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Azerbaijan’s response to COVID-19 related economic problems

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The spread of coronavirus (COVID-19) in Azerbaijan began in February. The first case of infection was recorded on February 28 and first death on March 12. As of April 17, Azerbaijan had 1,340 confirmed cases, 15 death and 528 people were recovered. The main source of infections was people who traveled to Azerbaijan from Iran – the epicentre of the outbreak in the Middle East. Despite the fact that Azerbaijan has border and close tourism relations with Iran, necessary measures have been taken in the early stages of the outbreak, which prevented the mass spread of the coronavirus. The first important measure was the closure of the border with Iran as of February 29 after the two Azerbaijan citizens who were returning from Iran tested positive for coronavirus.

As the the number of infections began to increase, other important and strict measures were taken. All land borders with the neighbors were closed and education and related activities have been suspended until April 20, later extended to May 4. Over 10,000 Azerbaijani citizens were evacuatedfrom other countries. Beginning from March 14, certain measures on social isolation began to be implemented, including the cancellation of large-scale events such as weddings, funerals and the closure of cinemas, museums and theaters.  

From March 24 according to the Article 25 of the Law of the Republic of Azerbaijan on sanitary-epidemiological safety the government declared special quarantine regime until May 4. Based on the rules of the special quarantine people above the age of 65 are banned from leaving home. Entry and exit to/from Absheron region which hosts Baku – the capital of the country and the second largest city Sumgayit and transportation between districts and cities was restricted (except the special-purpose vehicles). Along with these measures the operation of all shopping centers and the movement of subway trains (from March 31) in Baku was suspended.

Later, on April 5 the Azerbaijan’s government tightened quarantine rules in order to monitor movements of citizens and to encourage people to stay in their homes and apartments. According to the new rules, citizens could leave their homes only if they going to visit grocery stores, pharmacies, medical facilities and banks. For this citizens have to obtain permission by sending a text message.

Despite the fact that all taken measures are effective in preventing the mass spread of the coronavirus, it has also substantial economic implications. As the special working regime have been implemented in different sectors of economy during the quarantine, it has substantially weakened business activities and the development of different economic sectors. This situation created unemployment problems and financial risks. Taking into account the seriousness of the situation and the damage that workers and companies could face, the government stepped in to support the businesses, their employees and economy as a whole. For this purpose different economic and social measures began to be taken.

In order to coordinate all taken measures to fight COVID-19 on February 27 an operational headquarters under the Cabinet of Ministers was created. In the early March 10 million manat (5,9 million USD) was allocated to the Cabinet of Ministers to ensure that all necessary measures will be implemented on time. On March 19, President Ilham Aliyev announced the creation of the Fund to Support Fight Against Coronavirus and contributed his yearly salary to the fund. Also, additional 20 million manat (12 million USD) was allocated from the President’s Contingency Fund to the newly established fund to increase the effectiveness of the taken measures and to ensure material support to the medical workers providing relevant services. As of April 16, the total donations of different state agencies, companies and citizens to thefund have reached 112,233 million manat (65 million USD).

Also, on March 19 the President issued an order to allocate1 billion manat from the state budget to the Cabinet of Ministers for the implementation of measures to reduce the negative impact of the coronavirus pandemic on the economy, to ensure macroeconomic stability, to support employment and entrepreneurship. For the effective implementation of assigned measures the Cabinet of Ministers adopted an action plan which contains  theprogram of compensation for the damages to the entrepreneurs and their employees beginning April 8. The program covers 300,000 employees, 42,000 employers and about 300,000 private and micro-entrepreneurs. The program stipulates the allocation of 215 million manat (126 million USD) to preserve the salaries of the hired workers and 80 million manat (47 million USD) to support the individual entrepreneurs.

Along with supporting businesses the governmentallocated 400 million manat (235.2 million USD) to support social protection of citizens. Within the framework of the social package 190 manat ($112) lump-sum was planning to be paid to 200,000 unemployed citizens in April and May (then number was increased to 600,000). Another 50,000 unemployed people will get 300 manat aid per month. For the employees who had the salary higher than the monthly average the upper limit of social aid is set at 712 manat. Social protection measures also include the creation of 50,000 paid public jobs, the increase of monthly preferential electricity consumption limit for citizens by 100 kilowatts per hour in April and May, allocation of 40 million manat (23 million USD) for the training of students from low-income families and 280 million manat (164 million USD) for the vital passenger transportation. According to the taken measures in social sphere 20 million manat worth unemployment insurance payments will be expanded to 20,000 people. .

