BACKGROUND: The revolutions of Georgia, Ukraine and the Kyrgyzstan installed new governments that appear willing to address what is often perceived as the major obstacles to economic development, namely poor governance and high corruption levels. These countries have inter alea one common feature: they have very limited endowments of energy resources, particularly oil and gas. De facto, neighboring countries – Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan – are much better endowed. The presence of large oil and gas deposits is also associated with corrupted practices. As indicated by World Bank indicators and Transparency International studies, the quality of governance in these energy rich countries is low and corrupted practices are common. Specifically, measures of the quality of governance proposed by World Bank experts for 2002 indicate that government effectiveness is very low. The worst record is for corruption. Overall, about 10% of the countries surveyed by the World Bank do worse than them. The most extreme case of autocracy and arbitrariness in Central Asia is certainly Turkmenistan. When compared to Georgia and Kyrgyzstan, the four reference countries seem to be politically more stable and, at the same time, allow for less voice and accountability. In other words, strong and authoritarian regimes may prove much more resilient to political changes. In fact, some of the leaders of Central Asia and Caucasus are already drawing lessons from the recent revolutions with the tightening of laws that reduce basic freedoms (e.g. the right of public assemblies in Kazakhstan) and, as a result, they are increasing their power to avert revolutions. The risk of more repression is taken seriously by NGOs, research organizations and international medias (Radio Free Europe). Strong resistance to democratization and human rights is certainly connected to the possibility to continue to capture incomes (oil and gas rents) and protect immense private wealth based on the systematic exploitation of rich energy resource endowments. The linkages between high levels of corruption and the abundance of mineral resources have been underlined by many studies. Energy related corruption is well documented and specific Central Asia and Caucasus cases are mentioned in reports published, for instance, by Transparency International.

IMPLICATIONS: In countries dominated by the energy sector, the diversification of domestic economic activities and the reduction of poverty and inequalities require substantial changes to enhance the rule-of-law, transparency and the quality of governance. In that context, the “Extractive Industries Transparency Initiative” that was announced by UK Prime Minister Tony Blair at the Johannesburg 2002 World Summit on Sustainable Development is quite important and far reaching. Such an initiative aims at making extractive industries major engines of economic growth and social development. Considering transition countries, the initiative could improve the overall business and investment climate by making rules fully transparent and effective. The IMF and the World Bank are playing key-role in working up the initiative. Practical steps were made in July 2003 with a London Conference that aimed at an agreement on the “Statement of Principles and Agreed Actions” over payments and revenues in the extractive sectors. The event was attended by representative of 70 governments. Follow-up commitments were made by several countries, including Azerbaijan. In the case of Azerbaijan, according to recent statements of the World Bank country manager in Baku, Mr. Ahmed Jehani, “a multi-stakeholder approach that includes civil society, companies and government” has been adopted to implement Tony Blair’s generous and intelligent initiative. “Under the initiative it is required that, a work plan with time line and budget to ensure sustainability, independent audit of payments and disclosure of revenues, publication of results in a publicly accessible manner, and that the approach covers all companies and government agencies, are the essential features.” Thus, Azerbaijan is one of the few countries that has made significant progress in promoting and implementing the initiative, becoming a model of best practice in the area of governance. Genuine commitments by all stakeholders to the work plan and timelines for implementation are definitely quite indispensable for success.

CONCLUSIONS: There are growing pressures for democratic transition in Central Asia and Caucasus. The autocratic leaders of the region have also taken unpopular measures to avoid losing their political power and economic privileges, which should correspond to less freedoms and more repression. In other words, the scope for radical changes is narrowing. Nevertheless, following Tony Blair’s initiative and the example of Azerbaijan, there might be opportunities to improve good governance without revolution. In addition, the expertise and the leverage of international financial organizations such as the World Bank, the IMF, EBRD and the Asian Development Bank, can help promote new development strategies and policies that could ultimately strengthen liberty and democracy, and avoid unnecessary economic turbulences in these regions, and elsewhere.

AUTHOR’S BIO: Dr. Daniel Linotte earned his D.Phil. at Oxford University (St. Anthony’s College). He worked for more than four years as senior economic adviser to the OSCE Secretariat. Before joining the OSCE, he was senior adviser on economic reforms in Georgia. He is now working in the Balkans, supporting the process of WTO accession within a major EU funded project, in coordination with USAID.