Identifier
Created
Classification
Origin
06BAKU1176
2006-08-10 07:17:00
CONFIDENTIAL
Embassy Baku
Cable title:  

AZERBAIJAN: RAISING THE ECONOMIC DIALOGUE AND

Tags:  ECON EFIN ETRD EAID AJ IR RU 
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RR RUEHWEB

DE RUEHKB #1176/01 2220717
ZNY CCCCC ZZH
R 100717Z AUG 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 1000
INFO RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L BAKU 001176 

SIPDIS

SIPDIS

DEPT FOR EUR A/S FRIED, DAS BRYZA
DEPT FOR E/MORRISON AND EB A/S SULLIVAN; PLEASE PASS TO USTR
NSC FOR MATT PALMER AND FARYAN SHIRZAD
TREASURY FOR NANCY LEE AND JEFF BAKER

E.O. 12958: DECL: 08/10/2016
TAGS: ECON EFIN ETRD EAID AJ IR RU
SUBJECT: AZERBAIJAN: RAISING THE ECONOMIC DIALOGUE AND
PARTNERSHIP

REF: ISTANBUL 1296

Classified By: Charge d'Affaires Jason P. Hyland per 1.4 (B,D).

C O N F I D E N T I A L BAKU 001176

SIPDIS

SIPDIS

DEPT FOR EUR A/S FRIED, DAS BRYZA
DEPT FOR E/MORRISON AND EB A/S SULLIVAN; PLEASE PASS TO USTR
NSC FOR MATT PALMER AND FARYAN SHIRZAD
TREASURY FOR NANCY LEE AND JEFF BAKER

E.O. 12958: DECL: 08/10/2016
TAGS: ECON EFIN ETRD EAID AJ IR RU
SUBJECT: AZERBAIJAN: RAISING THE ECONOMIC DIALOGUE AND
PARTNERSHIP

REF: ISTANBUL 1296

Classified By: Charge d'Affaires Jason P. Hyland per 1.4 (B,D).


1. (U) This is an action request - see paragraph 12.


2. (C) It is strongly in the U.S. interest of securing
Azerbaijan as a reliable regional and global partner on
critical U.S. interests, including security, energy and human
rights, to support economic reform as an essential part of
our broader goal of encouraging Azerbaijan's development as a
modern democracy. The U.S. needs to vigorously strengthen
the hand of the economic reformers in their efforts to combat
corruption and foster governmental transparency,
accountability and rule of law, to develop a clearly
articulated budget process and macroeconomic policy targeted
at developing a diversified economic base and preventing
over-reliance on petroleum revenues. If Azerbaijan's weak
economic governance is not addressed, there is a serious risk
that the enormous inflow of oil and gas revenues beginning
now will fuel inflation, corruption, uneven economic
development and political/social frustration and instability.



3. (C) In order to effect economic change in Azerbaijan, the
U.S. needs to raise the level of U.S.-Azerbaijan economic
dialogue to a higher level, bringing it on par with the
U.S.-Azerbaijan political, military and security
relationship. President Aliyev's visit to the U.S. laid the
foundation for a strengthening of the overall U.S.-Azerbaijan
bilateral relationship. Notably, President Aliyev recently
completely reshaped his economic team, adding Economic
Development Minister Heydar Babayev in October, and in recent
months appointing Samir Sharifov as Finance Minister and
Shahmar Movsumov as Executive Director of the State Oil Fund.
This new economic team is reform-minded and has the
confidence and ear of the President. At recent meetings with

EB A/S Sullivan, DAS Bryza and Ambassador Derse, both the
President and Finance Minister agreed that raising the level
of our economic dialogue would further stability (reftel).


4. (SBU) The completion of the Baku-Tbilisi-Ceyhan pipeline,
to be shortly followed by the South Caucasus
Pipeline in October, signals the beginning of massive inflows
of oil revenue into an unprepared economy. Lacking
the necessary economic reform process over the past five
years to prepare its economic for the flow of petrodollars,
the Government of Azerbaijan urgently needs to undertake
serious macroeconomic, institutional, legal and regulatory
reforms before economic harm, which could lead to political
instability, occurs. The United States needs to be active
and engage at senior levels to impress upon Azerbaijan the
necessity of undertaking reform now.


5. (SBU) Five years ago, Azerbaijan should have begun the
reforms necessary to prepare its economy for a tsunami of
energy revenue, a Kazakhstan had done before petrodollars
hit itseconomy. Today, the contrast between Kazakhstanand Azerbaijan is stark. Many U.S. multinational
institutions, such as Citibank, operate in Kazakhtan and
one single bank in Kazakhstan has more assets than the total
assets in Azerbaijan's bankin system. The economic
imbalances and corruptionthat exist in Azerbaijan threaten
its sustainable economic development and put at risk the
proper management of its oil wealth resources, as well as its
long-term political stability.

