Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
AZERBAIJAN
FY 1998 Assistance to the NIS Request . . . . . . . . . . . . . . . . . $31,500,000 Introduction
Azerbaijan is the largest country in the Caucasus with a population of over 7 million and is strategically situated at the crossroads of Asia and Europe. In the aftermath of the dissolution of the Soviet Union, Azerbaijan experienced a precipitous economic decline that was exacerbated by Azerbaijan's territorial conflict with Armenia over the largely ethnic Armenian enclave of Nagorno-Karabakh. The conflict resulted in nearly one million refugees and internally displaced persons (IDPs). However, Azerbaijan is well endowed with fertile agricultural land and natural resources, especially oil, giving it the potential to become a prosperous nation capable of meeting its own economic and social development needs. Azerbajian's oil and natural gas resources make it attractive to U.S. investors. While the bulk of U.S. assistance has been in the form of humanitarian aid aimed at relieving the suffering of the population's most vulnerable segments, largely, but not exclusively, war-spawned refugees and IDPs, the promising prospects for expanded trade and investment constitutes another, more durable avenue for U.S. private sector support of Azerbaijan's peaceful transition to sustainable free-market democracy.The Development Challenge
Since gaining independence in 1991, Azerbaijan has confronted a panoply of economic setbacks, ranging from a huge drop in GDP, ruptured trade links with the former Soviet republics, shortage of foreign currency, rapidly deteriorating infrastructure, and serious budget constraints. The system of social benefits and services is in tatters while the health care and education systems have experienced comparable declines. Military conflict over Nagorno-Karabakh together with internal political turbulence have compounded the country's economic and social difficulties. At the same time, an authoritarian, highly centralized regime plagued by corruption has blunted democratic political reform, and progress on privatization and economic restructuring has been exceedingly slow.However, there have been a number of encouraging developments that could breathe life into the reform process. First, a cease fire in the Nagorno-Karabakh conflict has held since May 1994 and negotiations continue on a permanent settlement. Second, an agreement was reached with an international consortium to develop offshore oil in the Caspian Sea. This accord is expected to lead to multi-billion dollar foreign investment. With the political-military situation more calm, the Government of Azerbaijan (GOA) has taken some steps to bring much needed macro-economic stability and to commence the transition to a market-oriented system. The inflation rate has fallen dramatically. The country has a low level of indebtedness. With the exception of energy, all prices have been liberalized and privatization now appears to be squarely on the government's agenda. Azerbaijan has concluded an agreement with the IMF on a Systemic Transformation Facility (STF) which aims to unify the exchange rate, make fiscal adjustments to cut the budget deficit by 50%, and to formulate a monetary program compatible with these fiscal objectives.
These positive measures notwithstanding, the absence of a comprehensive settlement to the conflict over Nagorno-Karabakh represents an enormous obstacle to economic and political development. The conflict has also shaped the U.S. assistance program in that Section 907 of the FREEDOM Support Act (FSA) bars any U.S. aid to the Azerbaijani Government until it takes steps to cease the offensive use of force and lift its total embargo against Armenia. Any and all U.S. assistance must go to private, non-governmental organizations and individuals.
From the outset, the vast proportion of U.S. assistance to Azerbaijan has been for emergency humanitarian programs for refugees and IDPs. These programs have been administered largely byprivate voluntary organizations (PVOs) and International Organizations (e.g. United Nations) and involve distribution of food, clothing and medicines, provision of basic medical services, and construction of shelters as well as water supply and sanitation systems, including in remote refugee/IDP camps. In FY 1996, USAID provided over $11 million in assistance to Azerbaijan. Humanitarian assistance accounted for 97% of this total, and was apportioned as follows: U.S. PVO Save the Children, 69%; U.S PVO vulnerable group feeding programs, 18%; United Nations and other international agencies, 10%; and U.S.-based training and exchange programs, 3%.
Emergency relief programs have reduced the level of human suffering but they cannot substitute for longer-term development assistance efforts. This is the case even with the introduction of bridging activities such as income generation projects which attempt to provide vulnerable populations with the means to ease their dependence on foreign aid. Moreover, Section 907 restrictions also work to retard Azerbaijan's ability to cope with humanitarian crises and to undertake reforms essential for sustained economic growth and provision of social welfare by prohibiting programs designed to bolster the institutional capacity of the government. In the event of a peaceful resolution of the Nagorno-Karabakh conflict and expected subsequent repeal of Section 907, U.S. assistance would likely shift from provision of food and medicine to more developmentally-oriented assistance. Technical assistance could be provided to help Azerbaijan initiate economic restructuring and pursue policies to stimulate private sector growth, for example, through the Trans-Caucasus Enterprise Fund and PVO programs specializing in small-medium enterprise and agribusiness development.
