II. Country Assessments and Performance Measures - Azerbaijan

U.S. Government Assistance to and Cooperative Activities with Eurasia
Bureau of European and Eurasian Affairs
January 2005
Report

Map of AzerbaijanArea: 86,600 sq km, slightly smaller than Maine
Population:
7,868,385 (July 2004 est.)
Annual Inflation: 2.1% (2004 est.)
Population Growth Rate: 0.52% (2004 est.)
Gross Domestic Product (GDP):
$26.65 billion (purchasing power parity, 2004 est.)
Life Expectancy: Male: 59.09 years; Female: 67.62 years; (2004 est.)
GDP Per Capita: $3,400 (purchasing power parity, 2004 est.)
Infant Mortality: 82.07 deaths/1,000 live births (2004 est.)
Real Annual GDP Growth: 11.2% (2004 est.)

U.S. STRATEGIC INTERESTS

The Global War on Terrorism has significantly raised the U.S. stakes in Azerbaijan. 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 helping the country become a reliable supplier of oil and gas to international markets in the West, while ensuring that revenues from its natural resources lead to broadly based economic growth. The President's January 2002 waiver of FREEDOM Support Act (FSA) Section 907 restrictions on certain types of assistance to the Government of Azerbaijan gave the USG new tools to advance its interests. Since then, USG-funded assistance programs have begun to focus on counter-terrorism, border security, law enforcement, corruption, human trafficking, and economic reform. Azerbaijan has provided blanket overflight in support of Operation Enduring Freedom, and Azerbaijani troops have joined Coalition forces in Operation Enduring Freedom, Operation Iraqi Freedom, and in the Kosovo peacekeeping mission. Azerbaijan is also the linchpin of the East-West energy corridor and in the future will be an important source of non-OPEC oil.

OVERVIEW OF U.S. GOVERNMENT ASSISTANCE

In FY 2004, the USG provided an estimated $96.78 million in assistance to Azerbaijan (including $1.46 million in FY 2003 FREEDOM Support Act funds):

  • $13.94 million in democratic reform programs (including Public Diplomacy exchange programs);

  • $12.91 million in economic reform programs; 

  • $21.59 million in security, regional stability and law enforcement programs; 

  • $1.33 million in social-sector reform programs; 

  • $27.73 million in humanitarian programs; 

  • $3.50 million in cross-sectoral and other programs; and 

  • privately donated and U.S. Defense Department excess humanitarian commodities valued at $15.78 million.

In FY 2004, some 290 Azerbaijani citizens traveled to the United States on USG-funded training and exchange programs implemented by USAID and the U.S. Departments of Agriculture, Commerce, Justice and State, bringing the cumulative number of Azerbaijani participants to over 2,700.

U.S. ASSISTANCE PRIORITIES

Democratic Reform Programs: In FY 2004, much of the U.S. democratic reform assistance program in Azerbaijan focused on supporting development of political competition, rule of law, civil society, a multi-party system, modern resource libraries, and a free media (in particular, public broadcasting). USG program implementers worked with governmental and non-governmental bodies and with political parties. Academic and professional exchange programs provided opportunities for Azerbaijani participants to gain firsthand experience with U.S. democratic institutions.

Economic and Social-Sector Reform Programs: USG economic reform programs focused on development of the non-oil sector, and specifically on small and medium-sized enterprise (SMEs) development in business consulting services and agro-business. Programs also included banking-sector reform, reform of treasury operations, tax administration, budget formulation, and energy-sector reform initiatives. USG programs promoted interregional water-management between Azerbaijan and neighboring states. USG assistance implemented a pilot project in reproductive health and family planning in rural areas.

Security, Regional Stability, and Law Enforcement Programs: In FY 2004, USG security-related assistance enhanced Azerbaijan's nonproliferation, peacekeeping, and anti-terrorism capabilities. The USG provided equipment to support Azerbaijani peacekeeping activities in Afghanistan, Kosovo and Iraq. Support for regional stability included provision of equipment and training to the Azerbaijan Border Guard Maritime Brigade to improve its ability to conduct law enforcement patrols and interdict weapons of mass destruction (WMD) on the Caspian Sea. Additional assistance to the Land Border Guard and Customs Service focused on enhancing Azerbaijan's ability to control its borders and prevent the transshipment of WMD, nuclear materials, missile equipment and related technology. Through its participation in the Science and Technology Center - Ukraine (STCU), a multilateral organization that provides grants to former Soviet weapons scientists for peaceful research, Azerbaijan demonstrated its commitment to halting the spread of WMD expertise. The first USG-funded grant competition through the Azerbaijan National Science Foundation was launched, providing additional funding to a seismic center in Baku that employs former nuclear scientists and collaborates with the neighboring Caucasus countries on mitigating the region's seismic instability. USG-funded security assistance also promoted regional security cooperation objectives, including pipeline security, seismic and other scientific collaboration and regional anti-terrorism initiatives in the Caspian Sea region. FY 2004 law enforcement assistance helped strengthen Azerbaijan's ability to respond to terrorist incidents, combat terrorist financing, money laundering and corruption, and implement the criminal procedure code.

