U.S. Department of State

Country Overview

U.S. FOREIGN POLICY AND FOREIGN ASSISTANCE OBJECTIVES & PRIORITIES

Azerbaijan is a pro-Western, secular, Muslim state with a mixed Sunni-Shia population that plays a key role connecting Central Asia and the Caspian with the West. The War on Terror has significantly raised U.S. interests in Azerbaijan, which revolve around three strategic goals: security, political and economic reform, and energy. U.S. Government (USG) priorities in its relations with Azerbaijan include cooperation in combating terrorism and other trans-border threats; regional stability, especially the peaceful settlement of the Nagorno-Karabakh conflict; a successful transition to a democratic political system and market economy; and, the movement of Azerbaijan’s hydrocarbon resources to international markets while ensuring that revenues from these resources lead to higher standards of living for all the people of Azerbaijan.

Azerbaijan experienced explosive recent growth spurred by its immense oil/gas-related foreign exchange earning. Economic liberalization and diversification and the establishment of a democratic, transparent governance system, supported by fundamental social reforms, are essential to long-term stability and hence to U.S. interests in this strategically important country. Azerbaijan lacks the capacity to implement many of the reforms needed to develop democratic, market-based institutions; it also has been hesitant to devote the resources or provide the political space necessary for strong, independent democratic institutions to flourish. Similarly, a vastly improved legislative and regulatory environment to enable development of the non-oil sectors of the economy will be critical to placing the economy on a sustainable broad-based growth path, and lay the foundation for a vibrant democracy.

OPERATING ENVIRONMENT

Azerbaijan’s identity as a secular state with a mixed Sunni-Shia population and its crucial geographic location on the energy-rich Caspian basin between Turkey, Russia and Iran render it of strategic importance in the War on Terror. Azerbaijan provides blanket over flight clearance, which allows the operation of the only air corridor to Afghanistan and Central Asia outside Russian or Iranian control. Azerbaijan also lends active support to coalition operations with peacekeeping troops currently deployed in Kosovo, Afghanistan and Iraq.

Despite President Aliyev’s public affirmation of his government’s continued commitment to democratic development and political reform, Azerbaijan’s human rights record remained poor in 2007. Azerbaijan’s media environment deteriorated significantly. The Azerbaijani Government (GOAJ) increased restrictions on media freedom, most notably by imprisoning independent and pro-opposition journalists on libel and other charges. Instances of physical violence, harassment, and lawsuits against journalists increased dramatically. Despite serious stated concerns from domestic and international observers, the government took little action to improve media freedom. Restrictions on freedom of assembly, freedom of association, and political participation remained problematic.

The government, political parties, and civil society began pre-election campaign activities for the October 2008 presidential election. The GOAJ has indicated its desire to hold a fair and free election in 2008.

FY 2007 Country Program Performance

PEACE AND SECURITY

USG assistance objectives in the area of Peace and Security are to improve Azerbaijan’s: stabilization operations and security sector reform; ability to combat terrorist financing, counter narcotics, and transnational crime including money laundering, corruption and trafficking-in-persons; capacity to prevent the proliferation of weapons of mass destruction (WMD); and, engage in constructive conflict mitigation and reconciliation.

Counter-Terrorism and Transnational Crime - In FY 2007 the USG provided counterterrorism assistance to develop the skills and abilities of Azerbaijani law enforcement personnel to adequately and effectively detect and deter terrorism within its borders. To improve Azerbaijan’s capabilities to combat the financing of terrorism USG assistance established a Financial Intelligence Unit, adopted and implemented FATF compliant anti-money laundering and terrorism financing legislation and enhanced host government’s capabilities in collaborative counter-terrorism planning, coordination and information sharing.

In FY 2007 the USG assisted GOAJ law enforcement with forensic analysis using gas chromatography/ mass spectrometry, procedures for entering ‘high risk’ buildings during counter terrorism investigations, and policy and procedure development for advanced police management. The USG provided over 1,200 hours of training to more than 200 police officers and personnel from non-governmental organizations (NGOs) in the areas of anti corruption, combating Trafficking-In-Persons (TIP), forensics, tactical police skills development, and senior police management. This training improved police officers’ skills to investigate priority crimes (including narcotics cases), their forensic abilities and technical skills, and their ability to follow safety measures and supervise subordinates, manage investigations, and implement internal controls.

The USG also provided additional training opportunities for Azerbaijani law enforcement officers outside of their home country. Eleven police executives attended a two-week course in Budapest, Hungary, where they learned to form and work in cooperative task forces across ministries or across borders. Fifteen participants took an advanced explosive incident countermeasures course in the U.S., which taught participants how to identify and render safe the latest styles of improvised explosive devices. Twenty Azerbaijani law enforcement representatives from different ministries attended an anti-terrorism instructor development course in Baku, to develop curriculum for police and other law enforcement academy classes. These courses developed greater interagency capabilities to coordinate, investigate, and counter terrorism.

In FY 2007 the USG provided training and technical assistance to personnel from the Ministry of Internal affairs, Ministry of Justice, Ministry of National Security, and Prosecutor General’s office on combating terrorist financing and money laundering. The Draft Law on Anti-money Laundering/Counterterrorist Financing that was submitted in 2006 remains under review by the anti-corruption commission under the office of the President.

