SCENESETTER FOR CODEL BROWNBACK'S VISIT TO

UNCLAS BAKU 000149 SIPDIS SIPDIS SENSITIVE PLEASE PASS TO CODEL BROWNBACK E.O. 12958: N/A TAGS: PREL PGOV PHUM ENRG ECON AJ SUBJECT: SCENESETTER FOR CODEL BROWNBACK'S VISIT TO AZERBAIJAN, FEBRUARY 20-21 REF: STATE 15016 SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION - PLEASE HANDLE ACCORDINGLY. ¶1. (SBU) Azerbaijan's pro-Western foreign policy orientation, geopolitical setting -- sandwiched between Iran and Russia -- and ability to provide alternative energy supplies to Europe and to use its energy resources to drive growth and development in the region, make it an important U.S. partner. It is in our interest to have a reforming, stable, pro-western Azerbaijan, in the Eurasian heartland. As you know, the bilateral agenda with Azerbaijan is based on three interdependent interests: diversifying European energy supplies, promoting political and economic reform, and extending our security cooperation. Our security and energy cooperation is strong, but promoting reform remains challenging. Energy Links Azerbaijan to the West -------------- ¶2. (SBU) Azerbaijan is a crucial link in the East-West energy corridor that aims to diversify Europe's energy supply. U.S.-Azerbaijan cooperation was critical in realizing the Baku-Tbilisi-Ceyhan (BTC) pipeline project, which in July 2006 delivered its first oil to Ceyhan, Turkey. Azerbaijan's ability to transit gas to Europe increasingly is the focus of our bilateral energy discussions. With up to one trillion cubic meters in new gas reserves and the political will to bring them to European markets, Azerbaijan's gas could enhance European energy security. Azerbaijan and Israel also are discussing potential gas deals. At the same time, Azerbaijan faces pressure from Iran and Russia not to be too closely linked to the West. Neither Tehran nor Moscow is interested in seeing Azerbaijan play a supplier and transit role for sending Caspian oil and gas to Europe. In your meetings with GOAJ officials, conveying the message that the U.S. Congress is grateful for Azerbaijan's role in diversifying Europe's energy supplies -- despite regional pressures -- will reinforce broader U.S. efforts to let the government know that Azerbaijan plays an important regional role. Robust Security Cooperation -------------- ¶3. (SBU) Azerbaijan is a steadfast partner in U.S. counterterrorist efforts. In Iraq, 151 Azerbaijani (Shiite Muslim) infantry troops stand alongside U.S. Marines guarding �0A;the Haditha Dam. Azerbaijan is also contributing troops in Afghanistan and peacekeepers in Kosovo. In October, the Azerbaijani Parliament voted to double the number of Azerbaijani peacekeepers serving in Afghanistan from 22 to ¶45. Azerbaijan provides blanket over-flight rights for U.S. aircraft, as well as strong information sharing and law enforcement cooperation in fighting terror. ¶4. (SBU) Azerbaijan is in the process of drafting a second Individual Partnership Action Plan (IPAP) with NATO. Azerbaijan's first IPAP began in 2005, promoting defense sector reforms and Azerbaijan's interoperability with NATO. The IPAP is a good umbrella for Azerbaijan-NATO cooperation, although the GOAJ often sends mixed public signals on the question of whether it wants to join NATO eventually. The U.S. works extensively with the Azerbaijani Navy and Coast Guard to increase Azerbaijan's interdiction capabilities against proliferation and terrorist threats on the Caspian Sea. ¶5. (SBU) Security cooperation is one of the strongest aspects of our bilateral relationship. In your meetings with Azerbaijani officials, it would be helpful to thank them for their consistently strong support, despite Iran and Russia's distaste for such cooperation. Azerbaijani officials may tell you that the ongoing Nagorno-Karabakh (NK) conflict and Section 907 of the Freedom Support Act restrain our cooperation. The OSCE Minsk Group is tasked with helping Azerbaijan and Armenia resolve their conflict; Department of State EUR Deputy Assistant Secretary Matt Bryza is one of the three OSCE Minsk Group Co-Chairs. According to Section 907 of the Freedom Support Act of 1992 (P.L 102-511),the U.S. is limited in the types of aid it can provide to Azerbaijan because of the ongoing NK conflict. Since 2001, however, the U.S. Congress has granted the President the authority to wave Section 907 on national security grounds, which President Bush has done on an annual basis. Rapid Economic Growth -------------- ¶6. (SBU) With GDP growth of 25 percent in 2007, Azerbaijan has the fastest growing economy in the world, driven nearly entirely by an unprecedented inflow of energy revenue. The government's economic planning, and the country's judicial, regulatory and banking sectors are weak and ill-prepared to manage this enormous influx of