SECTORAL ASSESSMENTS

Democratic Reform

After the October 2003 presidential election failed to meet international standards due to a number of serious irregularities, the USG initiated a grassroots approach to developing active citizen participation in the political process, in addition to the USG's ongoing programs targeting political parties and election commissions. This approach will help lay the groundwork for the December 2004 municipal elections and the critical parliamentary elections in late 2005. The USG increased engagement with parliament to help strengthen its institutional capacity. Through a cooperative effort with the Presidential Administration, the USG conducted a series of town hall meetings and trained executive authorities.

In FY 2004, USG assistance programs continued to support the creation of an effective legal system and improve citizens' access to justice in Azerbaijan. Activities to increase the professionalism of the legal community and educate the public on fundamental rights and freedoms were implemented. USAID helped the President's Office and the Ministry of Justice create the country's first legal database, which will contain all legislative documents created since Azerbaijan's independence and will be accessible to the general public via the Internet. A USG-funded program continued to focus on promoting public knowledge of legal rights; supporting legal reform efforts; helped develop bar associations; supported clinical legal education courses at law faculties; and provided professional training to judges and lawyers.

Corruption remains a fundamental problem and continues to undermine democratic development and respect for the rule of law. However, in January 2004, the Government of Azerbaijan adopted a new anti-corruption law (which will go into effect in January 2005) and in September 2004, a State Program to Combat Corruption. Implementation of these new provisions will remain the challenge for the immediate future.

As a result of USG legislative drafting assistance, an amendment to the Law on Advocates was adopted by the Parliament, and a Judicial Code of Ethics was passed. USG advisors continue to work with the government on implementation of these new provisions. New modern teaching methods for the law curricula were successfully introduced to law faculties at two private universities in Baku. U.S. engagement has also supported the expansion of the jurisdiction of the Constitutional Court to include the complaints of individual citizens and the first-time posting of written decisions by both the Constitutional and Supreme Courts.

With respect to human rights, Azerbaijan still lacks a proper mechanism to implement its Constitution and other laws, despite a Constitution mandating the state's responsibility to protect universally accepted human rights. Notably, the government has not shown the will to address these deficiencies in a systematic way. Opposition parties and domestic human rights groups similarly failed to mount an effective challenge to undemocratic government practices, due to their frequent infighting and failure to work together. Azerbaijan's Constitution provides for freedom of religion, and Azerbaijan has a long history of religious tolerance; however, abuses and restrictions still occur.

The media sector in Azerbaijan showed some degree of improvement in FY 2004, with coverage expanding to a wider range of issues, including anti-corruption and gender equality. Azerbaijan's news quality rating based on the USAID Media Sustainability Index improved, as did its score on the Freedom House Media Freedom Index (see indicators at end of this section). Some positive legal and regulatory changes affecting media have also taken place over the past year. A new Law on Public Television was adopted after a deeply flawed law was vetoed by the President and sent back to parliament for revision. The USG will work with the government to create an unbiased public television service that provides independent information to citizens. In addition, USAID continued to support nine independent regional television stations in FY 2004.

Despite these positive developments, the country's media sector remains weak. Much of the new media-related legislation is ambiguous, such as the proposed Law on Freedom of Information, which passed the first reading in May 2004. The USG will continue to work on the legislation, together with Azerbaijan's Legal Society, to lobby for appropriate language, and once the law is adopted, for compliance.

As demonstrated by a number of surveys, there is a high degree of disengagement, apathy and cynicism among the Azeri population towards politics. In addition, the population is not sufficiently informed about their rights, and there are few opportunities to exercise them. Civic and political institutions remain weak in part due to limited citizen demand to be involved in policy or decision-making in the country. Recognizing the need to build sustainable NGO institutions, USG programs refocused its civil society development activities towards a defined group of 42 registered non-governmental organizations (NGOs) and non-registered community-based organizations (CBOs). An important component of this program is the advocacy initiatives, which range from local advocacy to larger regional advocacy campaigns and then finally national advocacy initiatives that are organized by the targeted NGOs.

Through the USG's Civil Society Development Program, six Azerbaijani NGOs recently launched a national advocacy campaign focusing on creating a more favorable legal environment for Azerbaijani NGOs. An example of a successful advocacy campaign effort is the recent adoption of the Law on Assistance to People with Diabetes that was passed in the Azerbaijani Parliament in 2004.

