Nazim Imanov, D.Sc. (Econ.), professor, Editor-in-Chief of Kavkaz & Globalizatsia (Baku, Azerbaijan)

All the sociological polls conducted during the year, including during the election campaign, showed that the countrys main problem was Nagorno-Karabakh. A significant portion of the populationbetween 40 and 55% according to the poll databelieves the only possible way to resolve it is by using military force. But even these respondents did not mean that the country should immediately engage in combat action to liberate the territory occupied by Armenia. This led to a public consensus: the absolute majority agreed that military might should be built up, although some respondents viewed force as a way of putting political pressure on Armenia, while others saw it as a prerequisite for beginning combat action.

In the fall, when preparations for forming the budget reached their peak, the government announced that it intended to double spending on defense. This news was welcomed, and the decision was supported by even the most radical opponents of the government.

Society showed a heightened interest in the talks with Armenia mediated by the OSCE Minsk Group,1 particularly since they were perceptibly gaining in momentum. In this respect, criticism by the government, opposition, NGOs, and the mass media of the Minsk Group for its passivity in previous years was noticeably toned down. There were even hopes that a peace agreement might be entered before the end of the year. But, alas, these expectations were not justified. Nevertheless, it can be confidently maintained that the talks have paved the way for intensified diplomatic activity in the near future, which, in our opinion, will also be promoted by the fact that no important elections are anticipated in the conflicting countries.

A public consensus was also reached with respect to Azerbaijan finding a way during the talks to resolve the problem step-by-step, which involves liberating the occupied territories, returning the forced migrants and ensuring their safety, and defining the status of Nagorno-Karabakh. Another positive aspect of the year was that the fears actively expressed by the opposition in the past about the government possibly compromising the interests of the country at the talks have practically disappeared from the political vocabulary.

The main domestic political event of the year, which also aroused a broad international response, was the election to the Milli Mejlis (parliament). For the first time in the countrys history, it was held exclusively according to the majority system (prior to this, the mixed, proportional-majority system was used), and was characterized by an unprecedented number of candidates and observers, including foreign. The ruling party, New Azerbaijan, retained its majority in the parliament, which underwent a 65% overhaul. But when the government celebrated its victory, the opposition declared the election undemocratic, refused to accept the legitimacy of the voting results publicized by the Central Election Commission, and began to take measures to have them annulled. But another color revolution in the post-Soviet space, which the opposition leaders and some high-ranking civil servants (including several government members) were counting on, was avoided.

International observers also evaluated the election ambiguously. For example, the missions representing the CIS, Turkey, Iran, and Russia responded positively, while several Western countries and influential international organizations were very critical, noting that the election did not meet several democratic standards.

Some high-ranking officials joined the opposition, and also rendered it financial support, which was a serious ordeal for the government. On the eve and immediately following the election, the ministers of economic development and public health, as well as several other high-ranking civil servants, were fired and then arrested. They were accused of attempting to organize a coup détat. Despite all the difficulties of the situation, the head of state coped with it. He made several rotations in government members and was able to keep the rest of the team consolidated. After losing the election and failing to fulfill its promises again, the opposition disappointed the protest electorate. Torn apart by internal contradictions, by the end of the year, it lost its momentum and fizzled out.

As for the countrys geopolitical priorities, they did not undergo any major changes. In the system of West-East and North-South Eurasian relations, the first vector remained predominant, while the second clearly became more dynamic. For example, 2005 was officially declared the year of Azerbaijan in Russia; and relations with Iran were enhanced, which was expressed, among other things, in more intense diplomatic relations. One of the main things prompting Tehrans openly favorable attitude toward Baku was the deterioration of the relations between Washington and Tehran. The leadership of Azerbaijan resolutely rejected any speculation on the possibility of Azerbaijan offering its territory as a springboard for the United States to launch a military strike on Iran.

The relations with the European and Euroatlantic structures were complicated somewhat by the question of North Cyprus. Azerbaijan made very definite statements about the possibility of withdrawing it from international isolation and even undertook practical steps in this direction, which aroused irritation among its European partners. Another factor casting gloom on relations with the West was the insufficient, from the viewpoint of certain international organizations, democracy of the parliamentary election. The influence of these two factors will apparently continue to take its toll in the future.

The obvious increase in Azerbaijans regional political clout was promoted, among other things, by the rates of its economic development. In 2005, Azerbaijan occupied first place in the world in terms of GDP growth, which was 26.4%. Per capita GDP constituted $1,518, and at purchasing power parity of 3.38, $5,129. In so doing, industrial production increased by 33.5%. The republic climbed to one of the top places in the CIS and Eastern Europe in terms of per capita investment ($1,518), and it was world leader in the UNCTAD rating in terms of investment attractiveness. But all of these impressive results were achieved mainly on the basis of the petroleum sector, which accounted for approximately 70% of industrial production.

