S. CAUCASUS ECONOMIC FORUM SHARES BEST PRACTICES
By Haroutiun Khachatrian for Eurasianet
EurasiaNet, NY
June 25 2006
An economic conference in Tbilisi highlights the serious financial
issues that Armenia, Azerbaijan and Georgia face, including corruption
and tax evasion.
A recent economic conference held in the Georgian capital Tbilisi
sought to lay the groundwork for closer regional cooperation among
the three South Caucasus states of Armenia, Azerbaijan and Georgia.
Regional economic integration was not formally on the agenda of the
1-2 June 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.
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. 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.
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