Bureau of European and Eurasian Affairs October 2004

Background Note: Azerbaijan

PROFILE
OFFICIAL NAME: Republic of Azerbaijan Geography Location: South Caucasus; bordered by Russia to the north, the Caspian Sea to the east, Iran to the south, and Georgia and Armenia to the west. Area: 33,774 sq. mi. (includes Nakhchivan and Nagorno-Karabakh); slightly smaller than Maine. Cities: Capital--Baku. Terrain: Caucasus Mountains to the north, lowland in the central area through which the Kura River flows. Climate: Dry, subtropical with hot summers and mild winters; forests, meadows, and alpine tundra in the mountains. People Nationality: Noun--Azerbaijani(s), Azeri. Adjective--Azerbaijani, Azeri. Population (July 2005 est.): 7,911,974. Population growth rate (2005 est.): 0.59%. Net migration rate (2005 est.): -4.64 migrant(s)/1,000 population. Ethnic groups (1999 census): Azeri 90.6%, Dagestani 2.2%, Russian 1.8%, Armenian 1.5%, other 3.9%. Note: the separatist Nagorno-Karabakh region is populated almost entirely by Armenians. Religion: Muslim 93.4% (majority Shi'a), Russian Orthodox 2.5%, Armenian Orthodox Church 2.3%, and other 1.8%. Languages: Azerbaijani 89%, Russian 3%, Armenian 2%, and other 6%. Education: Literacy--97%. Health: Infant mortality rate--83.41/1,000 live births (2000 est.). Life expectancy (2005 est.)--63.35 years. Work force (3 million): Agriculture and forestry--42.3%; industry--6.9%; construction--4.2%; other--46.6%. Government Type: Republic. Constitution: Approved in November 1995 referendum. Independence: August 30, 1991 (from Soviet Union). Branches: Executive--president (chief of state), prime minister (head of government), Council of Ministers (cabinet). Legislative--unicameral National Assembly (parliament). Judicial--Supreme Court. Administrative subdivisions: 78 rayons, 11 cities, and 1 autonomous republic. Political parties: New Azerbaijan Party, Popular Front Party, Musavat Party, National Independence Party, Civic Solidarity Party, Social Democratic Party, Communist Party, Liberal Party, Azerbaijan Democratic Independence Party, Islamic Party, plus 50 minor parties. Suffrage: 18 years of age; universal. Economy (2004) GDP (2004 est.): $10.2. GDP real growth rate (2004 est.): 9.8%; estimated 21.8% for January-September 2005. Per capita GDP (2004): $3,800. Inflation rate (2004 average): 12%. Unemployment rate (est.): 15%-20%. Natural resources: Petroleum, natural gas, iron ore, nonferrous metals, alumina. Agriculture: Products--cotton, tobacco, grain, rice, grapes, fruit, vegetables, tea, cattle, pigs, sheep, goats. Industry: Types--petroleum and natural gas, petroleum products, oilfield equipment, steel, iron ore, cement, chemicals, petrochemicals. Trade: Exports--$2.17 billion: oil and gas, chemicals, oilfield equipment, textiles, cotton. Imports--$1.67 billion: machinery

and parts, consumer durables, foodstuffs, textiles. Major trade partners--Italy, Russia, Turkey, Israel, U.S., Iran, other EU, and other countries formerly part of the Soviet Union. HISTORICAL HIGHLIGHTS Azerbaijan combines the heritage of two venerable civilizations--the Seljuk Turks of the 11th century and the ancient Persians. Its name is thought to be derived from the Persian phrase "Land of Fire," referring both to its petroleum deposits, known since ancient times, and to its status as a former center of the Zoroastrian faith. The Azerbaijani Republic borders the Iranian provinces of East and West Azerbaijan, although they have not been united into a single state in modern times. Little is known about Azerbaijan's history until its conquest and conversion to Islam by the Arabs in 642 AD. Centuries of prosperity as a province of the Muslim caliphate followed. After the decline of the Arab Empire, Azerbaijan was ravaged during the Mongol invasions but regained prosperity in the 13th-15th centuries under the Mongol II-Khans, the native Shirvan Shahs, and under Persia's Safavid Dynasty. Due to its location astride the trade routes connecting Europe to Central Asia and the Near East and on the shore of the Caspian Sea, Azerbaijan was fought over by Russia, Persia, and the Ottomans for several centuries. Finally the Russians split Azerbaijan's territory with Persia in 1828 by the Treaty of Turkmenchay, establishing the present frontiers and extinguishing the last native dynasties of local Azerbaijani khans. The beginning of modern exploitation of the oil fields in the 1870s led to a period of