USAID expects that with the development of its ample oil reserves Azerbaijan will have the resources necessary to consolidate the transition to a free-market system -- given the requisite political will.
Other Donors.
Major donors and lending institutions include the International Monetary Fund, the International Bank for Reconstruction and Development (IBRD/World Bank) and the European Union. In August 1995, the World Bank approved a $65 million Rehabilitation credit to support critical reforms in enterprise and economic restructuring. Two earlier World Bank credits were approved to finance technical assistance in the petroleum sector, and to design and implement privatization reforms. The World Bank has also provided a loan for rehabilitation of Baku's main power plant and water supply system. Under an IMF Systematic Transformation Facility, the GOA has committed itself to a comprehensive program of economic stabilization and structural reform.
The UN High Commissioner for Refugees (UNHCR) plays a major role in coordinating humanitarian response systems with the EU and several bilateral donors. Direct humanitarian assistance in large quantities and dollar amounts is provided by several UN agencies (UNDP, UNICEF, World Food Program, World Health Organization) and by numerous international organizations, such as the International Federation of the Red Cross (IFRC) and International Rescue Committee (IRC).
FY 1998 Program
USAID's program in Azerbaijan has two major objectives: (1) alleviate human suffering in a post-emergency situation while helping to reduce dependence on humanitarian assistance, in part by strengthening the capacity of indigenous PVOs/NGOs to play a role in the country's development process; and (2) support transparent and accountable democratic governance through the participation of informed citizens in the country's economic and political life. In addition, USAID is exploring Section 907-compliant ways to assist the nascent private sector by focusing on small-medium enterprise and agribusiness development, training and related areas. If peace does become a reality, USAID can be expected to rapidly reorient its effort away from humanitarian programs in the direction of full-fledged development assistance. Assistance activities would also be made available under the Partnership for Freedom in support of trade and investment in the private sector and non-governmental exchanges and training.Strategic Goal: Democratic Transition
The goal of this assistance is to encourage and support Azerbaijan's plodding transition away from authoritarian rule toward democratic governance. Though funding in 1996 was minimal, USAID and its NGO partners have made headway in strengthening the NGO sector, political parties, independent media and independent trade union movement, all of which are in the formative stages.
In FY 1998 USAID will continue to work with indigenous NGOs and the other aforementioned non-state actors. However, these programs will be better targeted in order to produce tangible results. Activities will include bolstering the institutional and organizational capacity of NGOs, upgrading the professional skills of managers and staff of NGOs and print and broadcast media, and strengthening public outreach and voter education programs. Work will also continue with non-government affiliated political parties in areas such as constituency building and communications strategy. U.S.-based and third-country training programs in the areas of journalism, commercial law, and NGO management will continue to contribute to the realization of USAID strategic objectives and to the evolution of Azerbaijan's institutions and practices.
Strategic Objective: Increased, better-informed citizen participation in political and economic decision-making Strategic Goal: Social Stabilization
Assistance in this sphere has the explicit goal of easing the plight of the most vulnerable segments of the population, which since the start of U.S. Government humanitarian programs has been defined almost exclusively in terms of refugees and IDPs. Recently, USAID has begun to support, modest income generation projects as bridging activities, designed to reduce these populations' dependence on humanitarian assistance and to lay the groundwork for a full-bodied development program. In the event of a regional peace accord and repeal of Section 907, the United States will be able to dedicate increased assistance resources to refugee repatriation and resettlement, and to bolster the institutional capacity of the government to accelerate the reform process.
Since 1993, USAID has provided humanitarian assistance under an umbrella grant managed by a U.S. private voluntary organization (PVO). In FY 1996 alone, more than 300,000 refugees and IDPs have been helped with supplemental food rations, improved shelter and sanitation, medicine and basic health care, and non-food essential commodities. USAID also contributed to multilateral agency and international organizations' regional Caucasus appeals. Examples of activities follow.