Fifty officials from all ministries attended training on how to establishing a Financial Intelligence Unit (FIU) in Azerbaijan. As a result of this training, the officials were exposed to different models for an FIU and are able to consider the most appropriate model for Azerbaijan. Thirty-one prosecutors and investigators attended training on investigating and prosecuting money laundering and financial crimes. A total of 24 Azerbaijani and Georgian prosecutors and advocates learned how to investigate and try money laundering and trans-border crime cases. Finally, 25 Azerbaijani officials from several ministries participated in training on combating terrorism and money laundering. As a result of these seminars, prosecutors and investigators began to make more cases against individuals in organized crime and corruption. One case against a construction company that built apartment buildings in Baku resulted in the arrest and conviction of the construction company owner. The company was found to have been laundering money through the business, as well as bribing some public officials to get the necessary permits to build unsafe buildings.

A USG law enforcement advisor based in Azerbaijan assists the GOAJ to increase the capacity of prosecutors, law enforcement, judges and NGOs to implement Azerbaijan’s National Action Plan to combat TIP and to enforce anti-trafficking law. An anti-TIP law compliant with international standards was adopted in 2005 and amendments were made to the Criminal Code to increase penalties for human trafficking in 2005. As a result, cases are being increasingly pursued by the Ministry of Internal Affairs and prosecuted by the Prosecutor General’s office. With the help of USG technical assistance, the GOAJ conducted a standardized written testing process for police officers looking to work within the anti-trafficking in persons unit. An anti-trafficking shelter was constructed by GOAJ as a result of the commitments made by the National Action Plan and through guidance from USG technical advisors. In addition, hotlines established in 2006 have experienced a marked increase in calls for complaints on corrupt activities.

USG advisors also developed international partnerships to exchange best practices on how to combat organized crime and enhance law enforcement restructuring, reform and operations. These partnerships have produced new ethics codes and draft legislation for issues involving conflicts of interest.

Combating Weapons of Mass Destruction (WMD) - USG counter proliferation assistance in FY 2007 worked to engage WMD experts in civilian work to safeguard their knowledge from states of concern or terrorists and to assist in strengthening controls on the illegal flow of WMD related materials at sea as well as through and between ports of entry. In FY 2007 USG activities focused on engaging scientists, including former weapons scientists, in civilian research and entrepreneurial activity. As a part of this effort, 400 scientists and students were trained in business and science-related fields. The USG and Azerbaijan Academy of Sciences co-funded 17 research grants to WMD experts to conduct civilian research. Twelve of these grants enabled independent scientists to conduct research in the U.S. This assistance boosted the number of researchers collaborating internationally with business partners and helped augment GOAJ funding for merit-based and peer-reviewed competitions.

The USG also funded non-proliferation law enforcement training, infrastructure improvements, and the development of legal and regulatory licensing procedures. The USG trained GOAJ Border Guard and Customs officers at both the management and working levels on dual use commodity identification, border interdiction, radiation detection technology, end use and end users, law enforcement management, and international export control. The USG also helped the GOAJ implement the new Export Control Law by developing an Internal Control Program licensing software tool, funding instructor training, and organizing a forum-based introduction of the tool to local industry. A Washington, DC-based, technical forum for representatives from several GOAJ agencies with licensing responsibilities focused on implementation of regulations. Border Guard training has also concentrated the overland “green belts” between official ports of entry. The USG also donated equipment to enhance the ability of the GOAJ Customs and the Border Guard to effectively search cargo and vehicles and patrol borders, including an array of hand and power tools, X-ray equipment, short-range radios, GPS units, watchtower construction material, four-wheel drive vehicles, and coveralls for search team members. The USG also installed radiation detection devices at critical ports of entry and trained local users in the use of the equipment. As a result of this and prior assistance, the GOAJ has decided to create a national targeting center modeled on the U.S. version. The GOAJ also purchased its own mobile truck X-ray equipment. Although the Border Guard continues to improve infrastructure and transportation capabilities on the borders between ports of entry, many needs remain.

USG assistance efforts to the Azerbaijani Coast Guard, the maritime element of the border service focused on increasing Coast Guard operational readiness by providing maintenance assistance, replacing radars on Coast Guard vessels, and offering operational training for the USG-donated Fast Response Boats. These Fast Response Boats will enhance Azerbaijan’s response capability along its southern border to respond to suspicious activity detected by either shore or ship-based radar systems, including in extreme weather. The USG and Azerbaijani Coast Guard jointly constructed a radar station in Neftchala, which is anticipated to be completed in early 2008. The Neftchala radar station and installation of enhanced radars on Coast Guard patrol vessels will improve the GOAJ’s ability to monitor maritime activity, especially in the southern region.

Stabilization Operations and Security Sector Reform

The USG-provided assistance is designed to help Azerbaijan: achieve the defense reform and security goals outlined in its Individual Partnership Action Plan with NATO; improve the capabilities of the Azerbaijani Navy to control its territorial waters, including the protection of critical off-shore energy infrastructure and interdict transnational threats; assist the Ministry of Internal Affairs develop and implement policies and procedures to investigate police corruption; and, support the Azerbaijan Agency for National Mine Action in de-mining and the disposal of unexploded ordnance clearing land for reconstruction, development, and the return of Internally Displaced Persons (IDPs).

In FY 2007 the USG helped Azerbaijan improve Caspian Maritime Security, a major objective in its NATO Individual Partnership Action Plan, specifically building up Azerbaijan's capability to control its territorial waters, address transnational threats, and protect off-shore energy infrastructure in the Caspian. The USG provided resources to upgrade navigation, communication, and radar equipment on naval vessels that enhanced the Azerbaijan Navy's common operating picture of the Caspian and improved its reaction times to security challenges. The USG also provided special operations water craft and associated training to increase the maritime counter-terrorism and energy infrastructure protection capability of the GOAJ’s Naval Commandos.