unprecedented prosperity and growth in the years before World War I. At the collapse of the Russian Empire in 1917, an independent republic was proclaimed in 1918 following an abortive attempt to establish a Transcaucasian Republic with Armenia and Georgia. Azerbaijan received de facto recognition by the Allies as an independent nation in January 1920, an independence terminated by the arrival of the Red Army in April. Incorporated into the Transcaucasian Federated Soviet Socialist Republic in 1922, Azerbaijan became a union republic of the U.S.S.R. (Soviet Union) in 1936. The late 1980s were characterized by increasing unrest, eventually leading to a violent confrontation when Soviet troops killed 190 nationalist demonstrators in Baku in January 1990. Azerbaijan declared its independence from the U.S.S.R. on August 30, 1991. GOVERNMENT AND POLITICAL CONDITIONS Although the Government of Azerbaijan consists of three branches, Azerbaijan has a strong presidential system in which the legislative and judicial branches have only limited independence. The executive branch is made up of a president, his apparat, a prime minister, and the cabinet of ministers. The legislative branch consists of the 125-member parliament (Milli Majlis). Members are elected for 5-year terms, all of whom are elected from territorial districts. The judicial branch, headed by a Constitutional Court, is nominally independent. Azerbaijan declared its independence from the former Soviet Union on August 30, 1991, with Ayaz Mutalibov, former First Secretary of the Azerbaijani Communist Party, becoming the country's first President. Following a March 1992 massacre of Azerbaijanis at Khojali in Nagorno-Karabakh (a predominantly ethnic Armenian region within Azerbaijan), Mutalibov resigned and the country experienced a period of political instability. The old guard returned Mutalibov to power in May 1992, but less than a week later his efforts to suspend scheduled presidential elections and ban all political activity prompted the opposition Popular Front Party (PFP) to organize a resistance movement and take power. Among its reforms, the PFP dissolved the predominantly Communist Supreme Soviet and transferred its functions to the 50member upper house of the legislature, the National Council. Elections in June 1992 resulted in the selection of PFP leader Abulfez Elchibey as the country's second President. The PFP-dominated government, however, proved incapable of either credibly prosecuting the Nagorno-Karabakh conflict or managing the economy, and many PFP officials came to be perceived as corrupt and incompetent. Growing discontent culminated in June 1993 in an armed insurrection in Ganja, Azerbaijan's second-largest city. As the rebels advanced virtually unopposed on Baku, President Elchibey fled to his native province of Nakhchivan. The National Council conferred presidential powers upon its new Speaker, Heydar Aliyev, former First Secretary of the Azerbaijani Communist Party (1969-81) and later a member of the U.S.S.R. Politburo and U.S.S.R. Deputy Prime Minister (until 1987). Elchibey was formally deposed by a national referendum in August 1993, and Aliyev was elected to a 5-year term as President in October with only token opposition. Aliyev won re-election to another 5-year term in 1998, in an election marred by serious irregularities. Presidential elections took place on October 15, 2003. Ilham Aliyev, son of former President Heydar Aliyev, was elected to the presidency in an election that did not meet international standards. He assumed office as President on October 31, 2003. Heydar Aliyev died on December 12, 2003. Azerbaijan's first parliament was elected in 1995. The present 125-member unicameral parliament was elected in November 2005 in an election that showed improvements in democratic processes, but still did not meet international standards. A majority of parliamentarians are from the Presidents "New Azerbaijan Party, although the 2005 elections brought in a much more diverse parliament, with up to 10 opposition members and a sizeable number of independents. Many of these independents may have close ties to government, while as many as 20 others are business leaders whose political affiliations are unknown. According to the constitution, the speaker of parliament stands next in line to the president. However, the parliament is historically a weak body with little real influence. The new Speaker is Oktay Asadov.