USG-funded democracy programs also promoted development of civil society and reform of the education system. USG programs worked with municipal councils to strengthen their ability to respond to citizens' needs; conducted public information sessions on civic responsibilities and the role of municipal councils; and organized "democracy school" programs promoting leadership development and civic awareness. The U.S. Embassy's Democracy Commission grants focused on voter education; community information exchange strategies; NGO and regional resource center collaboration; issue-focused youth, school, community and municipal partnerships; youth leadership and civic education; free and responsible radio and television reporting; and building links around human rights issues. More than 50,000 Azerbaijani citizens participated in these USG-sponsored democratization programs.

USG public diplomacy programs focused on educational reform, with academic exchange programs at every level, as well as institution-to-institution programs targeted at reforming business curricula, American studies, distance learning, economics and law. Professional exchange programs focused on government transparency, responsible journalism, public television, media as a business, non-partisan political analysis, youth leadership, civic education, trafficking in persons, and educational administration, among other topics. The Regional Library Development Program provided 10 central community libraries with computer information centers, training, technical assistance, and books to develop comprehensive community centers. An additional 10 libraries will be added to the program in FY 2005. The USG's Book Translation Program translated volumes on environmental and human rights law, community building, development of civil society, economic principles and marketing, among others, into the Azerbaijani language.

During FY 2004, Peace Corps more than doubled its presence in Azerbaijan, growing to 52 volunteers by the end of the year. These volunteers, who served as English teachers, were stationed throughout Azerbaijan, more than doubling the number of long-term expatriates of any nation working outside of the capital. The Peace Corps program has been met with great enthusiasm: more than 750 schools and universities applied to have volunteers posted at their institutions; i.e., over 14 schools applied for each PCV. The Peace Corps and the U.S. Embassy cooperated to implement innovative projects at minimal costs. For example, the Embassy supported a summer English camp and a highly successful GLOW (Girls Leading Our World) camp in Sheki. A third initiative supported a team-teaching workshop that matched Peace Corps volunteers and Azerbaijani counterparts.

Donor cooperation on democratization, legal reform, social assistance, and trafficking in persons was good in FY 2004, helping to avoid duplication and enhance effectiveness. The USG cooperated with the locally based Mission of the Organization for Security and Cooperation in Europe (OSCE) and bilateral embassies to advance electoral reform, with the European Union on rule of law, with the Council of Europe on municipality assistance, with the OSCE on trafficking in persons, and with the European Union, Council of Europe, OSCE, and the U.K, German and Netherlands Governments to coordinate criminal justice assistance.

In FY 2005, USG programs will continue to strengthen the professional development of media outlets, journalists, advocacy-minded civil society organizations, judges, lawyers, and political parties through specialized training and technical assistance. Political parties will be trained in negotiation, conflict resolution and mitigation skills, and the capacity of local party branches will be strengthened. Prior to the parliamentary elections, the focus will shift to issue orientation, coalition building and better presentation of party platforms during election campaigns and launching a voter education campaign and engaging a variety of stakeholders, with a focus on youth and women. The USG will work to strengthen the management abilities of media outlets to expand their markets and circulation, and to increase the institutional capacity of civil society organizations to better advocate for change. Assistance to the Ministry of Justice and the President's Office to automate the recording, registration, classification and archiving of legal framework documents and codifying legislative enactments of the legal framework documents will be completed. A website containing all legal framework documents will be made accessible to government bodies and anyone with an internet connection. Efforts will continue to enhance understanding of the Civil Code, the Civil Procedure Code, banking and financial laws, trademark practice, international arbitration, the Tax Code, customs regulation, and securities markets and mortgage law.

Economic and Social-Sector Reform

In FY 2004, Azerbaijan experienced continued strong economic growth, with GDP growing by almost ten percent. Macroeconomic indicators remained favorable. While inflation rose to over six percent, the national currency, the manat, remained stable against the dollar (4,900 manat per U.S. dollar). The State Oil Fund serves as a savings fund for Azerbaijan's energy wealth, with assets of over $857 million by the end of FY 2004. The International Monetary Fund (IMF) continued its three-year $100 million Poverty Reduction and Growth Facility (PRGF) loan program to support the government's economic reforms. The IMF completed its third review of the PRGF in December 2003 and approved release of a tranche of approximately $19 million. The fourth review of the program has been delayed until FY 2005.

The energy sector continues to dominate Azerbaijan's economy, with oil and gas exports accounting for approximately 90 percent of Azerbaijan's exports. Azerbaijan expects a substantial surge in oil and gas revenues beginning in 2005, as production from the Azeri-Chirag-Guneshli field ramps up, and as the Baku-Tbilisi-Ceyhan oil pipeline and South Caucasus/Baku-Erzerum gas pipeline come online. Current projections, however, are for those revenues to begin to decline beginning in 2011-12 if no additional substantial oil and gas reserves are discovered. Thus, it is imperative that Azerbaijan diversifies its economy and improves conditions in the non-energy sector.