Training for the Azerbaijani military was also an important focus of U.S. assistance in FY 2007. The USG provided a Computer Assisted Staff Training Facility for the Azerbaijani Ministry of Defense’s senior professional military education institution to further Azerbaijan's relations with NATO and Euro-Atlantic integration. The Azerbaijani Military College successfully integrated the facility into its curriculum and regularly trains its officers and staffs using NATO-styled staff decision-making processes. Using an American language instructor, USG assistance supported a six-month English Language program in Azerbaijan for military officers. The USG started to provide resources for several modern English Language Laboratories that the Ministry of Defense requested to use at the senior Military College. These laboratories will further enhance NATO interoperability by increasing English language ability of Azerbaijani military officers. In FY 2007 18 young Azerbaijani officers participated in English-language training programs in the U.S., where they attended basic military courses and received further training on NATO and U.S. inter-operability. Several officers who participated in the program in FY 2006 returned and started to work with the Embassy to further important initiatives.

In its NATO Individual Partnership Action Plan, Azerbaijan stated its objective to upgrade an airfield to NATO standards for potential allied and coalition use. The USG provided equipment to upgrade airfield lighting, navigational aids, and the instrument landing system in FY 2007. Installation of the equipment is expected to be completed in early 2008. The USG also provided and installed rifle range equipment for the Garaheybat NCO training center and trained staff to use the equipment. This supports the development of an NCO training program at the Sergeants’ Academy, which furthers defense reform and provides needed training aids to the peacekeepers.

A USG humanitarian de-mining program funded salaries and logistical expenses for the two indigenous de-mining NGOs managed by the Azerbaijan National Agency for Mine Action. As a result, the Agency and its two implementing NGOs continued to advance the clearing of 1,900 hectares of mines and unexploded ordnance. Completion of this project will allow the construction of housing for 2,000 IDP families that currently live in tent cities.

Conflict Mitigation and Reconciliation - The USG provided assistance to encourage regional conflict prevention and confidence-building measures by promoting dialogue between the three South Caucasus countries (Armenia, Azerbaijan and Georgia) on issues surrounding natural resources management and indigenous peace building efforts.

The USG sponsored complementary efforts to promote trans-boundary water management and improve dialogue between conflicting parties in the South Caucasus. The USG recommended to the GOAJ a decentralized basin management approach as a core component of a rationalized water resource oversight strategy. The three countries established mid-level technical agency working groups to tackle key trans-boundary water resource management issues. The USG organized three regional workshops for diverse stakeholders to develop shared regional water management concepts and strategies across counterpart government institutions. The USG also began a trilateral small grants program for public advocacy activists in pilot basin areas, funded an assessment of gender aspects of domestic water management decisions and community-oriented Integrated Resources Management Plans that engage women and underserved constituencies, and conducted a gender-based leadership training workshop. As a result, negotiations between local counterparts regarding the restructuring and decentralization of the management of water resources were initiated.

Another part of the USG program provided technical assistance and commodity support to local government institutions to develop the National Water Cadastre Information System, carry out water quality modeling and training activities, support installation and rehabilitation of water monitoring and measurement stations, facilitate standardization of water flow/discharge data; and, improve broad water resource management data availability for all stakeholders.

GOVERNING JUSTLY AND DEMOCRATICALLY

Fostering democratic reform, developing a vibrant civil society and a more actively engaged citizenry, ensuring the protection of fundamental human rights and freedoms – including the free functioning of an independent press – were top priorities for USG assistance in Azerbaijan in FY 2007. Azerbaijani civil society organizations and media outlets struggled with public apathy, inadequate funding sources, and government interference. In the run-up to Azerbaijan’s October 2008 presidential election, the USG has worked to encourage a free and fair election process and promote normal political activity, encouraging all political parties in Azerbaijan to conduct long-term grass-roots campaigns. USG programs also educated the public about the work of NGOs, encouraged participation in civil society efforts, and supported anti-corruption efforts and legal reform.

Rule of Law - The objectives of USG rule of law and human rights assistance in FY 2007 were to improve the rule of law, build judicial independence, reduce corruption, and increase the professionalism, integrity, and skills of the defense bar and the Procuracy. USG assistance also helped Azerbaijan build its capacity to combat money laundering, trafficking in persons, corruption and other priority crimes described in the section of this report on counter-terrorism and transnational crime and on good governance.

The USG continued to lead an international assistance effort to help Azerbaijan reform its judicial selection process and skills development training programs for judges. Fifty-five new judicial candidates were selected in FY 2006 and 102 more in FY 2007 under a reformed and more rigorous, competitive and transparent exam process. The candidates in the first group are currently sitting as judges throughout Azerbaijan and the second group will begin hearing cases in 2008. The USG provided training to the new candidates, and many sitting judges, on how to be a neutral arbiter in adversarial court proceedings, including how to effectively handle complex cases on priority crimes.

The USG also supported the professional development of the defense bar, which included reforming the Law on Advocates. USG technical advisors developed recommended amendments to the law on advocates and presented them to the Defense Bar and attorney groups. These groups will use these recommendations to craft a viable law to support the Defense Bar. The USG also supported reform of law school curricula and the improvement of teaching methodologies and enhanced the skills and knowledge of justice sector personnel – especially women lawyers – to address corruption and render legal assistance to citizens on corruption complaints.