Principal Government Officials President--Ilham Aliyev Prime Minister--Artur Rasizade Foreign Minister--Elmar Mammadyarov Ambassador to the U.S--Hafiz Pashayev Ambassador to the UN--Yashar Aliyev Azerbaijan's embassy in the United States is at 2741 34th Street NW, Washington, DC 20008; tel (202) 337-3500; fax (202) 337-5911; Consular tel (202) 337-5912; Consular fax (202) 337-5913; www.azembassy.com. 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. During the late 1990s, in cooperation with the International Monetary Fund (IMF), Azerbaijan pursued a successful economic stabilization program, with annual growth exceeding 10% since 2000. Real GDP rose 10.2% in 2004 and accelerated to 21.8% for the JanuarySeptember period of 2005. This figure is expected to increase dramatically now that the Baku-Tbilisi-Ceyhan (BTC) pipeline is fully functional. Output expansion has been largely driven by oil-sector foreign direct investment (FDI) and related spillover effects in the construction and transportation sectors, although there have also been substantial gains in agriculture (growth in agriculture was 5.5% in the first nine months of 2005). Inflation, which peaked at 13.7% year on year in April 2005 before easing to 11.9% year on year in September, is a major risk and could accelerate in the context of further increases in fiscal spending, high oil prices, and an inflexible exchange rate. Importantly, the higher inflation also reflects customs restrictions that are in place due to supply constraints that limit import competition and monopolies that continue to control many sectors of the economy. The national currency, the manat, is stable against the dollar, but was allowed to strengthen in 2005 by 5%. The IMF has warned that significantly more appreciation (roughly 10%) will be necessary to prevent inflation from increasing. The 2006 budget now assumes a 70% increase in spending (in dollar terms) with the bulk going to the military, wages, infrastructure projects, and social assistance. Part of the increase in expenditures will be financed by revenues from the oil fund. The IMF has expressed concern about the impact in inflation and macroeconomic stability as well as governance if the capital budget is not well managed. The State Oil Fund (SOFAZ) was established as an extrabudgetary fund to ensure macroeconomic stability, transparency in the management of oil revenue, and the safeguarding of resources for future generations. All oil revenue profits from the development of new oil fields now flow into SOFAZ, and are held offshore. SOFAZ assets amounted to $1.3 billion as of September 2005. Nevertheless, SOFAZs sterilization effect is limited since it does not cover SOCAR, the State Oil Company. Progress on economic reform has generally lagged. 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. Azerbaijan is still plagued by an arbitrary tax and customs administration, a weak court system, monopolistic regulation of the market, and corruption. 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. Azerbaijan celebrated first oil for the BTC pipeline in May 2005, and the official completion ceremony was held in Turkey July 2006. The BTC pipeline is now operational and has a maximum capacity of one million barrels per day. Eastern Caspian producers in Kazakhstan also have expressed interest in accessing this pipeline to transport a portion of their production. A BakuTbilisi-Erzurum gas export pipeline was sanctioned in February 2003. Environmental Issues Azerbaijan faces serious environmental challenges. Soil throughout the region was contaminated by DDT and toxic defoliants used in cotton production during the Soviet era. Caspian petroleum and petrochemicals industries also have contributed to present air and water pollution problems. Several environmental organizations exist in Azerbaijan, yet few funds have been allocated to begin the necessary cleanup and prevention programs. Over-fishing by poachers is threatening the survival of Caspian sturgeon stocks, the source of most of the world's supply of caviar. The Convention on International Trade in Endangered Species has listed as threatened all sturgeon species, including all commercial Caspian varieties. DEFENSE AND MILITARY ISSUES In July 1992, Azerbaijan ratified the Treaty on Conventional Armed Forces in Europe (CFE), which establishes comprehensive limits on key categories of conventional military equipment and provides for the destruction of weaponry in excess of those limits. Although Azerbaijan did not provide all data required by the treaty on its conventional forces at that time, it has accepted on-site inspections of forces on its territory. Azerbaijan approved the CFE flank agreement in

