Azerbaijan
The Development Challenge
Since 1994, Azerbaijan has been working to develop its oil and gas resources successfully and to achieve macroeconomic stability. However, it is still far from achieving broad-based prosperity for its eight million citizens. One of the greatest challenges facing the country is to ensure all sectors of society derive a modicum of benefits from the increasing oil revenues. Also important is diversifying the economy by reducing its reliance on oil and gas and improving the productivity of the non-energy sectors, especially in the agricultural sector, on which 45% of the population is dependent. Corruption is pervasive at all levels of government, including judicial bodies, ministries, and local government administrations. Azerbaijan ranks 124th out of 133 countries in Transparency International's 2003 Corruption Perception Index. Corruption is a significant deterrent to investment. Settling the conflict with Armenia over Nagorno-Karabakh (NK), which generated nearly 800,000 refugees and internally displaced persons (IDPs) is key to the region's stability. Refugees comprise close to 10% of the country's population. In terms of income, IDPs typically are on a par with other vulnerable groups.
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According to the World Bank poverty assessment in 2002, four million people, nearly half the population, live below the poverty line, earning less than $24.50 per capita per month. The most vulnerable groups are children under five years of age, women especially in their childbearing years (UNICEF estimated the maternal mortality rate for 2000 was 79 per 100,000 live births), the IDPs, and the poor who do not have access to basic health care. The primary risk for conflict is over NK. Since 9/11, U.S. relationships with the Government of Azerbaijan have been productive and are broadening.
Azerbaijan's macroeconomic situation continues to improve. Increased oil prices and production have been the major factors that led to a 10.6% growth in GDP in 2002 and a projected growth of 9.2% in 2003. The currency is stable, and oil has given Azerbaijan a healthy trade surplus throughout 2002 and 2003. Sound fiscal and monetary policies have kept the budget deficit and inflation low. Per capita GDP, however, is low at about $750. The consolidated government budget deficit was only 0.5% of GDP in 2002, and external debt was $1.4 billion or 23% of GDP.
U.S. foreign policy goals seek an independent, secure, and prosperous Azerbaijan as a vital corridor of commerce between East and West. Stability in Azerbaijan is essential for stability in the Caucasus and the Central Asia regions. USG assistance priorities are to: (1) strengthen counterterrorism and related security capabilities; (2) support economic growth and reform, including guiding energy wealth toward developing infrastructure and sustainable social systems; and (3) strengthen and expand democratic institutions and rule of law. Azerbaijan is an ally of the United States in the war on terrorism and has deployed peacekeeping troops to Afghanistan and Iraq (following an earlier deployment to Kosovo).
The USAID Program: The Program Data Sheets cover the four objectives for which USAID is requesting FY 2004 and FY 2005 funds. These four objectives concentrate on increasing citizen representation in democratic processes and promoting broad-based economic growth. Since the waiver of FSA Section 907 in 2002, USAID has been working with the GOAJ toward achieving these Strategic Objectives through policy changes and provision of technical assistance. As described in the FY 2004 Congressional Budget Justification, FY 2004 funds will be used to continue fostering democratic progress, developing a market economy with a well functioning private sector to include job creation, and promoting social transition activities for vulnerable communities. USAID will work more closely with the GOAJ to implement these activities.
Other Program Elements: In addition to the resources requested in the Program Data Sheets, the USAID Global Health Bureau manages the Child Survival Program. The USAID Economic Growth Agriculture and Trade (EGAT) Bureau manages the Cluster Access to Business Services Program. Both are implemented by Mercy Corps in southeast Azerbaijan.
Other Donors: Donor coordination has been good. Major international donors in Azerbaijan implement programs aimed at the development of a democratic society and an open market economy in the country. Among the donor agencies, USAID has assumed a strong role of donor coordination. USAID has coordinated with the European Union (EU) on rule of law; with the United Kingdom (UK), Dutch and German governments and the Organization for Security and Cooperation in Europe (OSCE) on elections; with the Council of Europe on municipalities; with the United Nations Population Fund on reproductive health; with the United States Department of Agriculture on agricultural technical assistance; and with the World Bank and International Monetary Fund (IMF) on financial sector reforms. Bilateral donors include Germany (privatization; rule of law, judicial reform projects and media); Japan (power-electricity sector, food production, economic infrastructure, improved social integration, and human resource development); UK (democracy and governance, conflict prevention, poverty reduction, drugs/trafficking/organized crime, private sector development, macroeconomic reform, and environmental protection).
Multilateral assistance is provided by: the EU (market economics, private sector development, pluralist democracy, human rights, refugee housing); the United Nations Development Programme (governance, poverty reduction, environment and engineering, HIV/AIDS); and the United Nations High Commissioner for Refugees (refugees and internally displaced persons).
International Financial Institutions assistance includes: the World Bank (agricultural development, infrastructure, health/financial reform policy, and education); the IMF (macroeconomic stability, governance, and the non-oil sector development); the Islamic Development Bank (infrastructure: power, roads, agriculture, irrigation, and refugees); and the Black Sea Trade and Development Bank (trade finance, equity investment, develop non-oil sectors, and inter-regional projects).
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