The USG provided trial-skills training for the Prosecutor General’s office to promote an adversarial system of justice, due process protections, and evidence-based prosecutions. Prosecutors were trained as trainers to augment sustainability. Parliament passed the 2005 Anti-Corruption law amendments for confiscation of property and higher penalties in April 2006. In 2007 the Anti-Corruption Department of the Prosecutor General’s office began to investigate and prosecute crimes under the 2005 anti-corruption law. USG assistance, in coordination with the anti-corruption department provided a series of trainings on investigating and prosecuting for this department-supported prosecution of low-level corruption cases as well as to ministerial-level cases.

Good Governance - Azerbaijan’s inability to create an inclusive and representative government and its failure to effectively combat rampant corruption have prevented it from attaining its transformational development goals. In order to promote good governance, USG assistance in FY 2007 supported the development and operationalization of accountable and transparent institutions to serve as an effective, essential check on the strong executive branch.

The USG provided technical assistance and training resources to help make legislation and Parliamentary procedures accessible to citizens. The USG sponsored training for 36 MPs and Parliamentary staff members. The USG helped to establish central and constituency offices for MPs so that MPs can respond to constituents’ requests, explain issues, and increase civil society interaction with the legislature.

The USG and Azerbaijan developed a new 2007-2012 National Strategy for Combating Corruption. The strategy is compliant with Azerbaijan’s international obligations as a party to the Council of Europe’s Civil and Criminal Law Conventions. The USG continued to work with the GOAJ to draft proposed legislation on conflicts of interest and corporate criminal liability laws. The USG helped the GOAJ develop the draft financial disclosure form necessary to implement the financial disclosure provision in the 2004 anti-corruption law. Azerbaijan’s Parliament in July 2007 adopted a new Ethics Code for Civil Servants that was developed with USG support.

Moreover, the USG bolstered anticorruption reforms by helping to strengthen the regulatory and procedural framework for more transparent and accountable budget planning and administration practices. The USG continued to supported five Anti-corruption Legal Aid and Advocacy Centers that in FY 2007 provided 1,910 citizens with assistance in filing and pursuing anticorruption related complaints. These data were also used to identify critical corruption-related legal and institutional weaknesses and to facilitate advocacy efforts designed to promote reforms. As of this report, Azerbaijan has not experienced any significant reduction of corruption as a result of these activities. Clearly, it will take many years before the reforms being put in place and the individuals being trained begin to result in a discernable drop in public and private corruption.

Political Competition and Consensus-Building - Apart from the ruling party, Azerbaijan’s political parties remained quite weak and subject to government pressure. The GOAJ has used indirect means to pressure individuals who voice dissent. An independent MP who had complained about the government’s annual report to Parliament was arrested and sentenced to two years of probation, effectively prohibiting him from retaining his parliamentary seat. Local authorities forcibly committed a 71-year-old opposition MP to a mental institution after he complained about water supply to his apartment. He was released after being held in various mental facilities for 15 days. The GOAJ continued to severely restrict the exercise of freedom of assembly, granting authorization for only a handful of opposition political rallies in Baku during the year.

The GOAJ announced it will hold a free and fair presidential election in 2008. Prior to the November 2005 parliamentary elections and the subsequent May 2006 re-run elections, the GOAJ publicly committed to meeting international standards and instituted some reforms. There was some progress in the conduct of both elections, particularly in the re-run elections. However, there were numerous reports of irregularities, including the misuse of administrative authority in support of specific candidates, allegations of fraud in specific precincts on Election Day, and restriction of access to the electoral process for some domestic observers.

In FY 2007 the objectives of USG assistance were to develop impartial legal framework guidelines for improving the transparency of electoral and political processes, including improvements to the Election Code and Central Election Commission (CEC) regulations and to election administration at the national and local level, and increased public participation in election processes..

With the support of USG assistance, the CEC made progress in FY 2007 in four of the five elements identified in the CEC Capacity Development Index. The CEC undertook comprehensive monitoring of constituency- and precinct-level commissions nationwide and drafted a comprehensive plan for staff training that will be implemented in FY 2008. USG asistance also contributed to improvements in the “Voter Lists” and “Complaints and Appeals Process” elements of the Capacity Index. USG assistance drives forward the Strasbourg Process, under which the Venice Commission of the Council of Europe, OSCE/ODHIR, and the GOAJ work to improve the legal framework for elections, including the complaints and appeals process. USG efforts successfully involved civil society and political parties in the election legislation reform process. USG-sponsored meetings with representatives of political parties and of the NGO community to solicit recommendations on the composition of the CEC resulted in numerous proposals.

In FY 2007 USG assistance to political parties focused on developing their capacity to engage in long-term planning, especially at the regional level, improving their ability to reach out to their constituents, increasing the professionalism of regional activists, and expanding youth and women’s engagement in the political life of the country. USG-supported programs encouraged citizens to take an active role in their political system and voice their concerns through party representatives. In FY 2007 USG assistance provided training to senior party organizers to help strengthen political party headquarter operations and to over 400 regional party activists from 17 regional party branches in fundamental organizational and political skills. As a result, the 17 political parties began to intentionally and systematically contact voters directly. Over 500 regional party activists who received USG-sponsored training on voter canvassing and outreach conducted 25 door-to-door voter pilot surveys, their first ever. The parties developed membership recruitment plans, increased contact with party members, and developed new websites and databases after receiving USG Internet training.