May 1997. It also has acceded to the nuclear Non-Proliferation Treaty as a non-nuclear weapons state. Azerbaijan participates in the North Atlantic Treaty Organization's (NATO) Partnership for Peace. FOREIGN RELATIONS Azerbaijan is a member of the United Nations, the Organization for Security and Cooperation in Europe (OSCE), NATO's Partnership for Peace, the Euro-Atlantic Partnership, the World Health Organization, CFE Treaty member state, the European Bank for Reconstruction and Development, the Council of Europe, the Community of Democracies, the International Monetary Fund, and the World Bank. Nagorno-Karabakh The major domestic and international issue affecting Azerbaijan is the dispute over Nagorno-Karabakh, a predominantly ethnic Armenian region within Azerbaijan. The current conflict over Nagorno-Karabakh began in 1988 when ethnic Armenian demonstrations against Azerbaijani rule broke out in both Nagorno-Karabakh and Armenia, and the NagornoKarabakh Supreme Soviet voted to secede from Azerbaijan. In 1990, after violent episodes in Nagorno-Karabakh, Baku, and Sumgait, the Soviet Union's Government in Moscow declared a state of emergency in Nagorno-Karabakh, sent troops to the region, and forcibly occupied Baku. In April 1991, Azerbaijani militia and Soviet forces targeted Armenian paramilitaries operating in Nagorno-Karabakh; Moscow also deployed troops to Yerevan. Azerbaijan declared its independence from the U.S.S.R. on August 30, 1991. In September 1991, Moscow declared it would no longer support Azerbaijani military action in Nagorno-Karabakh. Armenian militants then stepped up the violence. In October 1991, a referendum in Nagorno-Karabakh approved independence. More than 30,000 people were killed in the fighting from 1992 to 1994. In May 1992, Armenian and Karabakhi forces seized Susha (the historical, Azerbaijani-populated capital of Nagorno-Karabakh) and Lachin (thereby linking NagornoKarabakh to Armenia). By October 1993, Armenian and Karabakhi forces had succeeded in occupying almost all of Nagorno-Karabakh, Lachin, and large areas in southwestern Azerbaijan. As Armenian and Karabakhi forces advanced, hundreds of thousands of Azerbaijani refugees fled to other parts of Azerbaijan. In 1993, the UN Security Council adopted resolutions calling for the cessation of hostilities, unimpeded access for international humanitarian relief efforts, and the eventual deployment of a peacekeeping force in the region. The UN also called for immediate withdrawal of all ethnic Armenian forces from the occupied territories of Azerbaijan. Fighting continued, however, until May 1994 when Russia brokered a cease-fire. Negotiations to resolve the conflict peacefully have been ongoing since 1992 under the aegis of the Minsk Group of the OSCE. The Minsk Group is currently co-chaired by Russia, France, and the U.S. and has representation from Turkey, the U.S., several European nations, Armenia, and Azerbaijan. Despite the 1994 cease-fire, sporadic violations, sniper fire, and landmine incidents continue to claim over 100 lives each year. Since 1997, the Minsk Group Co-Chairs have presented a number of proposals to serve as a framework for resolving the conflict. One side or the other rejected each of those proposals. U.S.-AZERBAIJAN RELATIONS The dissolution of the Soviet Union in December 1991 brought an end to the Cold War and created the opportunity to build relations with its successor states as they began a political and economic transformation. The United States opened an Embassy in Azerbaijan's capital, Baku, in March 1992. The United States has been actively engaged in international efforts to find a peaceful solution to the Nagorno-Karabakh conflict. The U.S. has played a leading role in the Minsk Group, which was created in 1992 by the Conference on Security and Cooperation in Europe--now the OSCE--to encourage a peaceful, negotiated resolution to the conflict between Azerbaijan and Armenia. In early 1997, the U.S. heightened its role by becoming a Co-Chair, along with Russia and France, of the Minsk Group. The U.S. supports American investment in Azerbaijan. U.S. companies are involved in three offshore oil development projects with Azerbaijan, and U.S. companies in other fields such as telecommunications have been exploring the emerging investment opportunities in Azerbaijan. The United States is committed to aiding Azerbaijan in its transition to democracy and formation of an open market economy. The Freedom Support Act, enacted in October 1992, has been the cornerstone of U.S. efforts to help Azerbaijan during this transition. Under the Freedom Support Act, the U.S. is providing approximately $48 million in humanitarian, democracy, and reform assistance to Azerbaijan in FY 2006. The U.S. and Azerbaijan have signed a bilateral trade agreement, and Azerbaijan has most favored nation status. A Bilateral Investment Treaty also has been signed. U.S. Humanitarian Assistance U.S. humanitarian programs in Azerbaijan focus on community development, health and economic opportunities, and support services, including training and business management consultations for vulnerable populations. Under a new humanitarian initiative, the Department of State will complete six Small Reconstruction Projects (SRP) in Azerbaijan.