The Government of Azerbaijan has taken steps to improve the country's business climate and diversify the economy. Nonetheless, Azerbaijan remains a difficult place to do business, and corruption is a serious impediment to full economic development. In 2003, the Government established a National Entrepreneurs' Support Fund to support SMEs, streamlined the business licensing process, and took steps to improve tax administration. An Entrepreneurs' Council consisting of domestic and foreign companies and reporting to the President first convened in July 2003.

USG economic assistance efforts focused on providing technical assistance to improve transparency in government operations and to promote development of the non-oil sector of the economy. USG technical support helped the Government of Azerbaijan maintain sound macroeconomic policies. USG programs worked with the central bank to strengthen its supervisory function and to modernize the legal regime for commercial banking. A U.S. Treasury Department advisor to the Ministry of Finance is helping to implement the budget system law, which will greatly improve transparency in the preparation and presentation of the state budget.

The Treasury Information Management System project is working to automate treasury operations at Azerbaijan's Ministry of Finance, resulting in greatly enhanced transparency and accountability. U.S. Treasury advisors to the Ministry of Taxation helped develop training materials, advised the Ministry on needed changes to the Tax Code, and provided strategic planning training for senior Ministry officials.

In FY 2004, the U.S. Trade and Development Agency (USTDA) continued to fund an advisor to the Azerbaijani Government on accession to the World Trade Organization (WTO), and it launched several new assistance programs involving management of the State Oil Fund (SOFAZ), modernization and restructuring of the State Oil Company (SOCAR), telecommunications-sector regulatory reforms, and tourism-sector development.

USG assistance to the agricultural sector facilitated increased access to credit, improved the use of agricultural inputs, and improved the quality and safety of agricultural products. Successes included a doubling of farm level production and enterprises entering new agricultural markets. For example, yields per hectare of potatoes increased from 10 metric tons to 20 metric tons per hectare last year, poultry sales increased thirty percent, local businesses identified $150,000 in new investments in equipment, and trade shows and fairs helped sell approximately $450,000 in processed foods and services. One client raised the quality of juice production and sold $80,000 of product to a new buyer in Russia. Another client increased poultry production from three tons to 4.5 tons per day as a result of technical assistance focused on sanitary conditions, temperature control and improved packaging.

USG-funded SME credit programs have demonstrated that lending to private entrepreneurs is a profitable business, inspiring local banks and other financial institutions to move into the business of credit. This has further spurred competition in the market and expanded access to credit. Financial institutions that have benefited from USG assistance are now poised to transform into self-sustainable organizations providing credit on a national scale and serving diverse segments of the market. These financial institutions have proven their ability to leverage USG resources with outside investments and sources of capital. One such institution leveraged at least $2.5 million from Overseas Private Investment Corporation (OPIC) to kick-start the development of a mortgage finance market in Baku and Sumgayit. In addition, non-banking institutions serviced 340 urban enterprises and real estate mortgage clients; 2,700 agribusinesses; and 8,800 group lending clients. Eight hundred and fifty new jobs in the SME sector and over 34,000 new jobs supporting cottage industries were created.

The USG works with counterpart institutions in the Government of Azerbaijan and coordinates with other donor institutions (in particular with the World Bank and EBRD) to support the Azerbaijani Government's reform objectives in the energy sector. In FY 2004, this assistance helped develop a draft law to establish a public utilities regulatory agency and to complete a feasibility study to rehabilitate the country's main power plant.

Three U.S.-Azerbaijani medical partnerships were completed in Baku, and a new partnership was opened in Ganja, resulting in training for 481 health care professionals. Through these partnerships, medical services were provided without charge to 59,000 internally displaced persons (IDPs) and refugees (56 percent of the catchment population). One partnership is now fully operational, providing a wide range of preventive and treatment services and addressing health needs of women of all ages. Another partnership is the only center in Azerbaijan that provides family medicine.

USG assistance helped increase clinic utilization rates for men and women, forty-one percent and fifty-nine percent respectively. The ability of communities to organize community-based health care systems improved, as did their relationships with regional Ministry of Health officials. Other programs to help develop Azerbaijan's health sector included support for community health funds, revolving drug funds, and insurance systems. Improved medical facilities and training of health professionals helped to improve the quality of services available in rural clinics.

Donor coordination with the World Bank, IMF and EBRD on economic assistance to Azerbaijan has been excellent. For example, these three donors, together with the USG, worked in concert to persuade the Presidential Administration of the urgent need to amend specific decrees and legislation in order to ensure the supervisory powers of the National Bank.

In FY 2005, the USG program to accelerate the growth and development of SMEs will continue to focus on expanding access to credit, improving business and technical skills, strengthening producer and processor associations, and improving the use of production inputs. These will be accomplished through the creation of a private sector demand driven extension service, expanding technology transfer and appropriate field-level technology application. Technical assistance will also be provided for the development of a grades and standards regime to improve the competitiveness of the Azerbaijani market.

