As the United States and Azerbaijan marked the 10th anniversary of diplomatic relations between the two countries last month, American ambassador to Baku Ross Wilson reviewed the country's economic development in an interview with EurasiaNet. In particular, the US envoy looked forward to new opportunities opening up for bilateral relations after the recent lifting of restrictions on US government aid to Azerbaijan. The text of the interview follows.

EurasiaNet: What do you see as the economic perspective for the people who are refugees and Internally Displaced Persons (IDPs) from the Nagorno-Karabakh conflict with Armenia?
Wilson: The plight of those who were removed by the war and by circumstances from their homes is one of the driving reasons behind our work, to try to achieve a settlement. And we hope we succeed this year. If there is a peace agreement this year or next year - there will be a peace agreement at some point - it should facilitate the return of refugees and IDPs to their homes.

And then the international community, together with the Azeri government, will have a huge job to help those people accomplish that and to deal with some very serious infrastructure and other development issues.

In the absence of an arrangement that allows people to return to their homes, the international community has responded two ways. First, and especially in the early days, by providing shelter and food to people who needed it. To some extent the international community still does some of that, although the amount of money for that has decreased relative to the second task, which is to give the refugees and IDPs the tools to solve their own problems and to improve their own lives.

We have been moving our aid programs in the direction of that second priority over several years, and some international organizations have been doing the same.

EurasiaNet: Which specific measures would you encourage Azerbaijan to implement to improve the business climate for local entrepreneurs and foreign investors?
Wilson: There are quite a few things, but they boil down for me to about four categories. First, the problem of licensing and registration: it's too difficult for companies here to get registered. There are too many government entities that issue too many different kinds of licenses, and to get a license you have to go to too many places to get them. That's an impediment to business.

Second is the implementation of the tax system here. The new tax code that went into effect in January 2001 was a significant improvement over the tax code that came before. Unfortunately, it is not always well understood by the tax inspectors. My guess is it's also not well understood by many Azerbaijani companies. That leads to a circumstance in which there's either the appearance or there's a reality that they are draining money out of the country's most successful companies.

Third is customs. Customs rules are not always applied fairly. They are certainly not always seen as being applied fairly and equitably toward all parties.

Fourth relates directly to the first three: the proper rule of law. If you have a problem in any of these areas, and companies have problems in those areas and others in the West, there's nowhere to go really effectively to get your problems addressed, because the court system is weak and there's a reality or a perception of unfairness. The result is decisions made in customs, in treasury, by regulators that are either arbitrary or seen to be arbitrary cannot be effectively challenged. And if the business gets a judgement that is favorable, the mechanisms for getting that judgement satisfied are rather limited.

Likewise, if there's a dispute between two companies, the dispute resolution mechanism is a weak one, and if a company is successful, you may not really have accomplished anything in terms of addressing the problems that arose in the first place.

EurasiaNet: What can be done to stop or reform the practice of requesting or demanding advance payment of taxes?
Wilson: One thing that we asked President [Heidar] Aliyev when the American Chamber of Commerce and I met with him last July was to ask his government to develop a strategy for the non-oil and gas sector.

He has a very successful strategy in the energy sector that has helped to resolve problems and facilitated the development of Azerbaijan's oil and gas resources. We suggested to the President that he think about a similar strategy in the non-energy sector.

Second, we suggested to him that he empower one of his senior people to be in charge of that strategy in order to make business development and investment the priority throughout the government, as opposed to fulfilling often outdated licensing requirements, meeting certain arcane and often unavailable registration requirements and some of the tax and customs problems created by the tax authorities.

On the specific issue of advance payments, we have raised that issue with the government and strongly encouraged the government to get away from this, on the grounds that it's very bad economic policy from many, many points of view.

They took our point, they acknowledged the problem and undertook to try to work on it. I've heard some reports that things have gotten better since we raised this, although I've heard other reports including as recently as today that the practice of requesting tax payments in advance [is continuing]. We would like to see it stopped.

There is not here developed a market in government securities, a debt market, that most countries use for short-term borrowing, in order to meet cash-flow needs. In the context of possible assistance to the government, we talked about possibly the debt market as an area where we can help them.

EurasiaNet: How should the government of Azerbaijan best take steps to reduce corruption and improve transparency in public sector finances?
Wilson: It's a big problem. The challenge when one talks about corruption is to dis-aggregate it into elements that policymakers can try to deal with, as opposed to, 'Corruption is a big problem. We have to reduce it,' which I think is an extremely difficult task to try to accomplish in itself.

One way is to promote transparency in public accounts. The steps that Azerbaijan is taking in conjunction with the World Bank in particular to introduce more transparency with respect to improving the process of formulating and implementing the state budget, and recording government expenditures back to a treasury house within the Ministry of Finance is extremely important.

Addressing the rule of law issues that I referred to is a second step. We have had some programs that have been limited by Section 907 to help the judicial system function more effectively and we'll increase those programs somewhat and expand the focus more to include the government. We would like to see the government implement the law on advocacy that was passed a couple of years ago. By introducing a stronger, more adversarial legal system starts to provide more of the checks and balances that are necessary to get some of these problems of transparency and appropriate behavior.

EurasiaNet: Overall, how would you assess the economic progress Azerbaijan is currently making?
Wilson: Azerbaijan has made a lot of progress and continues its integration with the outside world economically and politically, yet of course there is an enormous amount still to do. Azerbaijan now has an enormous opportunity, particularly with the US, to capitalize on the new openings in our relationship as a result of the lifting of Section 907 and the strong cooperation we have since September 11, to get some concrete help to get through some of the issues that we were speaking about earlier, in particular the economic reform challenges that this country faces.

Over the last year and a half Azerbaijan has made huge headway with the IMF and the World Bank. They have done what they have been asked to do, they've made a lot of commitments for the next couple of years and the West's task is to try to help them meet those commitments. Those reforms can have the effect of alleviating poverty, of increasing investment here, create jobs and a stronger, long-term basis for this country.