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Latvia – 20 Years After its Independence (or a trade-off?)

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Following famous words of my professor Anis Bajrektarevic that: “the Atlantic Europe is a political power-house (with the two of three European nuclear powers and two of five permanent members of the UN Security Council, P-5), Central Europe is an economic power-house, Russophone Europe is an energy power-house, Scandinavian Europe is all of that a bit, and Eastern Europe is none of it.”

, I wanted to examine the standing of my own place of origin in the ‘new European constellations’. What happens to a country which suddenly is free to govern its own territory and people? What is the biggest fear? Is it the inability to satisfy its population or a threat from the former conqueror? Should a country opt for the ‘shock therapy’ or experience gradual changes? How to deal with the privatization of state-owned institutions? The following lines objectively question how the well-being of the East-European nation has changed in 20 years since the collapse of the Soviet Union, and in the course of the country’s integration into the EU. The authoress also answers whether a small country like Latvia can actually preserve both its political and economic sovereignty. On a bigger scale, the findings suggest that the well-being in the Latvian SSR was better than it is today, while others strongly disagree. Furthermore, the authoress concludes that Latvia had to sacrifice its economical sovereignty in order to preserve its political independence. Is any other choice conceivable, now or in future?

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The Republic of Latvia is a small country situated on the Baltic coast, in Eastern Europe. The estimated population of 2012 slightly exceeds 2 million. 60% of the population is ethnic Latvians, while a significant part, i.e. 27.3%, is Russian, demonstrating the legacy of the past. (Eurostat, 2012)

Just slightly over 20 years ago Latvia was under the Soviet rule and Communists were the ones who had the power to make decisions. The government of Latvia was not recognized by the international community. The nation itself experienced the Soviet economic and political system. In other words, during the time of occupation, Soviet Union introduced the Russian language into all aspects of everyday life. The intelligence was deported and a 5-year economy plan led to empty store shelves and starving people. Even though the productivity of the agricultural sector was high, all harvest was transported to other Soviet territories. Nevertheless, industrial capacity was significantly improved, employment was high, education was for free, and most of the basic needs of the nation, such as housing, were satisfied.

Latvia’s de facto sovereignty was recognized in 1991, and the first years of independence were spent developing a functioning state. The most difficult tasks facing the government were the creation of administrative bodies, reforms in the health and education sector and also a much needed shift from a planned economy to a market economy. When a political stability was reached and reforms initiated, the nation became increasingly concerned about the preservation of its statehood, so in 1995 the Latvian authorities adopted a statement defining foreign policy goals. They argued that the sovereignty can be strengthened through early integration into the European and world-wide security and political and economic structures. Latvia became a member state of the UNO in 1991, and joined the EU and NATO in 2004. (Jundzis, 2010)

However, clear existence goals for the country were absent for the first decade of independence. While political sovereignty was at the top of the agenda, the majority of the society believed that the continuous increase of average human well-being and a long-term conservation of cultural heritage and Latvian language should be the goals. Even though the initiated reforms strived for improved living standards, similar to those of many Western countries, and increased individual freedom and protected rights, many question whether these reforms and integration into the EU have supported the achievement of one of the main goals – improved human well-being in Latvia. (Pabriks & Purs, 2001)

The Human Development Index, published by UNDP, assesses the long-term progress of human development regarding a long and healthy life, access to knowledge and a decent standard of living. The overall human development value in Latvia has been positive as the HDI value has risen from 0.693 (1990) to 0.805 (2011). Hence, the statistics rank Latvia among other high human development countries. (UNDP, 2011)

The majority of indicators, compared from 1990 to 2010, have followed a positive trend. Very often the development was slow during the first years of independence when the reforms were launched. Years later, in the 21st century, especially after Latvia’s accession to the EU, human well-being improved more rapidly until the crisis in 2008 which resulted in its decrease. Nevertheless, improved absolute numbers should not be overestimated.

The previously centralized health sector has experienced notable reforms in the last 20 years; thus, the health condition of the inhabitants of Latvia has improved. The system was decentralized; hence, it entitled the foundation of private health care institutions; thereby, the health care became more accessible and more qualitative, as displayed in Figure 1. Furthermore, as the health expenditure of the state’s budget has increased and the money from European funds can also be received, new technologies have been implemented. At the same time, more and more people are unable to afford the health care services due to the growing prices.