To promote women’s participation and build partnerships between local government and civil society, the USG provided training to expand women’s participation in core political processes. Fifty-eight women from 17 political party headquarters were trained in leadership and management; 340 women activists from eight regions were trained in community organization and advocacy strategies. As a result, these women formed leadership committees, identified key problems affecting their social-political development (e.g. poverty reduction and educational access), met with 65 local officials, and resolved priority issues identified in close coordination and collaboration with local NGOs. The USG also provided training on leadership and strategic planning to nearly 1,400 youth from 18 regions, helping Azerbaijan form its next generation of political leaders.

Civil Society - The GOAJ in 2007 increased pressure on civil society, particularly independent media. Only one national television station is not government-owned or directly controlled by members of the government or close associates. Print media is rarely impartial and often divided along political lines. GOAJ officials opened many of the criminal libel lawsuits lodged in 2007 against independent and opposition newspapers and media representatives. Journalists, particularly those affiliated with opposition parties, continued to be subjected to instances of physical violence, harassment, and intimidation. The GOAJ also uses indirect means to pressure individuals who voice dissent.

In FY 2007 the USG assistance objectives are to strengthen Azerbaijan’s civil society and foster greater public participation and understanding. Toward this end, the USG provided technical assistance to 140 NGOs and community business organizations to develop strategic plans, implement advocacy campaigns, increase public participation, and implement demonstrative community development projects. USG-sponsored civic education activities engaged 4,200 people. To improve the legal and regulatory framework governing the functions of NGOs, USG assistance helped to initiate nine major civil society-related legal and regulatory reforms. The USG also engaged NGOs and media in the design and development of additional critical socio-political governance-related reforms, including national anti-corruption, reproductive health and family planning strategies, and election legislation.

USG assistance promoted regional cooperation and NGO-government dialogue through policy forums and the development of joint NGO-local government policy reports on community concerns. Three grants were provided for research on waste management, food standards and safety, and vocational education. A radio program on each of the research topics was produced and broadcast and the first of four video documentaries was completed and broadcast. A second documentary on waste management began production. The USG also provided small grants to indigenous NGOs to promote human rights, free and professional media, governance and rule of law, free and fair elections, community activism, peace building, and civic responsibility. One grant focused on educating local communities in several remote regions of Azerbaijan about democratic governance and how to improve accountability from local government representatives. It is too early to identify the longer-term impact of these grants.

In FY 2007 the USG also supported five regional micro-project committees that awarded 28 grants to local, youth-oriented community and business organizations. These grants were used to address social needs identified by each community, benefiting 280 young people. Fifteen youth fund committee members found jobs as a direct result of the skills attained through their participation in the project. As a result of community mobilization activities, over 30 new community development associations were formed and eight advocacy campaigns were initiated in collaboration with local government institutions. These communities raised a total of over $480,000 to contribute to over 100 community projects that improved their socio-economic conditions.

At the GOAJ’s request, the USG supported a comparative international analysis of legal mechanisms for public financing of NGOs. The GOAJ used this analysis in the preparation of the July 2007 presidential decree announcing the government’s new NGO concept and mandating the establishment of a State Fund to finance NGOs. The 2008 state budget allocated USD 1.77 million for this purpose. The GOAJ worked in consultation with the USG and the international community to establish a transparent and efficient mechanism to distribute these funds. Local observers noted concerns that only government-affiliated groups would receive these funds, particularly as many democracy and human rights organizations continue to experience trouble when attempting to register with the Ministry of Justice.

USG assistance strengthened independent media by improving the financial management practices of media outlets, increasing the skill and knowledge of journalists, and effectively monitoring government harassment and interference. The USG provided training to Azerbaijani journalists and media rights groups to continue to advocate on behalf of media freedom and freedom of information. This support allowed local NGOs to organize professional training, media rights advocacy, and self-regulation for the independent media. Other grant activities helped to establish the Azerbaijan America Journalism Academy and encouraged efforts to self-regulate the media with a monitoring project conducted by a consortium of five local media rights NGOs.

USG assistance worked to improve the quality of university-level journalism programs offered by leading educational institutions in the Caucasus. In FY 2007 five journalism students from each of the three Caucasus countries studied journalism. The USG also funded four training-of-trainers seminars for 12 local faculty staff – four from each country – in which trainers worked on journalism, photojournalism, reporting and writing, and TV production training skills. As a result, the journalism departments of Azerbaijan Khazar University and Yerevan State University established a joint Master’s program in journalism. All three countries of the South Caucasus will mutually recognize credit and degrees form the program.

A USG-funded television-cooperative program allowed a team from Azerbaijani Public Television to visit the U.S. to produce a documentary on U.S.-Iran-Turkish Relations and a story on the Federal Communications Commission. A FY 2006 grant paid for the cost of a two-year license for “Sesame English,” a production of the Sesame Workshop that is currently airing on Azerbaijani Public Television. “Sesame English” is helping improve the image of the U.S. and teach English to hundreds of thousands of Azerbaijani children.

In addition, the USG continued to translating a number of high quality textbooks into the Azerbaijani language, as well as Thomas de Waal’s Black Garden, a balanced account of the Nagorno-Karabakh conflict. The program concluded multi-year regional library development and information center projects, which increased the local capacity of 20 regional libraries, provided over 50,000 books (many donated by private sector partners), installed 15 information centers, and provided training to librarians, staff, and local citizens on how to use computers, the internet, databases, and other modern library tools.

