on Thursday saw a queue of around 250 people at one bank trying to exchange currency.
On Wednesday, the bank set an exchange rate of 1.5706 manats per US dollar, valid until Friday. Street dealers in Baku were, however, offering a rate of 1.8 on Thursday. "It (Azerbaijan) is a small, narrow economy that is fully dependent on oil, and now, when oil is falling again, the devaluation they did in December is not big enough," said Per Hammarlund, chief emerging markets strategist at SEB.
"I suspect there is more to come." Azerbaijan's 10-year dollar bond, which matures in 2024, lost more than 1.5 cents on Thursday to trade at a record low of just above 90 cents. Meanwhile the yield premium over safe-haven US Treasuries blew out past 540 bps, having risen 70 bps this year alone.
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