Economic reform programs will focus on strengthening and deepening the banking and financial sector, improving financial management practices, and supporting the development of a cadre of financial-sector professionals through support to specialized training institutions. Regulatory reform in the energy sector will continue to support the establishment of a regulatory agency for public utilities, focusing on the development of the institutional structure and human-capacity needs of the agency. Development of a heating-sector rehabilitation program will continue. The state-owned power and natural gas companies will continue to benefit from targeted assistance aimed at improving their operational efficiencies. Restructuring and management overhaul will be vigorously pursued at state-run energy-sector enterprises with a view to promoting capital investment and eventual privatization. With the imminent influx of oil revenues, donors (particularly the USG, World Bank, and UNDP) have attached high priority to the state budget and are closely collaborating on various aspects of budget preparation and management.

Security, Regional Stability, and Law Enforcement

In FY 2004, Azerbaijan continued to show a strong commitment to nonproliferation and the interdiction of shipments of concern. Export Control and Related Border Security (EXBS) Assistance Program resident advisors in Baku helped implement an integrated land and maritime nonproliferation program. The USG provided the Azerbaijan Border Guard Maritime Brigade (MB) with equipment and training to improve its ability to conduct maritime law enforcement patrols and interdict WMD on the Caspian Sea. This included several long-term deployments by Coast Guard technical experts, the purchase of main engines, communications and Zodiac intercept boats for the MB cutters, and machinery shop equipment and infrastructure development to improve vessel maintenance. In addition, EXBS coordinated the initial efforts of the U.S. Defense Department's Cooperative Threat Reduction (CTR) Program to purchase maritime equipment and supplies using CTR funding. As a result, the MB significantly increased its number of days under way, boardings, and interdictions this fiscal year. EXBS also sponsored numerous training teams through the U.S. Departments of Commerce and Energy and the Defense Threat Reduction Agency (DTRA), and purchased radiation detectors, interdiction toolkits, and other inspection and detection equipment to support the Land Border Guard and Customs Service. Additionally, EXBS purchased telecommunications equipment to improve the ability of the Land Border Guard to communicate between headquarters, regional stations, and border posts.

FY 2004 law enforcement assistance helped strengthen Azerbaijan's ability to deal with terrorist incidents. USG-funded programs sent approximately 78 Azerbaijani law enforcement officials to classes on topics such as interdicting terrorist organizations, rural border patrol (held in New Mexico), the role of the police in combating terrorism (held in Budapest, Hungary) and pipeline security. In addition, 14 Azerbaijani officials were sent to the United States for training through the Defense Department's Counter-Terrorism Fellowship Program, including a fellowship at the National Defense University and a course on the civil-military response to terrorism at the Naval Post Graduate School in California. As a result of these efforts, the U.S. Embassy in Baku enjoys a closer working relationship with individuals in the various Ministries that have attended the courses. Requests for assistance from the U.S. Embassy to the Government of Azerbaijan are immediate and accurately responded to by these trained personnel. Most importantly, U.S.-Azerbaijan cooperation on counter-terrorism increased during the year.

During FY 2004, the U.S. European Command (EUCOM) provided security training to Azerbaijani armed forces under the International Military Education and Training (IMET) and Partnership for Peace (PfP) programs. Familiarization with U.S. doctrine and procedures was also provided through the Joint Contact Team and State Partnership Programs. This familiarization, training and exercises for Azerbaijani officers helped improve interoperability with NATO and U.S. forces, and directly affected Azerbaijani contributions to the Global War on Terrorism and peacekeeping participation in Operation Iraqi Freedom. In FY 2004, the U.S. Embassy's Office of Defense Coordination used Foreign Military Financing (FMF) and peacekeeping grants to purchase tactical radios and night vision equipment, enabling the Azerbaijani Peacekeeping Battalion to equip and augment its efforts in Kosovo, Afghanistan and Iraq.

A U.S. Justice Department resident legal advisor arrived in Baku in early FY 2004, and to assist Azerbaijan in developing a comprehensive anti-terrorism, terrorist financing regime; drafting anti-money laundering legislation that complies with international standards; implementing the new Criminal Procedure Code; implementing a new anti-corruption law; and enhancing institutional integrity and professionalism.

USG assistance is also helping Azerbaijan implement its National Action Plan to combat human trafficking and to develop a strategy to combat trafficking in persons, with a focus on encouraging adoption of legislation in accordance with the Palermo Protocol. This involves creation of a special anti-trafficking police force, increasing government and public awareness of the dangers of trafficking, and supporting viable NGOs that can provide assistance to trafficking victims.

