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Report on the Status of the Economic Bertelsmann Transformation Index 2003 Azerbaijan Status Index 4.4 Management Index 3.2 (Democracy: 1.8 / Market economy: 2.6) System of government Autocracy Population 8.1 mill. GDP p. c. ($, PPP) 3,090 Voter turnout controversial Unemployment rate ~20 % Women in Parliament 9 % HDI 0.744 Population growtha ~1 % UN Education Index 0.88 (2000) Largest ethnic minority 4 % (Russians) Gini Index 36.5 Data for 2001 – if not indicated otherwise. a) Annual growth between 1975 and 2001. Source: UN Human Development Report 2003. 1. Introduction The implementation of perestroika in 1985–1986 under Soviet Communist Party Chairman Mikhail Gorbachev and violent conflicts starting in 1988 in the autonomous region of Nagorno-Karabakh, which is predominantly Armenian, ultimately led to the declaration of sovereignty by the former Soviet Republic of Azerbaijan on 30 August 1991. Like the majority of other post-Soviet states, Azerbaijan faces enormous challenges, as it essentially must start from zero in creating a new state and economic structure. One of the major hurdles affecting the development and transformation process, still in its infancy, is the unresolved territorial conflict surrounding Nagorno-Karabakh. With the exception of Abulfaz Elcibey, the leader of the national-democratic Popular Front, who was elected president in relatively free elections and held office for one year, all heads of state since 1991 are rooted in the Communist Party of the Soviet Union. In June 1993 the government of Elcibey was overthrown by a military coup which was headed by colonel Surat Huseynov and backed by certain parts of the Soviet Army still stationed in Azerbaijan. Subsequently, Heydar Aliev, a former member of the Politburo of the USSR was called back to Baku and assumed power. His ruling party, New Azerbaijan, has kept a tight rein on the country ever since. This evaluation concludes that over the past five years progress in meeting the objectives is evident in only a few limited areas, whereas stagnation predominates and some areas are even experiencing regression. Deficiencies exist particularly in Bertelsmann Transformation Index 2003 2 democratization, the rule of law, reforming the economic system and transformation management. Territories under Armenian rule – 17 % of the geographical area – have been excluded from the following report. 2. History and characteristics of transformation Economic and political transformation in Azerbaijan has been slow to gain momentum. The democratic transition process was precipitated by changes in the political arena associated with the break-up of the Soviet Union. In July 1989, the Popular Front emerged as an informal political movement similar to others in several Soviet republics. It demanded national sovereignty, democracy and that Nagorno- Karabakh remain under the jurisdiction of Azerbaijan. The internal conflict surrounding Nagorno-Karabakh, however, a region predominantly inhabited by Armenians, has had far-reaching negative effects on the political and economic development of the young state of Azerbaijan. To date, the conflict has produced more than 18,000 casualties and more than a million refugees on both sides. Despite the efforts of international mediation, there appears to be no solution to this conflict. Proposals have included closure of the border with Armenia and hence a possible shutdown of direct trade links with Turkey. With the violent overthrow of Abulfaz Elcibey, President of Azerbaijan and leader of the Popular Front, Heydar Aliyev, the former chairman of the local Communist Party and KGB assumed power and has ruled the country since 1993. The recruiting of Aliyev’s power base primarily from former party officials and regional power clans from the enclave of Nakhichevan and Azerbaijanis of Armenian heritage imposes structural limits on the democratization process. The presidential elections of 1993 and 1998, and the parliamentary elections of 1995 and 2000, evaluated as thoroughly undemocratic by Western observers, only reinforced existing conditions. Sustained political apathy among the population, coupled with government oppression, has left the opposition largely marginalized. Yet it has been quite successful in maintaining a degree of flexibility for its modus operandi and the safeguarding of its reputation. External actors such as the OSCE, the Council of Europe and Western embassies have also played a positive role. Amendments to the constitution which the population approved by a referendum of dubious legitimacy in 2002 only reinforced the presidential nature of the constitution and with it the legal opportunities for continued authoritarian rule. The opposition, which essentially agrees with the government on key issues of foreign policy, such