revenue. Corruption is pervasive throughout Azerbaijan. Significant institutional reform and capacity-building will be required to manage the stable growth of Azerbaijan's economy and to prevent Azerbaijan from succumbing to the "oil curse" experienced by many other energy producers. ¶7. (SBU) We believe the WTO accession process is the key vehicle through which we can promote GOAJ implementation of successful economic reform that will keep Azerbaijan's development on a stable path. The Ministry of Economic Development has been tasked to lead the WTO accession process. The Government has recently accelerated its WTO accession efforts, and hopes to have a WTO Working Party meeting in Geneva by early spring with the goal of completing the accession process by late 2009. Creating a stable and predictable business environment is especially crucial for attracting investment to the non-energy sector. At present, however, Azerbaijan remains a challenging market in which to do business. Following international recommendations, the Government of Azerbaijan established a new business registration mechanism on principles of a one-stop-shop at the Ministry of Taxation. The time to register new businesses has dropped from several weeks to three days. The 2008 World Bank/IFC "Doing Business" report ranks Azerbaijan at 96 (out of 178). According to Transparency International, corruption worsened in 2007 and the country ranked 157 out of 180 countries (compared to 130 of 163 in 2006). The government this year launched a new strategy for fighting corruption which, if implemented, provides a basis for progress. Promoting Reform is Tough Work -------------- ¶8. (SBU) Getting the GOAJ to make substantive political and economic reform is an ongoing challenge that mirrors difficulties in most other post-Soviet states. The situation is complicated by the fact that U.S. reform assistance began late in Azerbaijan, relative to other CIS countries, due to section 907 for the Freedom Support Act. The U.S. engages with the Azerbaijani Government at all levels, arguing that our three core interests are mutually reinforcing and interdependent. Cooperation and progress in the areas of security and energy reform are mutually supporting. We seek to convince th GOAJ that reform, though difficult, will advanc Azerbaijan's goals of independence, regional infuence, and long-term stability. ¶9. (SBU) We are concerned by a trend of increased government pressure against the media and critics of the government. The media environment is heavily restrictive, with implausible criminal charges against journalists and attacks against journalists that have gone unprosecuted and unpunished. Many argue that the media's ability to criticize or question government policies has significantly deteriorated in the last year. On the other hand, President Aliyev pardoned 119 prisoners -- several of whom, including five high-profile journalists, appeared to have been jailed because of their criticism of the government. It would be helpful to acknowledge the importance of the pardon as a first step toward allowing a more robust and critical press. The GOAJ and media representatives under OSCE auspices are also working on a strategy and action plant to defuse the tension in the media environment and improve government-media relations. ¶10. (SBU) In addition to the problem of media freedom, the government since the 2005 elections has restricted the ability for peaceful groups to assemble, particularly in central areas of Baku. It has put pressure on opposition political parties by restricting their ability to rent office space, hold meetings, raise funds and carry out normal political activities. Civil society representatives also complain that they increasingly feel under fire and are nervous that a recent Presidential decree for state financial support to NGOs is another instrument of government control. At the same time, the GOAJ is working with both the OSCE and COE, and civil society representatives, on revisions to the Law on Freedom of Assembly and a joint GOAJ-NGO task force on pardons. ¶11. (SBU) In your meetings with officials, we believe it is important to highlight the interrelationship of our three interests. Political and economic reform will support the government's aims of ensuring Azerbaijan's independence and projecting Azerbaijan as a regional leader. The October 2008 presidential election presents a tremendous opportunity for Azerbaijan to take an important step forward on democratic reform by allowing the opposition, civil society, and the media more political space. As the Embassy regularly notes to the government and the general public, the U.S. supports the process of a free and fair election and our concerns will focus most heavily on the process over the result. DERSE