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South Caucasus: Economic Forum Shares Best Practices

A recent economic conference held in the Georgian capital Tbilisi sought to lay the groundwork for closer regional cooperation among the three South Caucaus states of Armenia, Azerbaijan and Georgia.

Regional economic integration was not formally on the agenda of the June 1-2 conference, titled the International Monetary Fund and the South Caucasus in the 21st Century. Participants officially explored best practices as each state attempts to modernize its respective economy. However, the underlying hope was that sharing experience would provide an impulse for officials to explore integration opportunities down the road, provided that existing political obstacles, including the lack of a settlement to the Nagorno-Karabakh, are eventually removed. [For background see the Eurasia Insight archive].

The regional IMF representatives from all three states – James McHugh in Armenia, Basil Zavoico in Azerbaijan and Robert Christiansen in Georgia – were featured participants, and all faced a diplomatically delicate task of outlining economic problems without appearing to overly criticize government policies and responses. While each Caucasus country features specific development conditions, conference attendees generally agreed that corruption and tax evasion were among the most serious problems prevalent in all three states.

"A large shadow economy should be brought into the formal economy through an efficient tax [system] and improved corporate governance," said McHugh, referring to the situation in Armenia.

Georgian Minister of Finance Aleksi Aleksishvili said Tbilisi had managed to improve its revenue collection capabilities, while stressing that the government has stopped a practice common during the first months following the 2003 Rose Revolution, in which entrepreneurs were arrested, only to be released after making substantial payments to the state treasury.

The conference scrutinized the unique economic situation in Azerbaijan, where oil and gas development is causing revenues to spike. Several participants focused on the potential threat of "Dutch disease," in which a rapid rise of income from the energy sector renders other economic sectors of a given state uncompetitive in the global market.

Given that only about 1 percent of Azerbaijan's population is directly involved in the oil sector, the energy windfall stands to be enjoyed by relatively few Azerbaijanis. [For background see the Eurasia Insight archive] Professor Sabit Bagirov, president of the Azerbaijan Entrepreneurship Foundation, warned that social tension could grow worse in the country. "In several years, we may face a situation that, with huge oil revenues, still a great number of poor people are in the country, and the unresolved Karabakh conflict will make their situation even worse. This may [make] millions of people unhappy," Bagirov said.

Most participants avoided making direct comparisons about the successes and failures of economic development in the Caucasus. Tigran Sargsian, chairman of the Central Bank of Armenia, was perhaps the only participant who sought to place developments in each individual state within a regional context. "Today, the countries of the South Caucasus live similarly badly and differently well," he said. Sargsian highlighted differences among the three Caucasus countries. For example, according to Sargsian, Armenia was recognized as a leader in terms of market reforms, while possessing a bad record on poverty reduction. Georgia, meanwhile, was labelled as more competitive than Armenia. Yet at the same time, Tbilisi must struggle with a deficit of power producing capacity.

Given the underlying political differences, it did not come as a surprise to participants when Sargsian's analysis was characterized by Azer Alasgarov, an Azerbaijani National Bank official, as "politicized."

"I agree with your critical notions, but I would like the Azerbaijani National Bank to have presented its own vision of the situation," was Sargsian's answer. The conference was organized by the Caucasus Research Resource Centers, the IMF and the National Bank of Georgia.

Haroutiun Khachatrian is a Yerevan-based writer specializing in economic and political affairs.

South Caucasus: Economic Forum Shares Best Practices

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