as Azerbaijan’s orientation to the West and Turkey, its critical position toward Iran and Russia and unwillingness to compromise in the Nagorno-Karabakh conflict, simply is incapable of turning widespread social discontent to its advantage. Increasingly, there Bertelsmann Transformation Index 2003 3 are protests outside the legal spectrum of political parties, including action by war veterans associations, and social unrest expressed with religious slogans. Ayaz Mutallibov, the first post-independence head of state (1990–1992), was instrumental in initiating the transition to a market economy. He was, nonetheless, unable to develop any lasting dynamism in the early years of independence, owing to turbulent internal political strife until 1994 and the military conflict in Nagorno- Karabakh, where a ceasefire took hold in May 1994. The transfer of former Soviet- owned industries to republican ownership on 29 January 1992, particularly in the petroleum and petrochemical sectors, was crucial for the economic development of the country. One of the great medium- to long-term challenges for the country is the lack of economic development beyond the petroleum and natural gas industry, the only sector to secure significant foreign investment. Nevertheless, the manat, the currency introduced on 1 January 1993, has stabilized and the national debt has been reduced. This can be attributed almost exclusively to exports of petroleum and, increasingly, natural gas, the continuous rise in crude oil prices on international markets, and finally an altogether restrictive spending policy. The post-Soviet deterioration of the country’s industrial base, however, has yet to be reversed. The majority of small enterprises and a number of medium-sized enterprises have been privatized, while the vast majority of large-scale enterprises have yet to undergo this process. Production figures in the largely privatized agricultural sector have risen significantly. Low productivity, however, necessitates continued food imports, and the food processing industry also operates at a loss. With the dissolution of the Soviet Union, the standard of living of the population at large declined alarmingly; at the same time, social spending was cut. Like other post- Soviet societies, Azerbaijan has witnessed the creation of a class of newly rich, usually with strong ties to the ruling regime. Leaving aside the damaging spillover effects of the Russian economic crisis of 1998–99, the implementation of the president’s rigorous economic plan reversed the general trend towards deterioration, which began in the mid-1990s. Corruption, widespread for years, remains a significant hurdle to economic development. Transparency International ranked Azerbaijan as the fourth most corrupt country in the world in its 1999–2000 report. Loans and grants provided by international financial and donor organizations have had great significance for consolidation. Several areas of the law continue to require substantial reform, such as legislation regarding elections and political parties, the judicial system and property rights. Azerbaijan joined the Council of Europe on 25 January 2001 amid persistent criticism Bertelsmann Transformation Index 2003 4 of its human rights record. Compared with the majority of other central Asian successor states of the former Soviet Union, the degree of political freedom in Azerbaijan is remarkable. Still, the authoritarian presidential system and manifold repression of the opposition prevent Azerbaijan from becoming a truly democratic nation. No fundamental changes are anticipated as a result of the planned presidential elections in the fall of 2003, as the incumbent president is expected to run successfully for office again. In case Aliyev will not be able to run for presidency again, there might emerge a realistic chance for the candidate of the opposition, but only if the diverse parties agree on a single contestor to the ruling elite’s future candidate. 3. Examination of criteria for democracy and a market economy 3.1 Democracy In spite of the negative factors mentioned above, Azerbaijan has made significant progress in transforming its political regime since independence. The judicial system, the development, or rather the reform, of government bodies, as well as judicial and political practices, exhibit significant deficiencies, which have intensified rather than diminished. A number of indicators suggest a regressive development affecting democratic stability. This development, however, does not currently pose any serious threat to the system. The political system can best be characterized as authoritarian with individual democratic elements. 3.1.1 Political organization (1) Stateness: Azerbaijan is experiencing significant problems with state identity.
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