The government of Azerbaijan also began to implement the credit and guarantee support program which enables businesses to get loans with preferential terms. The total amountof funds allocated for this program is 1,5 billion manat (882,3 million USD). Through this program the government will provide state guarantee for 60% of new issued loans which amounts to 500 million manat (294 million USD). The highest percentage for the guarantee loans will be 15% and half of the percentage payments will be subsidized through the budget funds. The program will also support entrepreneurs with the existing loan portfolios who work in the coronavirus affected sectors. The government will subsidize 10% of the interest expenses of these loans for one year and for this purpose 1 billion manat (588 million USD) were allocated. All the measures related to the provision of preferential loans to businesses also support stability of the banking sector as without the government’s support the banking sector have risks to lose revenues that they acquire from the operations of these businesses. 

The economic support program of the government also envisages tax benefits, privileges and holidays for businesses entities. The tax payers engaged in catering activities will have simplified tax reduction and exemption from income tax. The import and sale of the products necessary for food and medical security and the raw materials that used in the production of these products will be temporarily exempt form Value Added Tax (VAT). Zero rate of the VAT will be applied to the services provided for the prevention of the pandemic. Tax concessions also include the extension of the deadline of income tax payments of 2019, provision of simplified tax exemptions to the micro-enterprises, the exemption from the property and land taxes until the end of the year, the exemption from the current tax payments for the specific industries, the exemption of the taxpayers from income tax for the relevant amount and period.

With the implementation of all these economic and social programs Azerbaijan became the country that allocated the biggest share of GDP to eliminate pandemic related economic problems among the post-soviet countries. All the budgetary funds that were allocated to support economic development, businesses and social protection of citizens reached 3 billion manat (1.8 billion USD)which is  12% of the state budget revenues and 3,5% of GDP. Creating favorable economic condition in the post-pandemic period is as important as supporting the economy in the period of the pandemic. Therefore, all programs under implementation and the huge amount of government funding will support the stability of economic development in the long-term period. 

Orkhan Baghirov is a leading research fellow in Baku based think tank named Center of Analysis of International Relations. He is PHD candidate in Public finance and fiscal policy. His areas of research include regional and international economic relations.

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Eastern Europe

Latvia developed new tasks for NATO soldiers

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Member of the Latvian Saemas’ national association “Everything for Latvia!” and Freedom”/LNNK Jānis Dombrava stated the need to attract NATO troops to resolve the migration crisis. This is reported by la.lv.  In his opinion, illegal migration from the Middle East to Europe may acquire the feature of an invasion. He believes that under the guise of refugees, foreign military and intelligence officers can enter the country. To his mind, in this case, the involvement of the alliance forces is more reasonable and effective than the actions of the European border agencies. Dombrava also noted that in the face of an increase in the flow of refugees, the government may even neglect the observance of human rights.

The Canadian-led battlegroup in Latvia at Camp Ādaži consists of approximately 1512 soldiers, as well as military equipment, including tanks and armoured fighting vehicles.

Though the main task of the battlegroup in Latvia is country’s defence in case of military aggression, Latvian officials unilaterally invented new tasks for NATO soldiers So, it is absolutely clear, that Latvian politicians are ready to allow NATO troops to resolve any problem even without legal basis. Such deification and complete trust could lead to the full substitution of NATO’s real tasks in Latvia.

It should be noted that NATO troops are very far from being ideal soldiers. Their inappropriate behaviour is very often in a centre of scandals. The recent incidents prove the existing problems within NATO contingents in the Baltic States.

They are not always ready to fulfill their tasks during military exercises and training. And in this situation Latvian politicians call to use them as border guards! It is nonsense! It seems as if it is time to narrow their tasks rather than to widen them. They are just guests for some time in the territory of the Baltic States. It could happen that they would decide who will enter Latvia and who will be forbidden to cross the border!

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Eastern Europe

Changes are Possible: Which Reforms does Ukraine Need Now?

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Photo: Robert Anasch/Unsplash

The past 16 months have tested our resilience to sudden, unexpected, and prolonged shocks. As for an individual, resilience for a country or economy is reflected in how well it has prepared for an uncertain future.