These projects raise the standard of beneficiaries by improving conditions in beneficiary institutions such as schools, clinics, orphanages, and elderly homes. A new focus on quality health services and practices focuses on better use of health resources and health care practices through health care reform, healthy lifestyles, and the rights and responsibilities of the patient. Technical assistance is being provided to the Ministry of Health to develop policy, legal and regulatory, and finance reforms. In FY 2006, the U.S. Department of Agriculture (USDA) will fund the final year of a $3.4 million national child vaccination program. The program is financed by a grant including 10,800 metric tons of wheat to be sold in Azerbaijan. The proceeds will help complete the vaccinations of 450,000 children. The U.S. continues its humanitarian demining efforts in Azerbaijan. The Peace Corps, which began working in Azerbaijan in 2003, has 55 volunteers. Some teach English at the secondary level and others work with non-governmental organizations engaged in small and micro enterprise development. [Also see fact sheet on FY 2006 U.S. Assistance to Azerbaijan.] Principal U.S. Embassy Officials Ambassador--Anne E. Derse Deputy Chief of Mission--Jason Hyland Political/Economic Chief--Joan Polaschik Consular Officer--Neil McGurty Management Officer--Clifford Sorenson Public Affairs Officer--Jonathan Henick AID Country Coordinator--James Goggin Defense Attache--LTC Brendan McAlloon Commercial Officer--vacant The U.S. Embassy in Baku, Azerbaijan is at 83 Azadliq Prospect; tel: 994-12-98-03-35; fax: 994-12-65-66-71. TRAVEL AND BUSINESS INFORMATION The U.S. Department of State's Consular Information Program provides Consular Information Sheets, Travel Warnings, and Public Announcements. Consular Information Sheets exist for all countries and include information on entry requirements, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Public Announcements are issued as a means to disseminate information quickly about terrorist threats and other relatively short-term conditions overseas that pose significant risks to the security of American travelers. Free copies of this information are available by calling the Bureau of Consular Affairs at 202-647-5225 or via the fax-on-demand system: 202-647-3000. Consular Information Sheets and Travel Warnings also are available on the Consular Affairs Internet home page: http://travel.state.gov. Consular Affairs Tips for Travelers publication series, which contain information on obtaining passports and planning a safe trip abroad, are available on the Internet and hard copies can be purchased from the Superintendent of Documents, U.S. Government Printing Office, telephone: 202-512-1800; fax 202-512-2250. Emergency information concerning Americans traveling abroad may be obtained from the Office of Overseas Citizens Services at (202) 647-5225. For after-hours emergencies, Sundays and holidays, call 202-647-4000. The National Passport Information Center (NPIC) is the U.S. Department of State's single, centralized public contact center for U.S. passport information. Telephone: 1-877-4USA-PPT (1-877-487-2778). Customer service representatives and operators for TDD/TTY are available Monday-Friday, 8:00 a.m. to 8:00 p.m., Eastern Time, excluding federal holidays. Travelers can check the latest health information with the U.S. Centers for Disease Control and Prevention in Atlanta, Georgia. A hotline at 877-FYI-TRIP (877-394-8747) and a web site at http://www.cdc.gov/travel/index.htm give the most recent health advisories, immunization recommendations or requirements, and advice on food and drinking water safety for regions and countries. A booklet entitled Health Information for International Travel (HHS publication number CDC95-8280) is available from the U.S. Government Printing Office, Washington, DC 20402, tel. (202) 512-1800. Information on travel conditions, visa requirements, currency and customs regulations, legal holidays, and other items of interest to travelers also may be obtained before your departure from a country's embassy and/or consulates in the U.S. (for this country, see "Principal Government Officials" listing in this publication). U.S. citizens who are long-term visitors or traveling in dangerous areas are encouraged to register their travel via the State Departments travel registration web site at https://travelregistration.state.gov or at the Consular section of the U.S. embassy upon arrival in a country by filling out a short form and sending in a copy of their passports. This may help family members contact you in case of an emergency. Further Electronic Information Department of State Web Site. Available on the Internet at http://www.state.gov, the Department of State web site

provides timely, global access to official U.S. foreign policy information, including Background Notes and daily press briefings along with the directory of key officers of Foreign Service posts and more. Export.gov provides a portal to all export-related assistance and market information offered by the federal government and provides trade leads, free export counseling, help with the export process, and more. STAT-USA/Internet, a service of the U.S. Department of Commerce, provides authoritative economic, business, and international trade information from the Federal government. The site includes current and historical trade-related releases, international market research, trade opportunities, and country analysis and provides access to the National Trade Data Bank.