One can say that in the Soviet Latvia general care was easily accessible, but, when it came to a very specific treatment, it was challenging to find a proper physician. On the plus side, nowadays there are various physicians specialized in their fields; however, sick people might have to pay for treatment out of their own pockets in order to receive help without waiting. Consequently, many people are unsatisfied with prices of medical care in Latvia. On the bright side, the quality of care provided has definitely improved over the past 20 years.

Despite advancements and reforms in the health care system, demographics are in recession, which is a serious threat to the country’s succession. A natural decrease of population due to lower fertility rates and a considerable migration outflow (especially within the first years of the collapse of USSR and after Latvia’s accession to the EU) has contributed to the fact that the population has decreased from 2.67 million in 1990 to 2.24 million in 2010. As a consequence of smaller number of new-borns and rising life expectancy, the population is aging, which imposes an increasing burden to the economically active part of the population to finance the retired people.

Unfortunately, not only is financing the retired people a serious issue, but also a complete burden to costs of primary goods which have increased. Thus, paying for one’s own needs is becoming harder. The results of surveying 130 people suggest that in the Latvian SSR more than 60 per cent of the representative sample had funds to pay for all basic needs, such as food, housing, health care, education. Currently, less than 40 per cent of respondents have means to pay for all these needs. The proportion of people who can finance their needs just partially has risen from 29 to 47 per cent.

Even though the absolute income has increased, the amount of people earning less than the subsistence minimum is rising, especially in the rural areas. It has to be mentioned that the content of Latvia’s subsistence basket has not been revised since the first year of renewed statehood; thus, in reality, it does not contain all goods and services required for living decently. Furthermore, since the accession to the EU, prices have risen rapidly. For instance, total housing costs have increased significantly – in the USSR the rent and public utilities were highly subsidized by the government, whereas in 2005 the average housing costs amounted to 80 US dollars and 170 dollars in 2009. (Central Statistical Bureau of Latvia, 2011) These costs are borne by the private sector and the burden is becoming heavier due to lower income compared to the costs themselves. The situation is even worse, considering the fact that the proportion of overcrowded households is one of the highest within the EU. If people lived in and paid for apartments so that they were not characterized as overcrowded, the housing costs would be even higher compared to their income. Many people agree that they enjoyed much better housing conditions when they were a part of the communism country.

Similarly, the respondents of the survey mentioned that the Soviet Times guaranteed a certain security regarding employment. The majority of the economically active population was employed in the Latvian SSR compared to the 16 per cent unemployment level in 2009. (Central Statistical Bureau of Latvia, 2011) Even though the absolute remuneration was considerably lower in the Soviet times, it had more purchasing power. On the other hand, the labor market is becoming more knowledge intensive, and the workers – more educated and better specialized in their professions. Working conditions have also improved significantly, partly because of the regulations of the ILO.

Transformation to knowledge-based economy has been supported by the development of the education system which is highly recognized by international surveys. High literacy and enrollment ratios are requirements for the nation to educate people who can efficiently participate in such natural resource-scarce economy. Smart people are one of Latvia’s major assets. Nevertheless, the state has to further advance its education system, as remarks from the Soviet system are still present (books, teaching concepts, teachers etc.). Furthermore, the government has to understand the role of education expenditure. Ongoing budget cuts on education sector deteriorates the quality, as teachers and professors lose their motivation and pupils and students become more motivated to enroll in universities abroad.

The EU has provided significant advantages to the Latvian population, especially the youth which now is eligible to study permanently or temporarily at foreign universities, enjoying the same terms and conditions. Also, to the people who are entrepreneurial, open-minded and have a certain understanding of how to take an advantage of new business opportunities. The EU has also contributed to the modernization of hospitals, schools and the infrastructure. Furthermore, the EU sets standards as well as observes the development of human well-being; therefore, Latvia is motivated and under a pressure to demonstrate continuous advancement. As a result, the nation believes that the health and education systems have been improved and provide higher quality and accessibility. Nevertheless, given their income level, they are discontent with the prices of the tertiary education and specialized health care services. On the other hand, the Soviet government paid for housing, education and health care thus more resources were available for food items, leisure time, clothing, and also the employment ratio in the Latvian SSR was close to 100 per cent. Therefore, there are people who believe that the communism times ensured better well-being. In addition, the equality within the population was much higher. However, as very often respondents mentioned, everybody was equally poor. Nowadays, the income polarization is a significant issue.