ECONOMIC GROWTH

The over-all goal of USG economic growth assistance is to have Azerbaijan use its massive near-term increase in foreign exchange earnings and public revenues to put its economy on a broad-based, sustainable, long-term growth trajectory. To accomplish this, Azerbaijan needs to: improve the transparency and rationality of public investment planning and administration policies and practices; establish an integrated budget formulation process that is consistent with macroeconomic stability objectives; improve budget execution procedures and practices in a manner which promotes responsible fiscal management; and improve in the tax policy/administration regime to enhance economic competitiveness and revenue management. USG economic growth assistance efforts in FY 2007 focused on working with Azerbaijan to improve its macro/financial and fiscal policy framework and institutional capacity, relieve policy, regulatory, institutional constraints that limit the access of small and medium enterprizes (SME) to sustainable financial services, and build the capacity of the agricultural sector to become a strong engine of employment and income growth in the rural economy.

Macroeconomic Foundation for Growth - In FY 2007 the USG supported the establishment of the Economic Research Institute of the Ministry of Economic Development and helped it design a development plan and research agenda for public investment planning and monitoring. The USG helped the Ministry of Economic Development launch a new budget circular to organize Azerbaijan’s information collection process and establish Azerbaijan’s first comprehensive public investment database. Close to 150 GOAJ staff attended USG-sponsored training on modern cost/benefit analysis techniques. As a result, the GOAJ put approximately 30% of new investment projects to a cost-benefit analysis. To improve Azerbaijan’s planning in the agriculture, irrigation, transport and education sectors, the USG organized study tours to Norway and Turkey to learn lessons on improved public investment planning processes. At the end of 2007 the GOAJ was reviewing the regulatory framework the USG drafted to establish an integrated medium-term expenditure framework planning process with rigorous project analysis requirements for all major capital projects.

In the budget administration area, the USG supported the development in 2006 of an automated treasury information management system that was installed in 2007 at both the Central Treasury in Baku and at three regional pilot treasuries. In July 2007 the Ministry of Finance approved a nationwide plan that calls for the rollout to 14 additional regional treasuries, covering about 85% of all GOAJ expenditures, to be completed by the end of February 2008. Remaining smaller treasuries were left for completion between March and November 2008. The GOAJ has thus far provided approximately $5 million in support of treasury system implementation.

The USG supported an advisor to provide expert research and reporting support to the Ministry of Finance on international best practices to support Azerbaijan’s reform of its budget-related laws and procedures. The USG helped to draft an amendment to the Budget System Law to allow the Finance Minister to approve limited budget reallocations, avoiding the lengthy process of sending the budget back for Parliament approval. At the advisor’s suggestion, the GOAJ reclassified international loans as a financing source and not as revenue, improving the accuracy of budget planning information and public revenue statements. These reforms resulted in reallocations of approved budget expenses during FY 2007 and greater transparency with the display of 2006 unspent revenue in the 2007 budget adjustment. The USG helped to develop a website and a discussion board for sharing of comparative international information on budget practices and provided Azerbaijan Finance Ministry budget staff with the opportunity to meet and exchange ideas with budget professionals in European and Central Asia countries through the Public Expenditure Management Peer Assisted Learning network and the Budget Community of Practice.

Trade and Investment - In 2007 the USG conducted an assessment and developed a plan to accelerate Azerbaijan’s accession to the World Trade Organization (WTO), which will help it to enact and implement strategic policy and regulatory and administrative reforms required for compliance with core WTO accession commitments.

Agriculture - The agriculture sector provides about 40% of all employment in the Azerbaijani economy. The objective of the USG assistance in FY 2007 was to improve competitiveness and increase jobs and income in the agricultural sector. Specifically, the USG worked to improve linkages within the agriculture sector and between the agriculture sector and the rest of the rural economy, increase employment, and enhance entrepreneurial development and business planning and management skills.

The four USG Marketing Centers in rural regions of Azerbaijan that the USG had established previously provided training and technical assistance to 57 active agribusiness clients and 63 leasing clients in rural and agricultural regions. Topics included market chain analysis, market development, trade and investment facilitation, and processing technologies. The USG assistance also provided 83 SMEs with consultations on strategic planning and management, and with professional publications. As a result, a spin-off business development consulting company was established in late FY2007 that has the capacity to provide a range of support to SMEs to improve competitiveness, including strategic/business planning, technology transfer, product quality control, cost control, and market development. Finally, the USG provided two agricultural specialists with two-week long professional fellowships in the U.S. where they received in-depth knowledge of international standards of agricultural policy, animal health surveillance, and implementation of modern veterinary inspection services. Overall, USG agriculture sector support in 2007 led to an increase in sales of approximately $37 million for rural client companies and the creation of about 5,400 additional person-years of direct employment.

Private Sector Competitiveness - Azerbaijan’s rural and SME sectors are virtually excluded from formal financial services, which hampers private sector competitiveness and stunts Azerbaijan’s economic diversity. USG assistance promotes private sector competitiveness by seeking to relieve the primary policy, regulatory, and institutional constraints that limit SME access to sustainable financial services.

In FY 2007 the USG developed draft reforms to improve incentives for banks and non-bank financial institutions to expand lending to SMEs, including strengthening the property rights-related regulatory and enforcement environment. The USG also helped to develop the Non-Bank Financial Institutions Law adopted by Parliament and key draft reform laws for secured transactions, cadastral registration, credit bureau operations, and Credit Union and the Credit Bureau Laws.