The main economic event of the year was putting the Azeri section of the Baku-Tbilisi-Ceyhan (BTC) export pipeline into operation, which was undoubtedly also of political significance. Oil is already being pumped through the pipeline. Since it was put into operation, the countrys petro revenue is expected to rise even more, which, along with the positive parameters, could also have negative consequences. The gravest of the latter is the inevitable increase in pressure on the financial market, which is already experiencing certain difficulties.

The National Bank (NBA) had to tackle with a contradictory task. On the one hand, the rise in world oil prices and accompanying rise in the price of imported goods, the increase in domestic demand, and the increase in the money supply all led to inflation. After reaching a maximum level in April of 15.5% and dropping in December to 2.2%, it amounted to an average of 9.6% for the year. On the other hand, the immense inflow of foreign currency (petrodollars) threatened to infect the economy with the so-called Dutch disease. Its symptoms made themselves known in mid-September, in two days, the manat (national currency) rose by 14% with respect to the dollar, and only support intervention of the national currency brought relief to situation.

The economy was still experiencing the restraining effect of the Nagorno-Karabakh conflict. At present, Armenia is occupying 20% of Azerbaijans territory, and there are approximately 1 million refugees and forced migrants in the country, 60% of whom are living below the poverty line. In 2005, 153 million dollars were allotted from government sources alone for their social support. On the whole, however, the financial damage caused by the Armenian aggression is estimated at 26 billion dollars.

Given the essentially complete absence of economic relations with Armenia, cooperation with other countries of the region and those further afield is still an important priority. Azerbaijans main trade partners include the following neighboring countriesTurkey, Russia, Kazakhstan, Georgia, Iran, and Turkmenistanand more distant countriesItaly, Great Britain, Israel, Germany, France, China, and Japan. The strategic political partnership established with Georgia has also been projected onto bilateral economic relations. Symbolic in this respect is the Agreement on Restructuring Georgias Debt to Azerbaijan signed in March. Pumping Kazakhstani oil via the BTC pipeline can make a significant contribution to enhancing regional economic cooperation. Talks about this began in April. On the whole, the implementation of international projects for building new transportation corridors passing through Azerbaijan and Georgia is both of economic and political significance to the region.

The idea of creating a Union of Eurasian Businessmen initiated by the business structures of Azerbaijan and Turkey is very promising. Russia is also being given an important role in this organization.2 The idea was elaborated in the Baku declaration signed in October on the creation of this structure.

One of Azerbaijans indisputable advantages, which has already become traditional and is creating a favorable background for the countrys political and economic development, is the high level of its religious and ethnic tolerance. In this respect, many experts consider Azerbaijan a model state. There are no significant problems between the Muslims, who constitute the main mass of the population (according to estimates, 60% of them follow Shiism and the rest Sunnism), and the followers of other confessions (Russian Orthodox, Protestants, Catholics, Judaists, Krishnaites, and so on), nor is religion used as a means of domestic political struggle. Admittedly, during the year, certain circles made several feeble attempts to arouse interest in Islam as a political factor, but they did not find support in society and came to naught. Against the background of the decreasing activity of the Sunni radicals, which was observed primarily in the regions bordering on Russia, a certain amount of concern was aroused by the activity of mobile, although small, pro-Iranian Shiite groups in the countrys southern regions and the capitals suburbs.

Life in Azerbaijan was, of course, not limited to the four mentioned spheres. Special note should be made of the Heydar Aliev Foundation, which carried out a widespread program in education and made a vast contribution to the development of national culture, particularly mugamclassical Azerbaijani folklore music which is universally recognized as a gem of world culture. In particular, a sumptuously designed collection of mugam performed by Karabakh khanende (titled mugam singers and performers) was published, and work was continuing to create a unique structurethe International Center of Mugam.3 What is more, a world championship of artistic gymnastics was held in Baku in October, which was an important event not only in the countrys sporting, but also in its social life, since this was the first time a sporting event of this caliber was organized in Azerbaijan.

2005 was a year of many choices, that is, not only political, but also economic and humanitarian. The country chose between democracy and authoritarianism, genuine and cardboard independence, forceful and peaceful means of resolving the Nagorno-Karabakh conflict, balanced diplomacy and one-vector geopolitical priorities, harmonious economic progress and one-sided petroleum development, economic freedoms and strict state regulation, enlightened Islam and religious fanaticism. All of this will of course continue, for choice in this sense is a never-ending process, and not a series of one-time events.

1 Created in 1992. Since 1997, its cochairmen are the U.S., France, and Russia. Back to text
2 In 2005, trade turnover with Russia grew by over 20% and exceeded 1 billion dollars. Back to text
3 In August, during his official visit to Baku, Director General of UNESCO Koichiro Matssura took part in the foundation-laying ceremony of the buildings of this Center. Back to text

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