To complete the picture about human development trends in Latvia, which have followed different directions, it is worth referring to the final question of the conducted survey. It asked the respondents when, in their opinion, the well-being was the highest: in Soviet Latvia, in Latvia before joining the EU or in Latvia which is a member state of the EU. As the graph illustrates, the opinions vary – approximately every third of the respondent pool shares a different view, which simply further proves the finding that there are indicators which have improved along the movement towards Europe and there are aspects which so far the sovereign Latvia has not been able to offer its people as it was done by the USSR.

In order to succeed and reach the well-being benchmark set by the Union, first of all, a sustainable economic growth is needed, resulting in means which could shift into a social system. Additionally, the political powers have to cooperate with the society ‒ finding a common ground, establishing goals that are seen as important and beneficial to the state itself and its population. It is of utmost importance to assure that the population lives decently, meaning, their basic needs, such as food, housing and health care, are satisfied. It should be the main goal of the government, thereby increasing the satisfaction and loyalty of the population to the state. Hence, the society would be willing to contribute to the development process, also by properly paying taxes.

Furthermore, lessons from the past should be learned. One of the main arguments for Latvia entering the EU was the economic advancement. As tariff and non-tariff barriers would be abolished, the trade between the EU and Latvia, especially the export originating from Latvia, would further increase. Productivity would be increased when people started working into more productive sectors. Furthermore, fixed and human capital investments were expected to be attracted via low labor costs, the adoption of EU legislations and additional privatizations. Investments would initiate an upward growth spiral. Nonetheless, skeptics argued that not every person residing in Latvia would benefit. Citizens who benefited the most would be young people, as they would enter better paid jobs, whereas the pensions of retired people would not increase as rapidly as the prices of goods and services. Latvian farms would face serious hardship due to a surplus in the market resulting from foreign competitors that are subsidized by their own governments. (Memo, 2000) They were right. The EU has suppressed the Latvian economy as a result of shutting down industrial plants, uncontrolled FDI inflows, enabling cheap credits, a significant inflation and price increase, and foreign companies creating a competition which small Latvian companies and farmers cannot defeat. The smaller economy led to an increasing budget deficit, external borrowing and, finally, budget cuts demanded by the IMF and the EU, which have harmed the population as their adjusted income is not as high as living costs. One can say that Latvia traded a part of its economic sovereignty in order to ensure its political independence and the population is paying the price.

However, the people living in Latvia have been willing to pay this price for the sake of Latvia’s sovereignty. In a survey, carried out by the national news portal TVNET, it was asked what the biggest threat to Latvia’s sovereignty is. 53 per cent of the 5311 respondents indicated Russia and unknown money influx as the biggest danger. Contrary, just seven per cent perceive integration into the EU and NATO as imminent danger to Latvia’s independence. (LETA, 2004) On one hand, if Latvia had not joined the EU, the threat imposed by a money influx would have been limited, but political independence would have been significantly less insured, suggesting that preservation of economic and political sovereignty is impossible for a small country like Latvia. In words of my former professor: ‘difference between a dialectic and cyclical history is a distance between success and fall.’ (Bajrektarevic, 2012)

If Latvia had not joined the EU in 2004, it could have taken its time to develop the industries which correspond to the society’s interests, not to the EU regulations. In addition, the migration outflow would have been smaller; therefore, people who are desperately needed in Latvia to cultivate the economy would have been available. Hence, the money influx into an economically stronger country would not have resulted in such a crisis. In this case Latvia would have experienced a slow and stable economic and social welfare growth. However, at some point in time, say 10 years later than the original accession date, Latvia should have joined the EU, as it is too small to be acting alone on the global stage. Latvia does not have significant raw materials or highly developed industries; thus, it lacks international power. Its needs and ideas are heard and pushed forward only in cases when stronger partners share the same interests. The EU is a platform where Latvia can find like-minded countries; therefore, it can find “allies” and together strive for developments and economic and political stability.

As for the Latvia’s situation in the EU, in 2014, Latvia is expected to join the Eurozone if it fulfils the requirements. At the moment, it is believed that Latvia will succeed and be allowed to join, but opinions whether the country really needs to adapt the Euro vary. In September 2012, the public opinion on the Euro adaptation was record low, as only 13% of Latvians support the idea. Being a member of Eurozone would further disable Latvia to control its monetary policy and raise the prices which would not correspond to the income earned by a less productive workforce and industries compared to the ones in other EU states. Therefore, many experts believe that Latvia should postpone its adoption of the Euro until the future of the Eurozone is clearer and Latvia recovers from the economic recession and advances its production regarding productivity and value added.