A look around the globe reveals how resilient countries have been to the COVID-19 pandemic. Some have done well, others less so. The costs of having done less well are almost always borne by the poor. It is for this reason the World Bank and the international community more broadly urge—and provide support to—countries to undertake economic and structural reforms, not just for today’s challenges but tomorrow’s.

One country where the dialogue on reform has been longstanding and intense is Ukraine. This is particularly true since the economic crisis of 2014-2015 in the wake of the Maidan Revolution, when the economy collapsed, and poverty skyrocketed. Many feared the COVID pandemic would have similar effects on the country.

The good news is that thanks to a sustained, even if often difficult, movement on reforms, Ukraine is better positioned to emerge from the pandemic than many expected. Our initial projection in the World Bank, for example, was that the economy would contract by nearly 8 percent in 2020; the actual decline was half that. Gross international reserves at end-2020 were US$10 billion higher than projected. Most important, there are far fewer poor than anticipated.

Let’s consider three reform areas which have contributed to these outcomes.

First, no area of the economy contributed more to the economic crisis of 2014-2015 than the banking sector. Powerful interests captured the largest banks, distorted the flow of capital, and strangled economic activity. Fortunately, Ukraine developed a framework to resolve and recapitalize banks and strengthen supervision. Privatbank was nationalized and is now earning profits. It is now being prepared for privatization.

Second, COVID halted and threatened to reverse a five-year trend in poverty reduction. Thanks to reforms of the social safety net, Ukraine is avoiding this reversal. A few years back, the government was spending some 4.7 percent of GDP on social programs with limited poverty impact. Nearly half these resources went to an energy subsidy that expanded to cover one-in-two of the country’s households.

Since 2018, the Government has been restructuring the system by reducing broad subsidies and targeting resources to the poor. This is working. Transfers going to the poorest one-fifth of the population are rising significantly—from just 37 percent in 2019 to 50 percent this year and are projected to reach 55 percent in 2023.

Third, the health system itself. Ukrainians live a decade less than their EU neighbors. Basic epidemiological vulnerabilities are exacerbated by a health delivery system centered around outdated hospitals and an excessive reliance on out-of-pocket spending. In 2017, Ukraine passed a landmark health financing law defining a package of primary care for all Ukrainians, free-of-charge. The law is transforming Ukraine’s constitutional commitment to free health care from an aspiration into specific critical services that are actually being delivered.

The performance of these sectors, which were on the “front line” during COVID, demonstrate the payoff of reforms. The job now is to tackle the outstanding challenges.

The first is to reduce the reach of the public sector in the economy. Ukraine has some 3,500 companies owned by the state—most of them loss-making—in sectors from machine building to hotels. Ukraine needs far fewer SOEs. Those that remain must be better managed.

Ukraine has demonstrated that progress can be made in this area. The first round of corporate governance reforms has been successfully implemented at state-owned banks. Naftogaz was unbundled in 2020. The electricity sector too is being gradually liberalized. Tariffs have increased and reforms are expected to support investment in aging electricity-producing and transmitting infrastructure. Investments in renewable energy are also surging.

But there are developments of concern, including a recent removal of the CEO of an SOE which raised concerns among Ukraine’s friends eager to see management independence of these enterprises. Management functions of SOE supervisory boards and their members need to remain free of interference.

The second challenge is to strengthen the rule of law. Over recent years, the country has established—and has committed to protect—new institutions to combat corruption. These need to be allowed to function professionally and independently. And they need to be supported by a judicial system defined by integrity and transparency. The move to re-establish an independent High Qualification Council is a welcome step in this direction.

Finally, we know change is possible because after nearly twenty years, Ukraine on July first opened its agricultural land market. Farmers are now free to sell their land which will help unleash the country’s greatest potential source of economic growth and employment.

Ukraine has demonstrated its ability to undertake tough reforms and, thanks to the COVID-19 pandemic, has seen the real-life benefits of these reforms. The World Bank looks forward to providing continued assistance as the country takes on new challenges on the way to closer European integration.

This article was first published in European Pravda via World Bank

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Eastern Europe

Liberal Development at Stake as LGBT+ Flags Burn in Georgia

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Photo: Protesters hold a banner depicting U.S. Ambassador to Georgia Kelly Degnan during a rally against Pride Week in Tbilisi, Georgia July 1, 2021. Credit: REUTERS/Irakli Gedenidze

Protests against Georgia’s LGBT+ Pride parade turned ugly in Tbilisi on July 5 when members of the community were hunted down and attacked, around 50 journalists beaten up and the offices of various organizations vandalized. Tensions continued the following day, despite a heavy police presence.