ECONOMIC PARTNERSHIP COMMISSION
--------------


6. (SBU) After discussions among Ambassador Derse, EUR DAS
Bryza and EB A/S Sullivan in Istanbul on the fringes of the
BTC events, the idea of a high-level Economic Partnership
Commission was proposed to President Aliyev and Finance
Minister Sharifov, who welcomed (reftel) the creation of an
Assistant Secretary-Minister level U.S.-Azerbaijan Economic
Partnership Commission. The objective of this permanent
group would be to raise the bilateral economic dialogue and
partnership following President Aliyev's visit to the U.S.;
provide a policy forum to encourage broad economic reform and
liberalization; offer an appropriately high-level forum to
ensure that mismanagement of Azerbaijan's economy and oil
wealth does not lead to political and social instability; and
expand U.S. commercial opportunities in Azerbaijan. The U.S.
will seek Azerbaijan's commitment to true economic reform and

progress towards joining the World Trade Organization as a
new tool of reform. Increasing public transparency and
accountability anti-corruption efforts and energy would be a
major focus of the discussions, as would engagement with the
U.S. and Azerbaijan private sector and strengthened
commercial diplomacy and commercial ties.

ECONOMIC PARTNERSHIP COMMISSION FORMAT
--------------


7. (SBU) The U.S.-Azerbaijan Economic Partnership Commission
would be an annual or twice yearly event alternating between
Washington and Baku depending on the urgency of the issues
and agreement between the two governments. Individual sector
working groups would meet regularly during the year to
discuss specific topics, such as WTO accession. The hosting
government would be responsible for developing the
commission's agenda with appropriate consultations with the
other government. The existing Joint Economic Task Force,
with a new focus on assistance burden-sharing and tying our
assistance efforts closely to our policy efforts, would
become an Assistance Task Force under the EPC.

ECONOMIC PARTNERSHIP COMMISSION PARTICIPANTS
--------------


8. (SBU) Embassy Baku greatly appreciates Assistant Secretary
for Economic and Business Affairs Daniel Sullivan's
willingness to chair the EPC (reftel). The Minister of
Finance would chair for Azerbaijan with appropriate
participation, possibly co-chairmanship with Minister of
Economic Development. Senior-level representatives from
relevant economic departments, ministries and agencies would
also attend the annual economic commission meetings.
Proposed U.S. departments and agencies include the Department
of State (EUR and EB lead),the Department of Treasury, the
Department of Commerce, the Office of the United States Trade
Representative, the Overseas Private Investment Corporation,
the Export-Import Bank and the U.S. Federal Reserve. For the
GOAJ, Ministry of Finance (lead),the Ministry of Economic
Development, Ministry of Justice, the State Oil Company, the
State Oil Fund, the State Customs Committee, the National
Bank of Azerbaijan, and State Copyright Agency.

EXISTING TASK FORCE MEETINGS
--------------


9. (C) The U.S. and Azerbaijan currently participate in the
biannual Joint Economic Task Force assistance meetings led
by EUR/ACE. The Task Force's work in managing our assistance
relationship remains critical and we propose that it become
the Assistance Task Force, under the umbrella of the Economic
Partnership Commission, focused on shifting and transforming
U.S. bilateral assistance away from direct assistance to
tiered "burden-sharing" technical assistance, ensuring our
assistance efforts are closely coordinated, and support our
economic policy and reform goals. As Finance Minister
Sharifov told Ambassador July 11 and confirmed again in
Istanbul July 12, Azerbaijan is prepared to work with the USG
to move towards "burden sharing" on assistance as Kazakhstan
has done.


10. (C) We see the EUR/ACE-led Assistance Task Force as
essential to managing the process of moving toward
burden-sharing. We envision the USAID mission in Baku taking
the lead in the preparations for the assistance-focused Joint
Economic Task Force meetings in Baku.

PROPOSED AGENDA ITEMS
--------------


11. (SBU) Embassy Baku understands that during Ambassador
Derse's consultations in Washington, it was agreed that EUR
and EB would take the lead working with other agencies to
develop a draft agenda for a fall launching of the EPC.
Embassy Baku believes that the U.S.-Azerbaijan Economic
Partnership Commission agenda items should include revenue
management, fiscal and monetary policy, economic reform and
transparency, U.S.-Azerbaijan commercial relations, combating
corruption, transparency, WTO accession, institutional,
regulatory and legal reform initiatives, and Azerbaijan's
transition from aid recipient to international donor, as well
as commercial opportunities. We would plan to include a
private sector roundtable with USG and GOAJ officially on the
occasion of the first EPC meeting.


ACTION REQUEST
--------------


12. (SBU) Again, Embassy Baku is appreciative of A/S
Sullivan's willingness to head the economic policy reform and
liberalization dialogue with Azerbaijan, relayed to
Ambassador Derse in Istanbul, and requests that Washington
agencies review Embassy Baku's proposal for structuring the
U.S.-Azerbaijan Economic Partnership Commission and provide
comments and concurrence, a proposed draft and agenda for a
fall launch of the EPC, and proposed dates for the launch.
We are ready to provide additional information and discuss
additional ideas on how best to shape the commission into a
useful and dynamic forum for U.S.-Azerbaijan economic
dialogue.
HYLAND