Once Latvia substitutes its Latvian Lats for the Euro, it will be economically even more dependent from the EU and its regulations, but it would also present new trade opportunities for Latvian companies and therefore cultivate the economy and increase human well-being. The state would also become more creditworthy to foreign investors. Nevertheless, one should not forget how the FDI affected the economy three years ago. Swedish banks, which acquired Latvian banks, issued loans excessively and irresponsibly during the pre-crisis period; thus, fuelling unsustainable and imaginary private consumption and property prices in the country. Sweden’s position, demanding severe budget cuts that affected education and the health sector, was indicative of their fear of losses in case the loans issued decrease in value due to devaluation. Latvia has to be well prepared before welcoming Euro as a replacement for its Lats, which was only reintroduced in1993.

 
References

Bajrektarevic, A. (2013), Of 9/11 and 11/9 – How did Europe become itself? Taylor & Francis, UK

Bajrektarevic, A. (2012), Future of Europe Europe’s World, Brussels

Central Statistical Bureau of Latvia (2011), Materiālā nenodrošinātība Latvijā. Riga: 2011.

Jundzis, T. (2010), Latvijas Valsts Atjaunošanas Parlamentārais Ceļš, 1989-1993. Rīga: Latvijas Zinātņu akadēmijas Baltijas stratēgisko pētijumu centrs.

LETA (2010. gada 11. 3), Ielādēts 2010. gada 19. 5 no KAS JAUNS: http://www.kasjauns.lv/lv/news/sia-vares-dibinat-ar-viena-lata-pamatkapitalu&news_id=18184

LETA (2004, November 14), Muciņš skaidro izmaksu pieaugumu veselības aprūpē. Retrieved April 9, 2012, from TVnet:

http://www.tvnet.lv/zinas/latvija/204012-mucins_skaidro_izmaksu_pieaugumu_veselibas_aprupe

Memo, M. (2000, July 13), “Will Joining EU and NATO Benefit Latvia?” Retrieved March 12, 2012, from The Baltic Times:

http://www.baltictimes.com/news/articles/35/

Pabriks, A., and Purs, A. (2001), Latvia: The Challenges of Change. London: Routledge.

Paiders, J. (2002), Nē Eiropai! Vai Latvijai ir nākotne ārpus Eiropas Savienības? Rīga: JPA.

Rajevska, F. (2005), Social Policy in Latvia. Oslo: Fafo.

Tragakes, E., Brigis, G., Karaskevica, J., Rurane, A., Stuburs, A., and Zusmane, E. (2008), Latvia: Health System Review. Retrieved February 17, 2012, from European Observatory of Health Systems and Policies:

Click to access E91375.pdf

UNDP (2011). Human Development Report 2011: Latvia. Retrieved March 12, 2012, from HDR: http://hdrstats.undp.org/images/explanations/LVA.pdf

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Eastern Europe

What awaits Ukraine after US presidential elections?

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Who is the man that Kiev wants in the White House – Republican Donald Trump or Democrat Joe Biden? For a country like Ukraine, so sensitive to external influences, this is an overarching issue.

Joe Biden’s election in November would bring Ukraine into Washington’s sharper focus. However, important as this may seem to Kiev, this attention may prove excessive. During Biden’s vice presidency this attention was so intense that it bordered on personal interest, and, ultimately, even interference in Ukraine’s internal affairs.

On the outside, the love affair between Ukraine and a possible Democratic president will most likely express itself in US support for Kiev’s confrontational actions and statements. With Biden at the helm, Washington could even try to influence the Minsk process. Kiev has on many occasions declared its desire to bring Washington and London into the Minsk talks. Neither the British nor the Americans have so far responded to this call, but the US Democrats are sure to ramp up their activity on this track. One should not expect too much here though, and a mere statement by Washington that the Minsk accords need to be revised will already come as a breakthough for Kiev. As for President Trump, he just couldn’t care less about the negotiations on Donbass, which he views as having nothing to do with America’s interests.

