"The Economic Dynamics of the Countries of the South Caucasus"

Two years ago, Tigran Sargsyan, the Chairman of the Central Bank of Armenia, wrote a brief paper looking at various facets of the economies of the countries of the South Caucasus from four different vantage points including an evaluation of compliance with the Maastricht Treaty, the relationship between each country’s economic processes and the creation of human capital, macroeconomic effectiveness, and the actual sustainability of development.

According to Sargsyan, who confers comical catchphrases to each of the countries (Georgia is the “country of hope,” Azerbaijan the “country of raw resources,” and Armenia the “organized country”), Armenia’s cautious but easily adaptable monetary policies along with coordinated efforts between the Government and the Central Bank have led it to be the best performer in the region. Not a surprising conclusion given the author’s persuasion.

Interestingly, while the measures of the quality of life and wages in the Caucasus indicated similarities, social tensions are considerably more strained in Georgia, where the poverty indicator is much higher.

As for military and defense expenditures, in 2005 Georgia’s budget increased dramatically to $325 million, approximately 21% of the total expenditures of the budget and six percent of GDP. Azerbaijan’s is $650 million, more than quadruple of Armenia’s.

All told, the commonalities in each of the three countries of the South Caucasus are to be expected: high levels of corruption and a robust shadow economy, mutual distrust between the general population and the government, and a serious lack of transparency in industry and corporate governance. Azerbaijan’s escalating military expenditures as a precursor to NATO accession no doubt heighten the security dilemma with Armenia, which may have consequences for the conflict over Nagorno-Karabagh.

It will be interesting to see how Sargsyan reviews his own analysis. We will keep you updated.

Civil Society in Post-Soviet Armenia

The study and analysis of civil society and civic participation is a fundamental way of better understanding a region and its processes of development and democratization. Researcher Babken Babajanian has studied civil society and civic participation in post-Soviet Armenia. He uses these two terms interchangeably but they refer to the ways individuals and groups relate to one another, organize into collectives, and pursue their political and social objectives.

Babajanian asserts that not enough attention or credit has been given to the significance of the role of civil society and that its function is too often contextualized by its relationship to the processes of democratization. Scholars have generally referred to two types of civil society (not necessarily mutually exclusive): the neo-liberal model, and the communal model. In the late 1980s and then in the post-Soviet context, the Western perspective (and especially Western donors with civil society-related programs) defined civil society as a neo-liberal concept associated with modernity, the creation of the nation state, and the people-led promotion of liberal political values. Conversely, others assert a second form of civil society existed throughout the Soviet period, a more inclusive and communal concept rooted in a vast history of traditional cooperation, mutual assistance and localized decision-making. Communal civil society consists of more informal methods of interaction, discourse and collective promotion.

According to Babajanian this communal form civil society better describes civil society in post-Soviet Armenia, which promotes both political and social objectives but is circumscribed by structural inhibitors like poverty and poor (and/or corrupt) governance. Thus the role of civil society is especially important given its role as an alternative mechanism in ensuring services that the state is either unwilling or incapable of providing.

Babajanian analyzed qualitative research conducted between 2001 and 2003 that utilized conversational and semi-structured interviews, focus groups and discussions with local government officials and informal leaders within the community. His analysis indicated that mutual assistance (small amounts of cash, labor assistance, psychological support, etc.) is an important resource, despite many individuals stating they knew that reciprocation wasn’t always possible given widespread poverty and pronounced social inequality. In rural areas shops sell goods for credit, and debtors often repay their debt only after they sell their crops, or receive remittances or social assistance. As a sign of solidarity communities will often pitch together and provide voluntary labor for communal infrastructure and environmental maintenance. This, too, is constrained by limited time and resources, so solutions are often only temporary.

This is why the actions of formal authorities on the local level are so essential, because of their potential to mobilize communities and lobby on their behalf to donor agencies, NGOs and the government. Local informal leaders (e.g. school directors) also act as social entrepreneurs when they leverage their personal networks and pursue informal channels to advocate for their communities. This leveraging ability is frequently based on pre-existing forms of patronage (which can also be problematic when bureaucrats and persons with influence are corrupt and take advantage of the lack of rule of law). Many of the study’s respondents expressed the belief that only those who have solid contacts, financial resources and high social status could succeed in private entrepreneurial activities, thus reinforcing a general feeling of helplessness.

In post-Soviet Armenia, local communities do regularly cooperate with one another and initiate solutions in an effort to manage local development. However these actions are frequently limited by pervasive poverty and the institutional legacies of the socialist system. Rural communities rely heavily on area leaders to help facilitate development but as a result this constrains the scope and capacity of citizens’ self-promotion and participation in decision-making processes. Babajanian strongly recommends that donor and development agencies better understand and acknowledge these extant forms of civic participation and tailor their programs correspondingly so as to maximize the effect of their assistance.


