MINISTER OF ECONOMIC DEVELOPMENT SEEKS MORE U.S.

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000715

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/01/2016
TAGS: PREL PGOV ENRG EPET ETRD KDEM PINR AJ
SUBJECT: MINISTER OF ECONOMIC DEVELOPMENT SEEKS MORE U.S.
INVESTMENT IN MEETING WITH DOS SPECIAL REPRESENTATIVE
MERMOUD

REF: BAKU 684

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


1. (C) SUMMARY: The State Department's Special
Representative for Commercial and Business Affairs Frank
Mermoud and Charge met May 4 with Azerbaijani Minister of
Economic Development Heydar Babayev. Babayev expressed a
strong interest in purchasing U.S. products and having more
U.S. products, specifically U.S.-made automobiles available
in the Azerbaijani market. He also touched on the issue of a
trans-Caspian gas pipeline from Kazakhstan to Azerbaijan.
Babayev was pleased and energized by President Aliyev's late
April 2006 trip to Washington, particularly meetings between
the Azerbaijani leadership and U.S. government and business
officials. END SUMMARY.

STRENGTHENING RELATIONS
--------------


2. (C) In a May 4 meeting with visiting State Department
Special Representative for Commercial and Business Affairs
Frank Mermoud and Charge, Minister of Economic Development
Babayev reviewed President Aliyev,s meetings in Washington
April 25-28. He thanked Mermoud for visiting Azerbaijan so
quickly after this visit, which would help continue the
positive momentum begun in Washington, and expressed his
appreciation and satisfaction for the business leaders lunch
Mermoud hosted for President Aliyev in Washington. Mermoud
thanked the Minister for his participation in the meetings in
Washington and said that the U.S. business community wanted
to learn more about the investment opportunities in
Azerbaijan. Mermoud said that while the political and
security sides, including the strengthening of democracy,
were critical parts of U.S.-Azerbaijani relations, the
business and commercial sides could not be ignored. By
strengthening the business and commercial side of the
relationship, the other parts or the relationship would
benefit as well.


ROLE FOR U.S. BUSINESS
--------------


3. (C) Mermoud emphasized that rule-of-law is critical for
increasing U.S. investment. While the Azerbaijani market
offered many advantages, it was important for U.S.
businesspersons to know that they will have a fair and
transparent legal structure in which to work. Mermoud made
the point that there were several roles for U.S. business to
play in the Azerbaijani economy, specifically in
strengthening the non-oil sectors of the economy, such as
agriculture and high technology. U.S. companies also
frequently play a role as worldwide providers of business
services. Babayev agreed, and singled out specifically the
agriculture sector and the high quality of U.S. manufactured
agriculture equipment as something that the Azerbaijani
market needed. Babayev said that Azerbaijan had, in the
past, purchased agricultural equipment from China, but that,
while the prices were good, the quality was poor. For this
reason, Azerbaijan did not plan to purchase more agricultural
equipment from China.

ENERGY ISSUES
--------------


4. (C) Mermoud then raised energy issues, specifically the
issue of a trans-Caspian gas pipeline between Kazakhstan and
Azerbaijan. Babayev said that the GOAJ strongly supported
such a proposal, and that Kazakhstan also wanted to move
forward quickly with a gas pipeline but would have to have
U.S. guarantees before moving forward with such a project.
Babayev said that in addition to the gas pipeline there would
be the possibility of running tankers. Babayev said that
Azerbaijan had no intention of becoming more reliant on Iran
for gas or using Iran as a transit point, because such
transit routes could easily be shut off at any time by Iran.

CONCERN OVER IRAN
--------------


5. (C) Babayev said that the GOAJ remained concerned about
Iran and gave his personal opinion that Iranian President
Mahmud Ahmedinejad was a puppet of the Iranian clerical
establishment. He lamented the recent restrictions that the
Iranian government had placed on the Azerbaijani language in
Iran and emphasized that there were no Azeri-language schools
in Iran, despite the fact that a large percentage of the

BAKU 00000715 002 OF 002


Iranian population is ethnic Azeri. He said that while
Azerbaijan is concerned about the nuclear issue, Iran could
easily destroy Azerbaijan with conventional weapons, so the
nuclear issue is not as important.

CREATING SMALL BUSINESS
--------------


6. (C) Babayev told Mermoud that the GOAJ had established a
USD 100 million National Entrepreneurship Fund. The National
Entrepreneurship Fund would provide loans at a 7 percent rate
for industrial projects and a 4 percent rate for small
businesses.

BABAYEV DELIGHTED WITH APPOINTMENT OF NEW FINANCE MINISTER;
COMMENTS ON NEW CURRENCY
-------------- --------------


7. (C) Babayev said that the MED has good relations with the
new Minister of Finance Samir Sharifov. He said that the
first meeting that they had after his appointment was "the
best day of my life." He commended the good job that
Sharifov had done at the State Oil Fund, noting its
transparency. Babayev also said that he was against the
issuance of the new Azerbaijani manat coins (kopeks). He
estimated that inflation in 2006 would increase by one to
three percent because no one wanted to use the coins.

DESIRE FOR MORE U.S. GOODS
--------------


8. (C) As the meeting drew to a close, Babayev asked Mermoud
and the Charge why more U.S. goods, specifically U.S.-made
automobiles were not being sold in Azerbaijan. Babayev said
that at this point he was only interested in the sale of U.S.
goods and was not proposing that a plant or other production
facility be opened. He expressed his desire for the current
USD 174 million trade figure to be increased. He said that
there was a &huge8 market for U.S. goods, specifically
automobiles, in Azerbaijan.


9. (U) Special Representative Mermoud cleared this message.
HYLAND