On Biden’s watch, Washington could resume the previous format of interaction between the US State Department and Kiev and bring back the post of the State Department’s special representative in Ukraine, which until the fall of 2019 was held by Kurt Volker – a semi-official channel of interaction that formally demonstrated Ukraine’s importance to the United States. The resignation of Volker, who failed to fully implement what he had been tasked by Trump in a country he did not care much about, could lead to the elimination of the position of the State Department’s special representative for Ukraine, as an unnecessary catalyst for US-Ukrainian relations. This means that the usual diplomatic channels (embassy) between countries are quite enough, that the interests of the president can be taken care of by trusted people (Giuliani), and issues of international politics should be resolved with Putin and Europe (Merkel and Macron), which is not doing enough to uphold Ukraine’s interests. To demonstrate the importance of the Ukrainian track, however, Biden may bring back the position of the State Department’s official representative in Ukraine.

With regard to Crimea, Ukraine is already urging NATO to build up its presence in the Black Sea to counter Russia’s alleged “aggression” and its “militarization of the occupied Crimea.” Ukraine’s First Deputy Foreign Minister Emine Dzhepparova [representative of the Mejlis of the Crimean Tatar people, banned in Russia – D.B.) has called on NATO to expand its foothold in the Black Sea region.

“The security of Ukraine and NATO are inseparable, and strengthening cooperation in the Black Sea is our common priority,” Dzhepparova wrote on her Twitter account. Under Biden, the United States can intensify its efforts in this direction.

The issue of NATO’s presence in the Black Sea region is always on the agenda, regularly escalating in connection with various events – in 2014 in Crimea, the war in Syria, etc. Last autumn, the RAND Corporation think tank published a report on how best to counter Russia’s influence in the Black Sea region. Its main conclusion is that due to the West’s shortsighted policy towards the two regional powerhouses – Russia and Turkey, as well as its underestimation of the political power wielded by their leaders, who subordinate their domestic and foreign policies to their countries’ interests, and not those of the “new world order” and “democratization,” it has lost this region and something needs to be done about it.

For Biden, the need “to do something” could become a source of confrontation with Russia. Biden could be all too happy to do this “something” through NATO, seeing this as a sign of support for Ukraine and Georgia, an opportunity to rein in Turkey’s growing assertiveness and bring Bulgaria and Romania closer into the game by stoking confrontation and militarization of the region with a possible supply to them of coastal missile systems. In general, one can expect an uptick in military-political interaction in the form of active cooperation between Ukraine and NATO, as well as arms deliveries.

The arrival of a Democrat to the White House may also ratchet up the internal political struggle in Ukraine, where the nationalist opposition, conditionally led by the “friend of the Democrats,” ex-president Petro Poroshenko, may try to regain power. Poroshenko, meanwhile, is being charged with high treason, corroborated, among other things, by his recorded conversations with Biden – both politicians have cases that they would very much like to hush up. Besides, the nationalists’ activity will inevitably impact the Minsk process, and, possibly, the situation along the disengagement line in Donbass.

What can Kiev expect from President Donald Trump? Less interference in its domestic affairs – once reelected, Trump will most likely lose interest in the active search for compromising evidence on Biden, although he is unlikely to give up this matter altogether. It will all depend on further confrontation between him and his opponents. The main danger for Trump after his re-election will be not so much the Democrats as such, but the political and social processes unfolding in the country, above all the Black Lives Matter campaign. The only thing that may get Trump interested in Ukraine is his ongoing confrontation with China. The United States is enthusiastically blocking the sale of Ukraine’s Motor Sich engine building corporation to the Chinese company Beijing Skyrizon Aviation.

The Americans see the deal as a security threat, since it would provide the Chinese with new aviation technologies. As for Motor Sich, the company has been forced to make a deal with the Chinese because of the loss of the market for its products and the breakdown of supply chains with Russia after 2014.

Blocking Russian gas supplies to Ukraine and attempts to disrupt energy cooperation between Russia and Europe (Nord Stream-2 “) is another factor that Trump and Kiev look eye to eye on, even though Kiev says that the continued transit of Russian gas across its territory is a guarantee of Ukraine’s European integration. Trump’s interest in Ukraine will depend on his pragmatic view of geopolitics and economics, as well as the political threats he may see coming from Kiev.