*
The International Rescue Committee and CARE worked with IDPs in constructing cost-effective mud-brick shelters and sanitation facilities for more than 10,000 beneficiaries in several regions of the country.
*Relief International mobile health units attended to the basic needs of more than 25,000 people per month and distributed other humanitarian assistance to 200,000 people in ten provinces.
*World Vision provided food to 115,000 refugees/IDPS, built sanitation facilities serving 27,000 people, and distributed winter clothing to another 10,000.
*The American Red Cross distributed food and shelter materials to 40,00 vulnerable people and continued to work with the International Committee for the Red Cross on a border relief program.
*USAID also contributed $1.5 million to the UN World Food Program's Azerbaijan operation.The need for humanitarian assistance will continue to be great even though the relief efforts of the international community have prevented a humanitarian disaster and brought a measure of stability. In FY 1998, U.S. humanitarian assistance programs will continue to concentrate on the three areas of medicines, food and shelter, while also augmenting recently-initiated income generation programs.
Medicines. Within the IDP population, illnesses associated with poor sanitation and hygiene are on the rise. USAID assistance will focus on provision of additional medicines and medical supplies, improved targeting of the needy population, and closer monitoring of the usage of medicines.
Food. The UN estimates that almost 450,000 people in Azerbaijan are in need of regular food aid. The population includes the most needy refugees and IDPs, disabled and handicapped people in various types of institutions, and pensioners living alone, many of whom do not have an adequate income to maintain a subsistence diet. As in the past, USAID in FY 1998 will emphasize better coordination among the relief organizations and improved targeting of food assistance, and will continue and possibly expand ongoing kitchen garden/seed distribution programs.
Shelter. Only 10% of the refugee and IDP population is living in organized camps. The rest are housed in public buildings, government-provided shelters or with relatives and host families. The magnitude of this displacement is such that social improvements and economic recovery will depend largely on solutions found through upgrading existing facilities or the safe return and repatriation of IDPs to their home regions. FY 1998 assistance will seek to raise both the quality and quantity of shelter for IDPs and refugees, including small and medium-sized structures inside and outside the areas of repatriation.
Strategic Objective: Reduced human suffering and crisis impact
Strategic Goal: Economic Restructuring
USAID in consultation with U.S. Embassy/Baku is designing a modest program to support fledgling private enterprise in the agricultural sector. Aside from oil and associated services, agriculture is widely viewed as having excellent potential to become a mainstay of the Azerbaijan economy. At present, the sector consists of a small number of private farms and agriculture-related retail businesses. In addition to envisioned activities in the areas of technical assistance and training for agri-retailing and agri-wholesaling, USAID will seek to foster trade and investment by U.S. agri-business. USAID will also facilitate credit and debt equity loans for small and medium private enterprises in the agriculture sector and short-term resident volunteers and technical advisors.
Strategic Objective: Accelerated Development and Growth of Private Enterprises Cross Cutting and Special Initiatives
Resources for Cross-Cutting and Special Initiatives are devoted to a variety of training programs which contribute simultaneously to more than one strategic objective. USAID, in consultation with U.S. Embassy/Baku will continue to design 3-4 week technical training programs for citizens of Azerbaijan not affiliated with the government, as detailed in Section 907 of the FSA. The training tend to be U.S.-based or conducted in-country by U.S. advisors, although USAID is also promoting third country training to take advantage of relevant expertise in the ENI region and elsewhere. Other training programs, managed directly by USAID, contribute to strategic objectives across the entire portfolio. Areas of emphasis include: human rights advocacy, women's rights, NGO management, legal education curriculum design, journalism, community development with a focus on public housing management and primary health care, small business development, marketing, and post-harvest food storage.
