THE SOUTH CAUCASUS: A REGIONAL OVERVIEW AND CONFLICT ASSESSMENT
REGIONAL OVERVIEW

Ongoing Activities of Donors

USAID has been Armenia’s largest donor. The total budget for USAID for the year of 2002 is $90 million and the requested budget for 2003 is $70 million. It has six strategic objectives which focus on helping Armenia  establish a vibrant market economy within a democratic society, while easing the impact of this transition on its populace. In particular, USAID assistance in Armenia focuses on economic restructuring and private sector development; restructuring and reform of the energy sector to promote economic and environmental efficiency; improving water quality and water management; strengthening democratic governance; improving social welfare and health systems; and facilitating recovery from the 1988 earthquake, including improving housing opportunities for families still living in temporary shelters. In the economic sector, USAID efforts focus on: improving the tax, fiscal and customs systems; improving the legal and regulatory environment for trade investment and economic growth; and reforming and developing Armenia’s accounting and auditing infrastructure. USAID also increases access to financial capital through capital markets development; improving bank supervision; and providing small loans for micro-entrepreneurs and small and medium-sized enterprises. In the area of democracy, USAID will begin two new activities focused on fighting corruption and strengthening the legislature. Other bilateral donors, in order of levels of assistance, include Germany (energy, infrastructure development, small and medium enterprise development, health), Japan (energy, health, agriculture), the Netherlands (agribusiness, energy), the United Kingdom (customs, social sector, public sector reforms), and Italy (health, culture).

The World Bank is Armenia’s largest multilateral donor. Its activities focus on enterprise development, energy, water, education, health, agricultural reform, municipal development, and judicial reform. The WB aims to help the government accelerate the transition to a market economy and to reduce large pockets of poverty that have emerged over the last few years. As concerns structural reforms, the WB has placed emphasis on private sector development, better social protection, and improved health and education services. Total IBRD/IDA commitments to Armenia, as of June 1, 2001, are about US$658 million. World Bank and USAID activities complement one another in most sectors.

Other multilateral donors include the IMF (macroeconomic policy), the EBRD (credit and energy), the EU (civil society, the social sector, energy, education, private sector development, land titling, agriculture, statistics and transport), and the United Nations network of agencies, e.g. UNDP (poverty reduction, democracy and governance), UNHCR (refugee support), UNICEF (health, education, social sector), and the WFP and WHO. The Soros Foundation is also active in Armenia in the areas of civil society, education, public health, culture, media, and judicial reform. There are also several Armenian Diaspora donors, the largest of which is the Lincy Foundation (SME development, road network, Yerevan city public works restoration and improvements, tourism and earthquake recovery).

Major international donors in Azerbaijan implement programs aimed at the development of a democratic society and an open market economy in the country. Among the donor agencies, USAID has been one of the most active, with a total budget for FY 2002 reaching $43,89 million and a requested budget for 2003 of $46 million. USAID’s current strategy is aimed at achieving the following objectives: economic growth and the development of private SMEs ($9,300,000 for FY 2002), a better-organized and represented civil society ($5,500,000) and reduced human suffering in conflict-affected areas ($10,000,000). New and supportive activities are now being designed in response to the waiving of Section 907 sanctions. Having been severely restricted in its activities due to the Section 907, USAID has nevertheless been able to produce some tangible results. The implemented democracy and governance activities contributed to several important achievements, including an improved legal framework through drafting assistance for specific important statutes; improved mutual tolerance and understanding between Azerbaijan and Armenia through the popular television program "Space Bridge" (which reached an estimated 5 million people); enhanced knowledge and understanding of democratic principles and human rights through civic education projects; improved professionalism of private lawyers, judges, municipal leaders, political parties, and media outlets through technical assistance, training and printed guides; and broadened capacity of the NGO sector through grants, training and information resources. However, much work is needed with the Government of Azerbaijan in the area of private sector development and health.

USAID implements a regional Caucasus farmer-to-farmer program, assisting rural farmers by placing volunteer technical advisors at their farms on a short-term basis. The technical advisors develop and disseminate a set of best practices to their local clients and assist in strengthening local credit providers. Advisors have assisted on issues of production, appropriate processing technology, and business management and planning. USAID-sponsored activities are implemented by six U.S. NGOs: Internews, the National Democratic Institute (NDI), the International Republican Institute (IRI), the International Foundation for Electoral Systems (IFES), Initiative for Social Action and Renewal (ISAR), and the American Bar Association Central and East European Law Initiative (ABA/CEELI). The State Department provides democracy-related training and exchange programs.

The World Bank works primarily in the area of agricultural development and infrastructure. It assists Azerbaijan by providing policy advice, financing for both investments and the government budget, and coordination of aid. In particular, the World Bank is working with the authorities to strengthen the government’s institutional capacity to manage its petroleum resources and formulate key policy changes to accelerate reform. In 2000, the Irrigation and Drainage Infrastructure Project (US$42 million) was approved to prevent the decline in water supplied to Baku. In June 2001 three projects were approved: the Health Reform Project (US$5 million) aimed to test ways to strengthen and reform district primary health care systems; the Financial Sector Technical Assistance Project (US$5.4 million) to provide advisory services to the Government of Azerbaijan in support of further implementation of its financial sector development strategy; the Highway project (US$ 40 million) to help promote economic growth by improving access and lowering transport costs for goods and passenger traffic on the East-West highway between Ganja and the town of Gazakh. Other major donors are EU/TACIS (bank training), the British Embassy (macroeconomic forecasting and advising the Ministry of Finance), and Germany’s KfW (privatization). Donors working in democracy and governance include the British Embassy, the Soros Foundation/Open Society Institute, and the United Nations. UNHCR plays an important role in assisting refugees and internally displaced persons and the EU assists with refugee housing.

USAID's program in Georgia aims at developing a more stable market-oriented democracy, which empowers citizens, is governed by the rule of law and promotes the basic welfare of the population. This strategy consists of  six objectives: economic growth; energy independence; improved local governance; development of the rule of law; reduced human suffering; and a cross-cutting objective that supports participant training, public information and outreach, and NGO development. Georgia is fourth among CIS states in terms of U.S. assistance. USAID spent $89 million in Georgia in 2002. USAID is gradually shifting from working with Tbilisi-based institutions toward doing more to improve the lives of people in the regions, especially in those areas prone to conflict. At the same time, a regional Caucasus farmer-to-farmer program functions in Georgia with approximately $400,000 a year in funding. The activity targets rural farmers and assists them by placing volunteer technical advisors at their farms on a short-term basis. The five largest donors to Georgia are the World Bank, the International Monetary Fund (IMF), the United States, the European Bank for Reconstruction and Development (EBRD), and the European Union. UNDP is working with the Aid Coordination Agency to strengthen the management of international assistance, and has consolidated the efforts of international donors to assist the Government’s poverty reduction efforts. As a result, a Framework Group of donors was established, chaired by UNDP, which consists of World Bank, IMF, EU, USIAD, the Governments of the UK, the Netherlands and Germany. World Bank assistance includes structural adjustment credits, agricultural development loans, assistance to the health and power sectors, and technical assistance to strengthen the private sector. A new loan will go toward repairing the major roads.