In an hours-long interview, President Zelensky’s former chief of staff, Andriy Bohdan, thus described the system of relations existing between the United States and Ukraine: “In general, there are three tracks, three points of negotiations with the United States. The first is intelligence and security services. We are blind kittens here, really, and all our military capabilities, the capabilities of our special services are information that the international community shares with us. And besides the war, these are drugs, crimes, security. These are plans in general, analytics – we have no analytics. The second negotiating track is diplomatic service. [On this track, according to Bohdan, conversations begin and end with the fact that NABU (National Security Agency of Ukraine, headed by Artyom Sytnik) created on Washington’s orders, is an important and untouchable organization – D.B.] And our third negotiation track is financial organizations. ‘Give me the money.’”

Democrats and Republicans alike perceive Ukraine as a buffer zone between Russia and Europe, Russia and NATO. Ukraine will remain a platform for creating reasons for sanctions, justifying sanctions, an active participant in and an accomplice to sanctions processes. Obviously, the sanctions confrontation over Nord Stream-2 is just beginning, and Ukraine, as a party fearing the loss of transit, has long been calling for sanctions against this Russian-European project.

Any of the two contenders for the White House will talk about providing financial assistance to Ukraine, with Trump being more pragmatic, and Biden – more “rhetorical.” With Biden in power, the Ukrainian economy could be reduced to handouts.

The US will not go overboard with its interference in Ukraine’s internal affairs though, because this is a costly affair (Ukrainian oligarchs have enough money to conduct any political campaign of any scale. Why would Washington spend money if it can exert influence or clinch an agreement?) Lobbying the interests of private individuals or politicians that are to Washington’s liking is no problem – suffice it to recall the story of the Burisma Company that tarnished the reputation of the Biden family. Influencing the political landscape by persecuting politicians and oligarchs is also an option (recall the recent cases of tycoons like Dmytro Firtash and Ihor Kolomoyskyi).

President Zelenskiy and many other Ukrainian politicians, dependent on Washington, now face the daunting and, at the same time, important task of choosing the right course of action before the US elections. According to some Ukrainian observers, Zelensky made his choice after long hours of brainstorming with his trusted confidants. It looks like this: “No sudden movements [until November 2020 – D.B.], no progress in the investigation of the criminal case against Biden and his son Hunter, no Burisma and no Derkach tapes. We imitate a “stormy discourse” in the Minsk format, pretend to support the “Belarusian Maidan,” but we lie low and carefully compare the ratings of Trump and Biden.”

In a nutshell, Ukraine is seen by Washington as just a platform for serving America’s geopolitical interests, which is also being used for party-political and private interests. Will anything change for Ukraine depending on who wins the November 2020 US elections? My answer is no.

From our partner International Affairs

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Azerbaijan-Russia Ties Face Increasing Challenges

Emil Avdaliani

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Russia-Azerbaijan ties face increased challenges as Baku accused Moscow of purposefully stoking the conflict by providing arms to Armenia. It is notable that this rhetoric develops when Turkey is particularly vocal in its military support for Azerbaijan. Though it still remains to be seen whether these signs evolve into a concrete policy shift in Azerbaijan, hopes for diplomatic solution of Nagorno Karabakh conflict recede, and Turkey and Russia up their military support for Baku and Yerevan.

Azerbaijan-Russia relations face increasing challenges as the geopolitical situation in the South Caucasus evolves. A series of events tested the bilateral ties and there is an increasing amount of evidence that some reconsideration of foreign policy on Azerbaijan’s part could be taking place. 

The first challenge was the July fighting on Armenia-Azerbaijan frontier, far from the actual source of conflict – Nagorno Karabakh. What could have been a relatively unnoticed confrontation, it drew international attention due to the geostrategic infrastructure which runs near the fighting zone in Azerbaijan’s Tovuz region. Those are:

  • Baku-Supsa and Baku-Tbilisi-Ceyhan pipelines, which deliver Caspian oil to the Black and the Mediterranean Seas;
  • South Caucasus natural gas pipeline, which will send Azerbaijani gas to the EU and plays a key component in Turkey’s emerging strategy of positioning itself as regional energy hub.

In addition, the region also has the Baku-Tbilisi-Akhalkalaki-Kars (BTAK) railroad (unveiled in 2017) and rarely mentioned the fiber-optic cables linking Europe with Central Asia. The Tovuz corridor also has a crucial Azerbaijan-Georgia highway, which allows Azerbaijan to connect to the Black Sea.