A Justice Department law enforcement advisor arrived in Baku in FY 2004 and is assisting Azerbaijan in modernizing its law enforcement training programs. This includes helping to implement democratic policing principles, training law enforcement officers in the areas of practical and theoretical aspects of police work, and providing direction for the implementation of standardized hiring procedures. Azerbaijan has also received assistance in developing policies and procedures for internal operations of the anti-trafficking in persons investigative unit. Law enforcement training in FY 2005 will be provided in management and practical skills designed to enhance the abilities of the Azeri police.

Counter-terrorism will remain the USG's top security assistance priority in Azerbaijan in FY 2005. It is expected that anti-terrorism, terrorist financing and money laundering legislation will be adopted by Azerbaijan in FY 2005. Aggressive programs to strengthen Azerbaijan's capabilities to combat terrorism and related transnational threats will continue. USG programs are being coordinated to support development of an interagency crisis management capability that will facilitate a comprehensive response to acts of terrorism, threats to pipeline security, natural disasters, and preventing trafficking in persons, WMD, criminal elements, and narcotics. U.S. Defense Department Cooperative Threat Reduction assistance will continue to strengthen Azerbaijan's capability to interdict WMD trafficking on the Caspian Sea. Foreign Military Financing and other assistance programs will focus on this goal as well. Future USG security assistance priorities also include expanded English language training and enhanced airspace management capabilities to continue to improve Azerbaijan's capability to detect and stop the movement of transnational threats through the Caspian region.

In FY 2005, the MB will receive increased assistance with the CTR program coming fully on line, in the form of training, infrastructure development, and the installation of an additional coastal radar north of Baku and a command center at the MB base. EXBS will be delivering nine new main diesel engines for the MB vessels, further enhancing the services operational capability.

In FY 2005, the USG hopes to expand its efforts to promote regional science cooperation. Former WMD scientists will continue compete for funding for cooperative research from the Science and Technology Center of Ukraine, which opened a local office in Baku in 2004. Azerbaijan is also eligible to apply for grants through the Azerbaijan National Science Foundation, the local entity supporting the U.S. Civilian Research & Development Foundation (CRDF). The CRDF encourages regional cooperation on scientific projects in the Caucasus and has supported the commercialization of scientific technologies developed in Azerbaijan.

Humanitarian Assistance

Azerbaijan continues to require significant humanitarian assistance to deal with the effects of the conflict between Armenia and Azerbaijan over Nagorno-Karabakh. USG programs focus on assistance to displaced persons and humanitarian demining. In FY 2004, the USG continued to focus on promoting long-term sustainable economic development through community mobilization programs, using the building of small infrastructure projects (clinics, irrigation and electrification) as the mobilization tool.

The largest U.S. Defense Department (DoD) humanitarian assistance project in Azerbaijan during FY 2004 was a $2.5 million demining program, which included training in humanitarian demining provided by U.S. European Command to the Azerbaijan National Agency for Mine Action (ANAMA). In FY 2005 DoD will help ANAMA develop its operational capacity and will assist it in enhancing its mine-risk awareness and victim assistance programs. Additionally, EUCOM will deliver a RHINO mine-clearing vehicle to Azerbaijan in May.

In FY 2004, DoD Humanitarian Assistance Funding was primarily used to construct schools, including schools for children of internally displaced families. DoD also provided excess property such as latrine/shower units to IDP camps in several locations.

In 2004, nearly $16 million in humanitarian commodities were provided to IDPs, refugees, and other vulnerable populations through USG humanitarian programs. Distributed through private volunteer organizations and local NGOs, they included medicines, medical supplies and equipment, food and clothing, and emergency shelter items.

COUNTRY PERFORMANCE MEASURES

Azerbaijan registered positive economic growth in FY 2004, although its economy remains overly dependent on oil revenues. Corruption and the lack of economic diversification remain serious challenges to reform. Progress on democracy was uneven, with advances in the rule of law overshadowed by the failure of the 2003 presidential election to meet international standards and a wave of politically motivated post-election arrests, detentions, and trials which followed. During 2004, the President issued three decrees pardoning more than 750 prisoners, including many of those identified by the Council of Europe as political prisoners.

Economic & Democratic Reforms, 1991-2004

 Economic and Democratic Reforms, 1991-2004, for Azerbaijan

Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1-to-5 scale with 5 representing the most advanced.
Latest-year observation refers to 2004 economic reform data and 2003 democratic reform data; i.e., 2004 data for democratic reforms are not yet available.

The estimated increase in the private sector's share of GDP indicates some progress in expanding the non-oil sector of the economy, but not in privatization. Poverty continued to be a problem, with overall GDP below the 1989 baseline.

Economic Structure and Human Development, 1990-2004

Economic Structure and Human Development, 1990-2004, for Azerbaijan


World Bank, World Development Indicators 2004 (2004); UNICEF, Social Monitor 2004 (2004); EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004).