AZERBAIJAN
FY 1998 PROGRAM SUMMARY*
Strategic Objectives
Economic Restructuring Democratic Transition
Social Stabilization Cross-cutting / Special Initiatives Total Privatization -- -- -- -- -- Fiscal Reform -- -- -- -- -- Private Enterprise 6,000,000 -- -- -- 6,000,000 Financial Reform -- -- -- -- -- Energy -- -- -- -- -- Citizens' Participation -- 2,000,000 -- -- 2,000,000 Legal Systems -- -- -- -- -- Local Government -- -- -- -- -- Crises -- -- 17,000,000 -- 17,000,000 Social Benefits -- -- -- -- -- Environmental Health -- -- -- -- -- Cross-cutting / Special Initiatives -- -- -- 6,500,000 6,500,000 TOTAL 6,000,000 2,000,000 17,000,000 6,500,000 31,500,000 *FREEDOM Support Act (FSA) funds
USAID Representative: Geraldine Donnelly
ACTIVITY DATA SHEET
PROGRAM: AZERBAIJAN
TITLE: Private Enterprise, 110-S001.3
STATUS: New
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $6,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1997; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Accelerate Growth and Development of Private Enterprises
Background: Azerbaijan has tremendous potential in the area of small-medium enterprise development, especially in agribusiness, food processing and agri-services. Development of this sector is essential for a strong and diversified national economy yet it has lagged due to shortages of key inputs, lack of investment in agriculture-related infrastructure, and the exceedingly slow pace of land privatization. Still, in some regions individual private farmers and farmer associations are beginning to have an economic impact, creating opportunities for carefully targeted assistance activities. Private entrepreneurs have not received technical assistance or credit to make their enterprises profitable.
USAID Role and Achievements to Date: This would be a new activity area to complement USAID efforts to speed the transition from emergency humanitarian assistance to a bonafide economic development programs. With Section 907 prohibiting aid to the GOA, USAID support for the embryonic private agricultural sector, if successful, could stimulate broader policy reform at the national level.
Description: The envisioned activities are designed to strengthen and expand the nascent private sector with an emphasis on agriculture, by providing technical assistance and training, short-term resident volunteers and technical experts to advise small and medium-sized retail and wholesale businesses. Credit and debt equity loans will be provided through the small enterprise lending program and a private investment fund partially guaranteed by OPIC. The goal would be to help boost trade and investment by U.S. agri-business and related industries.
Host Country and Other Donors: The World Bank has identified agriculture as a priority sector and is supporting programs in farm restructuring/privatization, infrastructure rehabilitation (e.g irrigation systems) and credit. The European Union is concentrating on banking and marketing in the grains and bread industry while a few bilateral donors fund some agriculture-based income generation projects for IDPs and refugees.
Beneficiaries: Those intended to benefit from the program are primarily farmers and owners of small agriculture-related businesses which have experienced some degree of land privatization, and other private businesses located in regions To the extent some of the activities can be linked with ongoing income generation projects for IDPs, segments of that population will also benefit.
Principal Contractors, Grantees, or Agencies: To be determined, pending approval of the proposed country assistance strategy.
Major Results Indicators:*
Per-hectare yield of privatized farms
Number of private farmer cooperatives/associations
Total value of private-farm output
Dollar level of U.S./Western investment in Azerbaijan's private enterprises
Growth (i.e. number of firms; total output) of the food processing sector
Increased profitability of small and medium enterprises
*These are illustrative indicators. USAID will finalize the Country Strategy and develop measurable results indicators and targets by Spring 1997.
ACTIVITY DATA SHEET
PROGRAM: AZERBAIJAN
TITLE: Citizens' Participation, 110-S002.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $2,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY2000
Purpose: Increased, better-informed citizen's participation in political and economic decision-making.
Background: Azerbaijan's early post-independence progress toward democratic governance was slowed by domestic political instability and the consolidation of power by the authoritarian regime headed by President Aliyev, a former communist party boss. The conflict in Nagorno-Karabakh further impeded the development of democratic and legal reforms at the national, regional and local levels. Limited press freedom, a nominally independent judiciary and legislature, and a still-weak civil society do not provide an effective counter-weight to executive power.
USAID Role and Achievements to Date: USAID-sponsored programs have been instrumental in promoting the continuing, albeit slow, evolution of democratic institutions and participatory practices. USAID provided $400,000 for election related activities for the November 1995 presidential and parliamentary elections. Other more recent activities support an emerging NGO sector and independent media. U.S.-based training has also been an important element in USAID's democracy promotion effort. Leaders of 12 independent parties, selected by the US Embassy/Baku, received training in political party strengthening, and 36 Azerbaijanis received USAID-sponsored training in electronic media, journalism, and commercial law. A joint program sponsored by USAID and USIA for journalists from the three Caucasus countries provided an opportunity to promote cooperation within the region.