Thus in July Azerbaijan faced a threat to its major income. Damage to the infrastructure would also diminish the country’s geopolitical weight as a safe source of oil and gas. While fighting in or around Nagorno Karabakh takes place occasionally and at times reaches a serious level, such as in 2016, it nevertheless fits into the overall narrative of more or less predictable military scenarios which military and political leaders in Baku would expect. The Tovuz fighting, on the other hand, goes against most military narratives and required Baku’s tougher reaction. This is how the ties with Russia, Armenia’s major economic and military ally, come under intense scrutiny in Baku.

It is has always been a long-term challenge for Azerbaijan. Baku occasionally expresses its concerns on Russia’s military support for Armenia, but the criticism has usually been aired though newspapers and media rather than by high-level political figures. This changed following the July fighting.

Reasons are multiple. First, Russia (using its 102rd military base in Gyumri) and Armenia launched snap combat drills on July 17-20, just as the fighting in Tovuz region was still unfolding. Second, a series of flights of Russian military cargo planes to Armenia took place right after the July fighting. 

In a notable change of tone the Azerbaijani president Ilham Aliyev surprisingly publicly complained to his Russian counterpart Vladimir Putin, stating that the recent reports on allegedly increasing Russian military support (400 tons of military hardware) for Armenia raise concerns and questions in Azerbaijani society. Perhaps as a reaction to growing bilateral differences, the Russian defense minister Sergey Shoigu visited Baku to assure the Azerbaijani public that the flights were not of a military nature, but rather transported materials for the 102nd military base.

However, the affair did not end there as a senior adviser to Aliyev, Hikmet Hajiyev, on August 29, following Shoigu’s visit, claimed that “the explanation by the Russian side is not entirely satisfactory.” This effectively meant publicly refuting the Russian defense minister’s statements, further aggravating differences between the two states.

A September 1 article by Nezavisimaya Gazeta claimed that Azerbaijan had readied 500 Syrian militants in preparation for a “blitzkrieg against Armenia” and that Turkey has its troops on Azerbaijani soil. Baku vehemently criticized the report calling it “slander and [a] dirty campaign against our country.” 

Yet another sign of troubled ties is the September 6th decision by Azerbaijan’s Defense Ministry opting out the Russia-led “Caucasus-2020” military drills (planned to be held in the southwest of Russia). Only two servicemen will be sent as observers. Though officially no concrete reasons for the withdrawal were given, it is possible to link the decision to Azerbaijan’s recent grievances at Russia.

Some larger reasons too might be at play motivating a change in Azerbaijan’s rhetoric. The Minsk Group, the body that aims to facilitate the negotiations between Armenia and Azerbaijan is faltering. No concrete way to resolve the stand-off is present and the July fighting has just showed that diplomatic tools are receding. A vacuum is being created for regional powers to fill in. This is how Turkey comes to play an increasingly larger role in Baku’s strategic calculus.

Indeed, as the July fighting unfolded Turkey has been especially supportive of Azerbaijan. For instance, Turkish President Recep Tayyip Erdoğan noted “Turkey will never hesitate to stand against any attack on the rights and lands of Azerbaijan, with which it has deep-rooted friendly ties and brotherly relations.” Turkey’s Defense Minister Hulusi Akar even warned that Armenia will be “brought to account” for its “attack” on Azerbaijan. Then large Turkish-Azerbaijani military exercises followed.

Turkey’s calculus here is clear as the country needs to defend the vital oil, gas and railway infrastructure coming from Azerbaijan. And considering how far has diplomacy receded around Nagorno Karabakh issue, Turkey and Russia are set to play an even larger military and economic role in the South Caucasus. For the moment open rivalry will be avoided, but for Moscow and Ankara the region represents yet another area of covert competition along with Syria and Libya.

However, casting Azerbaijan-Russia relations as deteriorating is not entirely correct. Intensive cooperation still exists between the states. Azerbaijan’s Minister of Foreign Affairs, Jeyhun Bayramov, paid an official visit to Russia on August 26 at the invitation of Russian Foreign Minister, Sergey Lavrov.

In late August-early September Azerbaijani servicemen participated in the “Tank Biathlon” and also won the Sea Cup competition – both held as part of the “International Army Games – 2020” organized by the Russian Ministry of Defense.

