Debt Mountain Blamed for Suicides in Azerbaijan

As debt costs spiral in Azerbaijan, there has been a spate of suicides attributed to the despair caused by debt. Nine deaths have been linked to debt problems since a shock currency devaluation in February bumped up loan repayments.

On September 14, a 58-year-old man was found hanging from an apricot tree in his garden. A prosecution official in the Agdash district where he lived was quoted by Virtualaz.org as saying the dead man had large debts and had been struggling with the repayments.

In another recent incident, police in the Barda district said they believed a 23-year-old man found hanging from a bridge committed suicide because of his bank debts.

Two suicides in June were attributed to debt problems – a 53-year-old man in Sheki district died from hanging, and a 37-year-old man in Jabrayil district threw himself out of a fifth-floor window. In April, a recently-married man aged 24 hanged himself in Sheki district, as did a 45-year-old man in the capital Baku and a man of 52 from the town of Imishli who had borrowed from several banks to keep his ailing business afloat. Two others, from Sabirabad and Khirdalan, died in March.

“We hear about suicides caused by debt on almost a daily basis. Believe me, I’ve thought about it more than once,” said Allahverdi Kasamanli, 37, who took out a large loan to pay for medical treatment for one of his children.

The extreme debt crisis dates from February this year, when Azerbaijan’s central bank announced a devaluation of the national currency, the manat. The manat had previously been fairly stable and the steep devaluation of around 35 per cent against the US dollar came as a shock. The central bank decided on a devaluation because of contagion from Russia’s economic problems and the falling global price of oil, of which Azerbaijan is a major exporter.

Borrowers were particularly hard hit as the value of loans they had taken out were fixed in dollars, even though repayment were in manats. As a result, they suddenly found themselves paying a third more in manats to cover the cost of the same monthly repayments.

The central bank came under fire for allowing banks to impose higher repayments. Critics argued that the civil law code states that in such cases, borrowers should continue repaying loans at the exchange rate as it stood prior to devaluation. The bank responded by saying this rule could be “interpreted in various ways”, and at the time this article was published, dollar-denominated loans continued to be charged at the higher exchange rate. (See Personal Debt Crisis Bites in Azerbaijan.) 

As of August 1, the central bank said that 1.24 billion dollars of debt was classed as “problematic”, and consumer loans accounted for 60 per cent of the total. Bank chairman Elman Rustamov told the Report.az website that the total stock of problem debt had been cut by over three per cent since July, and efforts were being made to contain the crisis.

The head of Azerbaijan’s Association of Free Consumers, Eyyub Huseynov, warns that the true scale of bad debts is not captured in the central bank data, because many shops selling household appliances and furniture offer credit arrangements that are not registered with the banking authorities.  

“In cases like these, the customer buys the goods at a price that’s marked up by 30 or 40 per cent,” he added.

Some financial institutions including the country’s largest, International Bank of Azerbaijan, have already stopped offering new dollar-denominated loans. At the end of August, the central bank said it had not instructed banks to make the change, but many were doing so to protect themselves from further exposure to risk. Some banks are also allowing customers to convert existing dollar loans to a sum in manats.

Aside from the hike caused by the dollar/manat gap, Zohrab Ismayil, head of the Association for Assisting a Free Economy, argues that the interest rates that bank charge are too high anyway.

“The average [annual] interest rate in Georgia is set at 12 per cent, whereas in Azerbaijan it’s 22 to 24 per cent. How much are people supposed to earn to repay loans at such high interest?” he asked. “In addition, the fact that lending rates have been six to eight times higher than the central bank’s base rate of 3.4 per cent indicates that there are serious problems in the banking system.

Samir Aliyev, editor-in-chief of the Economic Forum magazine, explained that in earlier years, amid a financial-sector boom driven by high oil prices, the commercial banks were prepared to borrow money at high interest rates themselves, and they passed this on to their customers. Other risk factors that kept interest rates high, he said, stemmed from the uncertainty of the local business environment, including excessive production and staff costs and a lack of cast-iron guarantees of property rights in Azerbaijan.

Aliyev sees the solution as a mix of government intervention, financial sector consolidation – “45 banks is a lot for the Azerbaijani market”, he says – and a better, more diverse range of financial services.

For now, though, borrowers who cannot repay their debt will leave it as a “legacy” for their children.

“Both debts and accounts payable are inherited,” human rights defender Nemat Karimli explained. “After death, debts must be paid out of the inheritance or property.”

Nurgul Novruz is the pseudonym of an Azerbaijani journalist.