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. Last Updated: 07/27/2016

IMF Stresses Reform for Foreign Investment

WASHINGTON -- The International Monetary Fund has told former Soviet republics Azerbaijan and Kazakhstan to encourage foreign investors by moving ahead with economic reforms.

The fund said Monday that oil-rich Azerbaijan must not use its mineral wealth as an excuse to delay essential economic reforms and the country needs a better climate for foreign investment.

It urged Kazakhstan to keep interest rates high and push ahead with reforms and expressed regret at the failure of its latest talks. This appeared to be the first formal IMF confirmation that Kazakhstan was no longer meeting the terms of a three-year IMF lending program that expired this month.

An IMF report issued one day after Azerbaijan allowed its currency, the manat, to tumble 6 percent against the dollar said exchange rates need to be geared toward improving the competitiveness of the non-oil sector.

"A number of directors considered that a flexible exchange rate regime would be appropriate," the report said.

The IMF backed recent decisions to ease monetary conditions and welcomed progress toward privatizing the International Bank and Savings Bank. It forecast 3.8 percent growth this year, down from 10 percent in 1998, and said consumer prices would rise 5 percent, after a 7.6 percent decline last year.

"Directors considered that, provided economic reforms were pursued vigorously, Azerbaijan's medium term prospects were strong," the IMF said.

In a document summarizing a July 26 review of the Kazakh economy, the IMF directors said a comprehensive adjustment program could have a positive influence on investor confidence.

"Directors regretted that the Kazakh authorities and staff were not able to reach an agreement that would bring the Extended Fund Facility [loan] program back on track. In the present difficult external environment, they encouraged the authorities to formulate without delays an economic program that could be supported by the IMF."

IMF officials said in May they were planning further talks, but admitted that there were differences on the budget, government spending and trade policy.

The latest statement said Kazakhstan had not responded adequately to difficult external situations and the budget deficit remained high.

"Directors stressed the need to consolidate the fiscal position, maintain a prudent monetary policy and pursue the transition process in order to return the economy to a sustainable growth path," the IMF said.