Turkey seeks trade settlement in national currencies with Azerbaijan

By Azernews

By Nigar Abbasova

Turkey, which actively pushes trade in local currencies with a number of countries, offers Azerbaijan to use the manat and the lira for mutual payments in bilateral trade.

Bulent Tufenkci, Turkish minister of customs and trade told Trend that switching to the trade settlement in national currencies between Azerbaijan and Turkey will contribute to the economic growth and will strengthen and stabilize the foreign trade operations between the two countries.

"The use of national currencies in mutual trade is very important, as it will reduce costs, strengthen risk control and reduce the sensitivity of the countries’ foreign exchange reserves to the external factors. It will also eliminate the negative consequences associated with foreign currency deficit, especially during the crisis period. The elimination of the risk of exchange rate change will reduce the uncertainty in the prices on imported goods, as well as contradictions in foreign trade," he said.

Talking about economic indicators between the countries the official said that the current unstable situation in the world economy affected the mutual trade between the countries. He said that the export of Turkish goods to Azerbaijan amounted to $2.9 billion in 2014, while the index of $2 billion was fixed in 2015. The import of Azerbaijani goods amounted to $291and $232 million in 2014 and 2015 respectively. Turkey invested some $1.9 billion in Azerbaijan in 2014, while $276 million was invested in 2015. Azerbaijani investments in the Turkish economy totaled $884 in 2014 and $839 million in 2015.

Mentioning that Turkey intends to be among the top ten economies in the world by 2023, he said that the country wants to strengthen its economy by simplifying and enhancing trade security with the regional countries.

 "For this purpose, Turkish President Recep Tayyip Erdogan offered Russia, Iran and China to make trade settlements in national currencies. The negotiations on this issue have already begun, while Russia has positively responded to this initiative. The officials said that perhaps, the actions will be taken to make the trade settlements in the national currency in the short run,” he said.

Tufenkci, added that Iran's Parliament Speaker Ali Larijani also supported Erdogan's proposal and said that Tehran always stands for the use of national currencies in trade.

Turkish authorities believe that the mechanism may increase demand for the national currencies and result in their strengthening. Moreover, it will help to avoid the dependence on fluctuations in the foreign exchange rate.

Some countries use national currencies in bilateral trade instead of the USD and euro. In some cases this is related to a lack of foreign exchange in these countries and in other – profitability of the national currencies.

However, views of experts on the issue are controversial, while on the one hand payment in national currencies is technically more convenient, as there is no need to convert currency and face additional costs, associated with the conversion.

 Moreover, it lowers demand of the national economy in foreign currency, easing pressure on the exchange rate of national currencies.  

On the other hand, some analysts say that national currencies are not strong enough for the wide use of them in mutual trade. Energy trade in national currencies may be problematic, they believe. Natural resources occupy a lion’s share in bilateral trade between Turkey and Azerbaijan, while the inflow of foreign currencies in Azerbaijan is mainly provided by oil and gas exports. Therefore, selling resources in local currency might bring certain difficulties, while distancing from the euro and the dollar could be problematic.

Turkey, which has always held leading positions among the foreign trade partners of Azerbaijan, ranks the second in Azerbaijani imports and the 14th – in the exports. Azerbaijan mainly imports various equipment, electrical appliances, household items, cars, while Turkey imports oil and oil products and gas. The partnership between the countries has turned into a driving force forming policy and economy of the region.