SECTORAL PERFORMANCE MEASURES

DEMOCRATIC REFORM

Performance Indicator: Independent Media,Drawing from Freedom House, Nations in Transit 2004 as modified by, "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year)

FY 2002 Baseline

FY 2003 Actual

FY 2004 Target

FY 2004 Actual

2.0

2.0

N/A

1.83


FY 2004 Results: Media freedom worsened in FY 2004 due to the harassment of opposition media during the presidential election and the low level of media professionalism. While opposition print media continued to exist and openly criticize the government, national television news coverage continued under highly partisan government or pro-government control. In September, the president signed a Public Television Law designed to introduce non-partisan national news coverage, after vetoing the first, flawed version in March. This law will likely be implemented in FY2005. Government harassment of opposition media continued during FY 2004, primarily through lawsuits brought against journalists and newspapers for defamation and slander. The print media, particularly the opposition media, continues to be plagued by debts that periodically threaten publication, in part as a result of excessive fines from these lawsuits. The Press Council, formed in 2003, continues to operate without interference and is an effective organization in monitoring journalistic standards and defending media rights.

Performance Indicator: Political Process,Drawing from Freedom House, Nations in Transit 2004 as modified by, "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year)  

FY 2002 Baseline

FY 2003 Actual

FY 2004 Target

FY 2004 Actual

1.83

1.83

N/A

1.67


FY 2004 Results: Opposition political parties and supporters faced increased pressure from authorities in FY 2004. No opposition political rallies were sanctioned in 2004 by the Baku city executive authorities despite numerous requests. One major opposition party was forced to move from its central headquarters to a facility on the outskirts of the city. In the regions, a number of opposition members were fired from public sector jobs because of their political affiliations. Forty opposition leaders were sentenced to imprisonment for terms ranging from 30 months to five years for their alleged roles in the violent rallies that followed the October 2003 presidential elections. However, authorities showed an increasing though tentative willingness to engage in dialogue with citizens, as evidenced by the successful implementation of a series of Town Hall Meetings, where citizens had the opportunity to discuss issues of local interest with representatives of the Central Election Commission, Ministry of Justice, and President's Office.

By-elections in October 2004 to fill three parliamentary seats were marred by serious irregularities, including ballot stuffing, voter-list fraud, and intimidation of voters. As a result, in November election officials from two of the constituencies were dismissed, along with several precinct election officials.

ECONOMIC AND SOCIAL REFORM

Performance Indicator: Private Sector Share of GDP, Drawing from European Bank for Reconstruction and Development, Transition Report 2004 as found in, "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (data based on previous calendar year)

FY 2002 Baseline

FY 2003 Actual

FY 2004 Target

FY 2004 Actual

60%

60%

65%

60%


FY 2004 Results: The Ministry of Economic Development reported slight growth in the private sector share during this period (71.8 percent in 2001, seventy-three percent in 2002, seventy-four percent in 2003, no number yet for 2004.) The MED also says that it expects the number to increase next year as oil production expands, because Azerbaijan International Oil Company is a private concern. To go beyond this, there would have to be privatization of remaining major state assets (SOCAR and related energy companies, civil aviation concerns (some are planned to be spun off), and remaining state-owned factories/plants (many of which are believed to have little economic value)). The estimated increase in private-sector share of GDP reflects, in part, energy-sector-related investment and substantial associated growth in Azerbaijan's service sector. It also indicates some progress in diversifying the economy and expanding the non-oil sector. While the Government did sell its share in one telecommunications enterprise in FY 2004, there was not any large-scale privatization of state enterprises during the year. The Government of Azerbaijan issued several decrees in 2002-2003 aimed at improving the business and investment climate for private entrepreneurs that, if fully implemented, will contribute to increased private share of GDP in the future. Official statistics indicate that, on average, non-state sector companies are growing at a significantly faster rate than state-sector companies.

Performance Indicator: GDP as a percent of 1989 GDP (1989=100) Drawing from European Bank for Reconstruction and Development, Transition Report 2004 as found in, "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (data based on previous calendar year)

FY 2002 Baseline

FY 2003 Actual

FY 2004 Target

FY 2004 Actual

64.2%

71.4

69.5%

78.6%

FY 2004 Results: Azerbaijan's economy continued to show strong growth in FY2004, with GDP growing by nearly ten percent (preliminary estimate) driven by high investment in the oil sector. Other sectors of the economy, such as agriculture and manufacturing, grew at a more modest pace. Nevertheless, overall GDP remains below the 1989 baseline. Like other former Soviet republics, Azerbaijan experienced a sharp decline in economic output following independence. The economic decline was worsened by the war with Armenia over Nagorno-Karabakh. The decline was reversed in 1996 due to investment in the oil sector as well as prudent steps taken to achieve macroeconomic stability. Continued economic growth and stability are key to meeting the government's poverty reduction objectives.