The citation for the paper is “Civic Participation in post-Soviet Armenia,” Central Asian Survey 24 No. 3 (September 2005), pp. 261-279.

Free Economic Zones in Georgia

Economic free zones in Georgia are no longer a necessary, helpful, or even relevant option for Georgia’s economic development according to a GFSIS article written by Vladimer Papava. A free economic zone is a discreet area of a country’s economy designated by the government and bestowed with certain benefits and privileges. In general there are two different varieties: a strictly territorial one, and the regime-based variety, which is limited to functional categories such as trade, customs, and scientific and technological zones. Why use free economic zones? Theoretically, low or nonexistent customs duties and the relaxation of barriers to trade can bring in foreign revenue. They can be used as testing grounds for breeding free economy principles within regions as an incremental process, but this can also lead to the harboring of offshore funds and dirty money.

Georgia has implemented a number of free economic zones since independence but their benefits and importance may be declining in light of economic development in the region and the globalization of trade and finance transactions. By way of history, post-independence, Aslan Abashidze (the exiled former leader of Adjara) turned Adjara into a free economic zone with few restrictions on trade, and customs duties and revenues went to the Adjaran government rather than Tbilisi. His economic policies were generally viewed as successful when taken out of context from his authoritarian rule.

Since the Rose Revolution, however, on a macro-level there has been more liberalization with the taxation regime on imports, visa requirements for certain foreigners have been lifted, and the bureaucratic procedures for the establishment of businesses have been relaxed. The manufacturing of goods in a free economic zone necessitates considerable costs, and because of the aforementioned privileges granted only within the free economic zones, the transport of goods from one territory to another in-country territory necessitates the same treatment that is afforded to imports. According to Papava this can lead to a restriction in the movement of the country’s citizens and the possible necessitation of special licensing.

Papava thinks the idea of creating free economic zones within Georgia is “senseless,” and that in this state of Georgia’s development it would more appropriate to create a regime applicable to the whole country. He believes that if the government were to reestablish any free economic zones it would weaken Georgia’s relationship with international financial institutions and may lead to the possible ousting of Georgia from the WTO

The Open Budget Index | Georgia, Azerbaijan and the World

The Open Budget Index, a project of the Center on Budget and Policy Priorities, released the first-ever independent and non-governmental Budget Transparency Ratings in October 2006. The index endeavors to provide the practical information needed to analyze the transparency and accessibility of a government’s budgetary processes—and thus better equip citizens and legislators in lobbying for governmental accountability and targeted, effective policymaking. The 122 multiple-choice question questionnaire, conducted by local experts in 59 participating countries across the world, is available on the Open Budget Index’s website, as is the data from each country’s answers. The survey’s questions target generally accepted public financial management and practices and the availability of certain budgetary documents governments should release to the public over the course of the budgetary year. The Open Budget Index did not evaluate the actual quality of the information provided by the government.

While one might presume that public access to governmental budgetary records and processes is a given in highly developed Western nations, the findings of this study refute this assumption: only six of the 59 countries were found to adequately provide all of the general budgetary documents (the winners were France, New Zealand, Slovenia, South Africa, the UK and the US). Over a third of the surveyed countries- 39%- shared only “minimal” or “scant” information with their citizenry. The study emphasized that the extent of a country’s budget transparency is very much influenced by the willingness of the government to share, and that a lack of capacity is not a legitimate excuse or constraint.

Georgia and Azerbaijan were part of the surveyed lot, and both were found to provide only minimal information to citizens. Their scores were nearly identical, with Georgia barely edging out Azerbaijan’s score of 30% with 33%. Russia fell in a higher category, providing “some” information to citizens with a score of 48%. The findings were presented in a somewhat confusing way, however- when you looked at the individual country summaries, it appeared as though Georgia was far more forthcoming- 6 out of 7 of their budget documents were coded as “Available to the Public,” whereas Azerbaijan had only one budgetary document open to the public, two were not even produced, and four were produced but for internal use only. Azerbaijan’s legislature does not provide public hearings on the budget at all, whereas Georgia makes an attempt but only opens a limited amount of hearings to the public. What may have bumped up Azerbaijan’s score disproportionately was the executive’s budget proposal, as the study scored it a 48 out of a possible 100%, with Georgia attaining only 28 out of a possible 100%.

Fortunately the website includes all of the aggregate scores so one can explore the methodology and results of the survey’s findings. You can check it out here.