Protests Rattle Azerbaijan as Oil Price Slump Hits Economy

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Hit hard by falling oil prices, ex-Soviet Azerbaijan has plunged into an economic crisis that has seen rare protests shake the authorities in the tightly-controlled nation.

Over the last week, violent clashes broke out between riot police and thousands of demonstrators who took to the streets in cities across the energy-rich Caspian nation to express their discontent against price hikes and unemployment.

The government -- which under strongman Ilham Aliyev allows few signs of dissent -- sent in troops to quell the unrest in the city of Siazan and several other provincial towns where tear gas, water cannon, and rubber bullets were reportedly used against stone-throwing protesters.

Some 100 people were arrested in the aftermath, Sadiar Osmanov, head of the opposition Musavat party's local branch, told AFP.

The government blamed opposition activists for staging riots, an accusation they rejected as groundless.

"People speak out about their woes and the government responds with violence," Musavat's leader Isa Gambar said.

"As a result, the protest movement will gain momentum, economic turmoil will spiral into a political unrest," he told AFP.

Exports of hydrocarbons constitute up to three quarters of Azerbaijan's state revenues, making the Caucasus country's economy highly dependent on global energy prices.

As oil prices fall to 12-year lows and the manna of petrodollars diminished, Azerbaijan's once-booming economy quickly hit the skids, the national currency plummeted and inflation soared.

After having depleted over half of its foreign currency reserves, Azerbaijan's central bank admitted in December that the economy was being hurt by falling oil prices and moved to stop propping up the national currency.

The manat plunged immediately by over a third against the dollar, with major retailers halting business and anxious consumers fearing for their future.

Many Azerbaijanis rushed to the banks to withdraw savings.

Others expressed fears that the weak value of the manat would threaten the banking sector's stability and lead to loan defaults as a majority of mortgages and loans in the nation of 9.5 million people are dollar-denominated.

"I don't know if I will be able to repay my mortgage," said 40-year-old Baku resident Arif Gasanov, one of some 2.5 million Azerbaijanis who have taken a mortgage in dollars.

"After the manat collapsed I'll have to pay to my bank much more than expected, much more than I can afford," he told AFP.

Highlighting the seriousness of the situation, a spate of suicides were reported by local media, with several people who were unable to make payments on their bank loans setting themselves on fire.

The currency turmoil was followed by an 11-fold acceleration of inflation, with consumer prices rising in December by 4.4 percent after a 0.4 percent increase in November.

Annual inflation stood at 7.6 percent in December, but prices for food and medicine rose dramatically.

"People are paying the price of the government's incompetence and corruption," Baku resident Reyhan Ghafarova, 34, told AFP.

"No one believes any longer the government's claims about Azerbaijan's strong economy, the myth has burst like a soap bubble."

In a bid to defuse public discontent, Aliyev moved to cut taxes on essential foods such as flour and bread and ordered the government to draw up a major privatization program to revive the stalling economy.

"The government will do its best to minimize the negative consequences" of the economic crisis, Aliyev's top aide Ali Gasanov told AFP.

"All the necessary measures will be taken to stimulate the industrial sector, eradicate official corruption, and improve the business climate in the country," he said.

On Tuesday, the parliament endorsed the central bank's initiative to introduce a 20-percent tax on foreign exchange taken out of the country for investment, securities, and real estate purchases.

Other steps included insuring all bank deposits and imposing limits on foreign currency sales.

For the time being the measures seem to have put a lid on the situation but analysts warned that the country needed more profound change if it was weather the storm long term.

"Too little, too late," said Azerbaijani economic analyst Natig Jafarli, denouncing the measures as "cosmetic."

"It's impossible to save the country without serious economic reforms and a political change."