SECURITY, REGIONAL STABILITY, AND LAW ENFORCEMENT

Performance Indicator: Maritime Law Enforcement (Source: U.S Embassy Baku Export Control and Related Border Security (EXBS) assistance program office estimates. Scale of 1-10, 10 = highest.)

FY 2002 Baseline

FY 2003 Target

FY 2003 Actual

FY 2004 Actual

4.5

5.5

6.0

N/A


FY 2004 Results: With the continued additions of EXBS and CTR-funded training and equipment, the Azerbaijan Border Guard Maritime Brigade (MB) has stepped up its vigilance in the Caspian Sea. Cutters S-11, S-12, and S-14, all donated by the USG, have been valuable and reliable additions to the MB fleet and are maintaining an active patrol schedule with numerous boardings of Azerbaijani, Russian, and Turkmen vessels. After five years of steady assistance, all 11 of the MB's vessels are operational, significantly improving its readiness posture.

Performance Indicator: Coalition Security Support and Peacekeeping (Source: U.S. Embassy Office of Defense Cooperation (ODC) estimates. 1-lowest, 10 - highest)

FY 2003 Baseline

FY 2004 Target

FY 2004 Actual

6.0

6.5

6.3


FY 2004 Results: The FY 2003 baseline reflects Azerbaijani Partnership for Peace participation, peacekeeping support to ongoing coalition operations, the availability of Azerbaijani airspace as needed to support coalition operations in Afghanistan, and robust cooperation in the Global War on Terror. In FY 2004, the Azerbaijani Government continued to build on this foundation, but political events late in the year kept significant progress in check. Despite this, Azerbaijan continues to contribute forces to coalition efforts in Kosovo, Afghanistan, and Iraq, continues to provide blanket overflight clearance, and continues previous levels of cooperation in the Global War on Terror. The Defense Attache Office, the Office of Defense Cooperation, and concerned Azerbaijani Ministries are examining new ways to increase progress in this area at a more advanced rate.
 
FY 2004 FUNDS BUDGETED FOR U.S. GOVERNMENT ASSISTANCE TO
AZERBAIJAN

TOTAL USG FUNDS BUDGETED:
$79.54 m
VALUE OF DONATED HUMANITARIAN COMMODITIES $15.78 m

TOTAL FY 2004 USG ASSISTANCE:
$95.32 m
FSA Total:$38.78 m

Agency for Internat'l. Dev. (USAID)
   Democratic Reform $5.90
   Humanitarian Assistance $8.79
   Private Sector Initiatives $10.81
   Special/Cross-Cutting Initiatives $3.48
   x Community Exchanges $0.60
   x Eurasia Foundation $1.85
   x Parking Fine Withholding $0.02

Total USAID: $31.45


Dept. of State
   EUR Democracy Programs (incl. Dem. Comms. & NED) $0.61
   Export Control & Related Border Security Asst. (EXBS) $1.50
   Humanitarian Transport $1.20
   International Information Programs (IIP) $0.04
   Law Enforcement Assistance $2.00

Total State: $5.35


Dept. of Agriculture (USDA)
   Cochran Fellowship Program $0.10

Dept. of Commerce
   Business Info. Service for the NIS (BISNIS) $0.09
   Special American Business Internship Training (SABIT) $0.20

Total Commerce: $0.29


Dept. of the Treasury
   Technical Advisors $1.00

National Science Foundation
   Civilian R&D Foundation (CRDF) $0.60

non-FSA Total:$40.76 m

Agency for Internat'l. Dev. (USAID)
   Food Aid (Title II) $2.88

Dept. of State
   Anti-Terrorism Assistance (ATA) $1.16
   Export Control & Related Border Security Asst. (EXBS) $0.60
   Foreign Military Financing (FMF) $2.49
   Human Rights & Democracy Fund (HRDF) $0.54
   Humanitarian Assistance $0.53
   Humanitarian Demining $2.47
   International Information Programs (IIP) $0.02
   International Military Educ. & Training (IMET) $1.08
   Nonproliferation of WMD Expertise $0.21
   Public Diplomacy Exchanges $3.64

Total State: $12.74


Dept. of Agriculture (USDA)
   PVO / NGO Food Aid $11.56

Dept. of Defense
   Destruction and Dismantlement Programs $10.14
   Humanitarian Demining $0.30
   International Counterproliferation Programs $0.28
   Warsaw Initiative $0.92

Total DoD: $11.64


Dept. of Energy
   Material Protection, Control & Accounting (MPC&A) $0.50
   Nonproliferation & International Security Programs $0.07

Total DoEnergy: $0.57


National Science Foundation
   Civilian R&D Foundation (CRDF) $0.04

Peace Corps
   Volunteers / General Operations $1.33