It is still hard to see whether Azerbaijan’s changing rhetoric towards Russia is more than just a temporary, tactical maneuver. It could be a clever diplomatic game Azerbaijan has always pursued since 1990s – namely, facing its larger neighbors against one another. Nevertheless, the rhetoric and recent political decision signal a search for reconsideration of some basic elements in Baku’s strategic vision. Turkey’s bigger role is likely to be sought more intensively, while hopes for a diplomatic solution to the Nagorno Karabakh conflict would further recede.

Author’s note: first published in caucasuswatch

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Putting People in Control of Their Land to Realize Ukraine’s Potential

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Land reform will allow Ukraine to capitalize on its economic potential and improve the lives of Ukrainian people – but a lot still needs to be done before a successful land market opening.

I have now had the privilege of being the World Bank’s Regional Director for Eastern Europe for a little over two months. Returning to Ukraine after almost twenty years, I have been impressed by many recent achievements on Ukraine’s reform path.  Many of these are complex, and consequential – creating an independent gas transmission system operator that is already helping safeguard Ukraine’s gas transit revenue; continuing, in the face of opposition and setbacks, to strengthen anti-corruption institutions; undertaking the difficult process of resolving non-performing loans in state-owned banks; and moving, amidst the unprecedented global pandemic, to protect pensioners and other poor and vulnerable Ukrainians.

Today, the immediate challenge Ukraine faces is the COVID-19 pandemic – first to immediately reduce both the mounting toll on health and lives, and then to rebuild livelihoods and incomes. But what reforms are most needed to restore and even improve incomes for the average Ukrainian in the aftermath of the epidemic?

There are many that are required. But for me, the greatest promise is offered by the set of measures around agricultural land reform. Here again, much has been accomplished, most notably when, this past March , the Rada voted to end the nearly two-decade old moratorium on the sale of farm-land. This was a critical first step to unlocking Ukraine’s greatest source of growth. But it is not enough. The next and necessary step is to advance fundamental measures around the governance of land – to allow ordinary people and local governments to benefit from their land without intimidation, bureaucratic interference or corruption.

Land reform that truly allows owners and users to take control of their land can be transformative. By World Bank calculations, for Ukraine as a whole, this can permanently add almost one percentage point a year to economic growth. For landowners currently leasing out their land, this could provide up to  $3 billion every year. For rural residents and small farmers, this can create some  $24 billion of collateralizable assets that allow them to invest in irrigation, horticulture or non-agricultural small enterprises. And for local communities and local governments, this can provide an income stream of up to  $2 billion annually to better the lives of Ukrainians.

The Ukrainian authorities have already made enormous strides in this direction by passing a package of legislation that reduces raider attacks and land-related schemes, makes land data publicly accessible, and allows local communities to plan land use.

But there is much more legislation around land governance that is needed to ensure all the benefits of land reform for every Ukrainian. And just passing the laws is not enough – once that is done, there is the need to draft implementing regulations, to set up institutions to administer these regulations, and to actually implement measures.

Moreover, for improved land governance to lead to more investment, and thus income, it is especially important that Ukrainian landowners or land users be aware of their rights and how to exercise them, and have these rights protected. This is particularly true for small and medium farmers. They must be able to have any actual or attempted violations of their rights redressed quickly. Farmers and other private participants must know how to use land as collateral to access credit. Banks and other financial institutions must be able to professionally assess the value of the collateral and have the incentives to lend to smaller borrowers. Once relevant laws and regulations are in place, there is thus a need for a broad-based legal awareness and a financial literacy campaign.

All of this takes time – and time is running out.

By the most conservative estimates, the needed regulations, institutions and implementation could take at least nine months. The land market opens on 1 July 2021. So, it is essential to pass the appropriate laws by the end of September, at the very latest.

If this deadline is missed because of entirely avoidable delays, there is a real risk that on the date the land market opens, Ukraine will miss this golden chance. Even more, there is the danger that opening the land market in the absence of these strong legal and regulatory safeguards will result in an echo of the 1990s privatization – leaving the market vulnerable to the powerful and well connected and actually worsening land-related corruption and inequality.

Together with our partners, the World Bank has long advocated land reform as a key for Ukraine to develop the productive potential of its abundant land resources. We see this as central to revitalizing the incomes of average Ukrainians, especially in rural areas.

This is a once-in-a-generation opportunity to unlock the sector’s growth potential through investment in high value-added crops and agri-processing and, most important, to transform the welfare of millions of Ukrainians. Ukrainian parliamentarians and policymakers have to ensure that we do not miss it.

World Bank The article was first published in Ukrainska Pravda

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