The USG assisted the Central Credit Registry at the National Bank of Azerbaijan to advance its eventual privatization, provided the Azerbaijan Mortgage Fund with critical strategic planning and financial management assistance in its start-up phase, and upgraded the Azerbaijan Bank Training Center’s training curriculum, helping it to win international accreditation for its training program. With USG help, the Azerbaijan Bank Training Center developed and offered the first accounting certification program in Azerbaijan. More than 60 accountants attended this Russian-language Certified Accounting Practitioner program; six received certification.

The USG also sponsored 31 Azerbaijani professionals in the United States for training related to their field of expertise, including hospital administration, airport development, hotel management, road construction, oil pipelines, and agribusiness association development. Nineteen received follow-on training in Baku in project management. An alumnus used his 2001 experience from the program to expand the activities of the Azerbaijan Automobile Association, where he coordinates meetings and other interactions between the association and major U.S. car manufacturers. Additionally, an alumna gave several presentations about her 2007 experience on the Hospital Administration program to fellow Azeri doctors and hospital staff. She also added materials and information to her company website. Finally, another alumnus is currently in negotiations for his company to become the exclusive distributor of a U.S. company's dairy processing and packaging equipment and supplies – a company he met with while on the U.S. training program. This packaging will improve the quality, shelf life and safety of dairy products.

INVESTING IN PEOPLE

In spite of Azerbaijan’s unprecedented recent surge in economic growth, access to quality health care services remains deficient for a significant portion of the population. This is seen most prominently in primary and reproductive health-related services. In addition, despite recent increases in public expenditures for the health sector, the health care system is still severely under-funded and poorly targeted. The USG has focused intensively on promoting crucial policy/regulatory and institutional reforms in the health care system, closely coordinating program implementation with all international donors and establishing a close and collaborative working relationship with the Ministry of Health. In FY 2007the USG assisted GOAJ reform efforts by providing policy and institutional reform expertise and helping the Ministry of Health develop a strategic vision for health care reform.

Health - USG assistance limits the spread of avian influenza in animals, helping to prevent a human influenza pandemic, and, in the event of a pandemic, providing appropriate humanitarian response. USG assistance also promotes policy/regulatory and institutional reforms to the primary health care and reproductive health and family planning systems.

As part of the USG response to the threat of avian influenza, the USG provided technical assistance to the Ministry of Health (MOH) to improve human avian influenza prevention and response through curriculum development and train-the-trainer efforts that reached 15 districts at high risk for avian influenza. In these districts, trainers worked in partnership with the Centers of Hygiene and Epidemiology, Central District Hospitals, and other selected health facilities to recognize and report potential avian influenza cases. Approximately 300 medical professionals received training; 150 district officials responsible for emergency response reviewed and defined their roles, responsibilities, and actions in the event of an avian influenza outbreak; and, up to 5,000 healthcare providers received comprehensive information on how to recognize bird flu symptoms promptly and to investigate and trace contacts with infected birds or persons. The USG also procured computers and communications/link infrastructure to enhance electronic disease reporting. The USG and GOAJ also worked together to educate the public about avian influenza by developing television and radio spots, brochures, and posters, and holding workshops to inform journalists about avian influenza transmission, preventative measures, and how to disseminate avian influenza information without causing panic.

The USG also provided technical assistance to the Ministry of Agriculture to improve Veterinary Services surveillance and sample collection capabilities, use personal protective equipment, and identify avian influenza in potentially infected commercial and backyard poultry. The project trained over 300 veterinarians in 12 zonal labs and a network of laboratory professionals and private poultry processors on proper procedures for identification, rapid testing, culling, quarantine, referral, and disposal of infected birds. A service hotline bolstered communication activities. The USG provided the Ministries of Health and Agriculture with 4,500 personal protective equipment sets and 50 decontamination kits and distributed 15,000 technical brochures covering use of the sets and on appropriate bio-security and prevention practices. To reduce biological threats in FY 2007the USG contributed to the construction and equipping of the Central Reference Laboratory and the Zonal Laboratory in partnership with the MOH.

USG broader public health assistance focused on improving the capacity of the MOH to create a policy and legal framework that strengthens the institutional primary health care delivery system. This included assisting the MOH to introduce National Health Accounts and Social Health Insurance and improve the quality of primary health care services. The USG worked with the MOH to: increase public expenditures for health and improve resource allocation for primary health care; create a policy and legal framework that defines primary health care services and the delivery system; improve the quality of primary health care; and promote personal responsibility for health among individuals and families.

Thanks to prior USG assistance in the areas of provider payment systems and improved conditions of service delivery, the MOH invested in a Management Information System for four healthcare institutions and plans to install the system in three additional institutions in 2008. The USG provided monitoring and evaluation training to further build these institutions’ capacity to use the system to guide management decisions. Additionally, the USG and the MOH co-drafted a new health financing reform policy. Expectations are that in FY 2008 approximately 160,000 people will be covered by the new payment mechanism.

In FY 2007 the USG assisted the National Reproductive Health Office and the Ministry of Heath to develop the 2008-2011 National Reproductive Health and Sexual Strategy. The World Health Organization (WHO) reviewed the strategy and the MOH is finalizing it. The USG and MOH worked with national and local governments on national family planning guidelines that will be introduced as part of the strategy. The USG and GOAJ launched a nationwide media and social marketing campaign in September 2007 to support the strategy. The focus of the campaign is to promote modern contraceptive methods as the safest tool for planning pregnancies and a healthy and prosperous future. The USG renewed a Memorandum of Understanding with two international pharmaceutical companies to increase the supply of high quality, affordable, and legally imported contraceptive products to Azerbaijan.