Description: Within the parameters of Section 907, USAID assistance is channeled to NGOs such as the National Democratic Institute (NDI) and the International Foundation for Election Support (IFES), for training in electoral reform, political party strengthening and civic education. Independent and financially sustainable media are being promoted through USAID grants to Internews and NDI. USAID-sponsored activities by the Free Trade Union Institute (FTUI) involve labor and trade union development, conflict resolution, negotiation and collective bargaining issues.
Host Country and Other Donors: Ongoing efforts in the democracy sector are coordinated with the U.N., OSCE and the EU. Technical and financial resources are also provided by USIA for training and exchange programs in journalism and mass media.
Beneficiaries: Attempts are made to reach citizens representing a wide spectrum of skills and occupations who are actively engaged in developing and promoting democratic initiatives, such as political parties and NGOs, particularly human rights and women's advocacy groups.
Principal Contractors, Grantees, or Agencies: USAID sponsored activities are implemented by NGOs such as Internews, FTUI, IFES and NDI.
Major Results Indicators:*
Percent of citizens who believe they are being adequately represented by their legislators
Existence of laws protecting freedom of association, assembly and speech
Percent of news coverage expressing opposing (non-governmental) views
Rating of elections as free and fair by local and international monitors
*These are illustrative indicators. USAID will finalize the Country Strategy and develop measurable results indicators and targets by Spring 1997.
ACTIVITY DATA SHEET
PROGRAM: AZERBAIJAN
TITLE: Human Crises, 110-S003.1
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $17,000,000 FREEDOM Support Act
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2000
Purpose: Reduced human suffering and crisis impact.
Background: Azerbaijan must still contend with more than 700,000 refugees and IDPs spawned by the Nagorno-Karabakh conflict. Many of these refugees live in abysmal conditions by the sides of roads, in decrepit public buildings and in rail cars. The more fortunate live in camps where they receive some but still inadequate assistance. Most of these displaced people are spending their fourth winter in such conditions and continue to require food, shelter and sanitation, clothing and health care. Although considerable financial and administrative resources are being devoted to this situation, it is likely that Azerbaijan will continue to require significant levels of humanitarian assistance from foreign donors for the foreseeable future.
USAID Role and Achievements to Date: Through USAID-funded programs and contributions to UN agencies, USAID has provided humanitarian assistance to the people of Azerbaijan since 1992. USAID grants to PVOs have provided food, clothing, shelter and sanitation, medical assistance, and commodities, and most important of all, hope, to more than 650,000 refugees and IDPs. USAID donations to the UN's World Food Program have helped IDPs throughout the country receive food parcels, and contributions to UNICEF have resulted in the immunization of the entire population against diphtheria. Recently, USAID-supported income generation projects have begun to help a number of these economically vulnerable people to become more self-sufficient.
Description: USAID-funded programs for refugees and IDPs in Azerbaijan have focused on distribution of food, clothing and other commodities, construction/rehabilitation of shelters and sanitation facilities, and provision of basic medical care. In FY 1998 USAID will continue efforts in these areas as well as look to expand existing income generation projects and consider launching some community development activities designed to help reduce the population's dependence on humanitarian assistance. If there is a peace agreement in the Nagorno-Karabakh conflict and Section 907 of the FSA is repealed, USAID would most likely shift resources toward bolstering the institutional capacity of the Azerbaijan government to deal effectively with humanitarian crises and toward refugee/IDP repatriation/settlement and infrastructure rehabilitation.
Host Country and Other Donors: For the past two years, the European Union (EU) and USAID have successfully coordinated shipment and delivery of humanitarian assistance to the Caucasus. In addition the U.S. and the EU, Japan and other bilateral donors have provided millions of dollars worth of fuel, food, medical and other humanitarian supplies. UNHCR plays a major role in coordinating humanitarian assistance provided by the EU and other bilateral donors.
Beneficiaries: Priority targets for humanitarian assistance continue to be the approximately 700,000 refugees and IDPs residing throughout the country.
Principal Contractors, Grantees, or Agencies: The main U.S. PVOs operating in Azerbaijan are SAVE the Children, CARE, ADRA, World Vision, International Rescue Committee, Relief International, and the American Red Cross.
Major Results Indicators:*
Duplication among donors eliminated
Number of people accessing basic services (e.g., food, shelter and sanitation, clean water, health care)
% of shelters restored and/or reconstructed
*These are illustrative indicators. USAID will finalize the Country Strategy and develop measurable results indicators and targets by Spring 1997.
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