Azerbaijan/Economy

Azerbaijan is an economy in transition in which the state continues to play a dominant role. It has important oil reserves and a significant agronomic potential based on a wide variety of climatic zones. Since 1995, in cooperation with the IMF, Azerbaijan has pursued a highly successful economic stabilization program, which has brought inflation down from 1,800% in 1994 to 1.8% in 2000. GDP in 2000 grew by more than 11%, the fifth consecutive increase. The national currency, the manat, was stable in 2000, depreciating 3.8% against the dollar. The budget deficit equaled a modest 1.3% of GDP in 2000.

Progress on economic reform has generally lagged behind macroeconomic stabilization. The government has undertaken regulatory reforms in some areas, including substantial opening of trade policy, but inefficient public administration in which commercial and regulatory interests are co-mingled limit the impact of these reforms. The government has largely completed privatization of agricultural lands and small and medium-sized enterprises. In August 2000, the government launched a second-stage privatization program, in which many large state enterprises will be privatized.

For more than a century the backbone of the Azerbaijani economy has been petroleum. Now that Western oil companies are able to tap deepwater oilfields untouched by the Soviets because of poor technology, Azerbaijan is considered one of the most important spots in the world for oil exploration and development. Proven oil reserves in the Caspian Basin, which Azerbaijan shares with Russia, Kazakhstan, and Turkmenistan, are comparable in size to the North Sea, although exploration is still in the early stages.

Azerbaijan has concluded 21 production-sharing agreements with various oil companies. Substantial progress also has occurred on plans for an export pipeline that would transport Caspian oil to the Mediterranean from Baku through Tbilisi, Georgia to Ceyhan, Turkey. Eastern Caspian producers in Kazakhstan also have expressed interest in accessing this pipeline to transport a portion of their production. In March 2001, Azerbaijan concluded a gas agreement with Turkey, providing a significant future export market for Azerbaijan.