The USG continued its efforts to strengthen the quality of family planning services. Eleven renovated health facilities provided family planning services. Peer educators conducted nearly 4,000 health education sessions on family planning, reaching over 33,000 people. The USG expanded family planning activities to sites that are also served by the primary health care efforts, allowing family planning services to be better integrated into primary health care.

Education - U.S. assistance in the education sector supported the development of local professional and institutional capacity through English teaching and exchange programs that improved professional skills and deepened understanding of the U.S. In FY 2007 50 Azerbaijani high school students spent one year in U.S. schools, living with American families. The USG sponsored educational and professional exchange programs for university and graduate students, teachers, professors, and professionals. U.S. scholars and graduate students funded by the USG worked directly with hundreds of Azerbaijani students and scholars. Two English language fellows worked in Azerbaijan with over 80 students and teachers over the course of the year to develop institutional capacity for English teaching and promote English learning among target audiences. Another 80 students in religious madrassas received twice-weekly English language classes over the course of ten months. Textbooks and other educational materials were distributed to libraries, schools and universities. As a result of these efforts, the institutional capacity of the Azerbaijan English Teachers Association was enhanced and English was incorporated as part of the basic curricula for entry-level diplomats at the Diplomatic Academy.

HUMANITARIAN ASSISTANCE

Humanitarian assistance aims to save lives, alleviate suffering, and minimize the economic costs of conflicts, disasters and displacement. In FY 2007 the U.S. provided nearly $14 million in humanitarian aid to the people of Azerbaijan. This assistance included donated commodities such as food, clothing, medicines and medical supplies for vulnerable populations in Azerbaijan. In particular, USG programs supported refugees and people displaced by the Nagorno–Karabagh conflict. The USG also gave support to reconstruct one kindergarten, one boarding school for disabled children, and the children’s department of a hospital. Reconstructing these facilities improved vulnerable residents’ quality of life and permitted them to make better use of donated humanitarian assistance.

FY 2007 Measures of Country Performance

The following data are based on the Monitoring Country Progress in Europe and Eurasia system developed by the United States Agency for International Development (USAID) to measure and track progress in the region. The system uses four different indices to monitor progress, drawing on readily available standardized country-level data on economic reform, economic structure and performance, democratic reform, and human capital. The primary data sources are the European Bank for Reconstruction and Development (EBRD), the World Bank, the United Nations Children’s Fund (UNICEF), and Freedom House. The data for each of the four indices are converted and standardized to a 1-to-5 scale, with a “5” representing the best performance of the Eastern Europe and Eurasia region, and a “1 the least advancement of the region.

Azerbaijan’s Democratic Reform* Scores in 2006 compared to Romania and Bulgaria in 2002

The graph to the left shows Azerbaijan’s democratic reform scores in 2006* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. *Actual 2007 scores not yet available

Azerbaijan’s Democratic Reform Scores in 2006 compared to its Reform Scores in 1999

The graph to the left shows Azerbaijan’s democratic reform scores in 2006* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line). *Actual 2007 scores not yet available

*Democratic reforms include the electoral process (the extent to which elections are free, fair and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform) and the scope of corruption as well as anti-corruption income.

Azerbaijan’s 1^st Stage Economic Reform* 2007 Scores Compared to Bulgaria and Romania in 2002

The graph to the left shows Azerbaijan’s stage one economic reform scores in 2007* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

Azerbaijan’s 1^st Stage Economic Reform 2007 Scores Compared to its Scores in 1999

The graph to the left shows Azerbaijan’s stage one economic reform scores in 2007* (the grey shaded area) as compared to its economic reform scores in 1999 (the bold line).

Azerbaijan’s 2^nd Stage Economic Reform 2007 Scores Compared to Bulgaria and Romania in 2002

The graph to the left shows Azerbaijan’s stage two economic reform scores in 2007* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

Azerbaijan’s 2^nd Stage Economic Reform 2007 Scores Compared to its Scores in 1999

The graph to the left shows Azerbaijan’s stage two economic reform scores in 2007* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line).

*Economic reforms include “first stage” reforms of privatization, stabilization, and liberalization (domestic price liberalization and trade liberalization), and “second stage” reforms in the financial sector, infrastructure (physical and energy), corporate governance and competition policy.

Azerbaijan’s Progress on the USAID Country Progress Indices between 1998 and 2007

(1) Economic reforms index include “first stage” reforms of privatization, stabilization, and liberalization (domestic price liberalization and trade liberalization), and second stage reforms in the financial sector, infrastructure (physical and energy), corporate governance and competition policy.

(2) The economic structure and performance index tracks indicators such as the size of the private sector as % of GDP, export share of GDP, and the size of the small and medium enterprise sector as % of GDP, economic growth, inflation, debt, and foreign direct investment.

(3) The Democratic reforms index include the electoral process (the extent to which elections are free, fair, and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform), and the scope of corruption as well as anti-corruption efforts.

(4) USAID tracks progress on the Human capital index by analyzing trends in health (life expectancy, under five mortality rates, and public expenditures on health), education (secondary school enrollment rates and public expenditures on education) and per capita income.