On the face of it, the Georgian state condemned the violence. President Salome Zourabichvili was among the first with a clear statement supporting freedom of expression, members of parliament did likewise and the Ministry of Internal Affairs condemned any form of violence.

But behind the scenes, another less tolerant message had been spread before the attacks. Anxiety about this year’s events had been rising as a result of statements by the government and clergy. Prime Minister Irakli Garibashvili suggested the march “poses a threat of civil strife.” The Georgian Orthodox Church meanwhile condemned the event, saying it, “contains signs of provocation, conflicts with socially recognized moral norms and aims to legalize grave sin.”

For many, these statements signified tacit approval for the abuse of peaceful demonstrators. Meanwhile, the near-complete absence of security at the outset of the five-day event was all too obvious in Tbilisi’s streets and caused a public outcry. Many alleged the government was less focused on public safety than on upcoming elections where will need support from socially conservative voters and the powerful clergy, in a country where more than 80% of the population is tied to the Georgian Orthodox Church.

The violence brought a joint statement of condemnation from Western embassies. “Violence is simply unacceptable and cannot be excused,” it said. The Pride event was not the first and had previously been used by anti-gay groups. Violence was widespread in 2013 — and the reality of attacks against sexual minorities in Georgia remains ever-present.

In a socially conservative country such as Georgia, antagonism to all things liberal can run deep. Resistance to non-traditional sexual and religious mores divides society. This in turn causes political tension and polarization and can drown out discussion of other problems the country is marred in. It very obviously damages the country’s reputation abroad, where the treatment of minorities is considered a key marker of democratic progress and readiness for further involvement in European institutions.

That is why this violence should also be seen from a broader perspective. It is a challenge to liberal ideas and ultimately to the liberal world order.

A country can be democratic, have a multiplicity of parties, active election campaigns, and other features characteristic of rule by popular consent. But democracies can also be ruled by illiberal methods, used for the preservation of political power, the denigration of opposing political forces, and most of all the use of religious and nationalist sentiments to raise or lower tensions.

It happens across Eurasia, and Georgia is no exception. These are hybrid democracies with nominally democratic rule. Armenia, Georgia, Kyrgyzstan, and others have increasingly more in common, despite geographic distance and cultural differences.

Hungary too has been treading this path. Its recent law banning the supposed propagation of LGBT+ materials in schools must be repealed, European Commission President Ursula von der Leyen said on July 7. “This legislation uses the protection of children . . . to discriminate against people because of their sexual orientation . . . It is a disgrace,” she said.

One of the defining features of illiberalism is agility in appropriating ideas on state governance and molding them to the illiberal agenda.

It is true that a mere 30 years since the collapse of the Soviet Union is not enough to have built a truly liberal democratic state. Generations born and raised in the Soviet period or in the troubled 1990s still dominate the political landscape. This means that a different worldview still prevails. It favors democratic development but is also violently nationalistic in opposing liberal state-building.

Georgia’s growing illiberalism has to be understood in the context of the Russian gravitational pull. Blaming all the internal problems of Russia’s neighbors has become mainstream thinking among opposition politicians, NGOs, and sometimes even government figures. Exaggeration is commonplace, but when looking at the illiberal challenge from a long-term perspective, it becomes clear where Russia has succeeded in its illiberal goals. It is determined to stop Georgia from joining NATO and the EU. Partly as a result, the process drags on and this causes friction across society. Belief in the ultimate success of the liberal agenda is meanwhile undermined and alternatives are sought. Hybrid illiberal governments are the most plausible development. The next stage could well be a total abandonment of Euro-Atlantic aspirations.

Indeed what seemed irrevocable now seems probable, if not real. Pushback against Georgia’s Euro-Atlantic choice is growing stronger. Protesters in front of the parliament in central Tbilisi violently brought tore the EU flag. Twice.

The message of anti-liberal groups has also been evolving. There has been significant growth in their messaging. The anti-pride sentiment is evolving into a wider resistance to the Western way of life and Georgia’s Western foreign policy path, perhaps because it is easily attacked and misrepresented.

To deal with this, Western support is important, but much depends on Georgian governments and the population at large. A pushback against radicalism and anti-liberalism should come in the guise of time and resources for the development of stronger and currently faltering institutions. Urgency in addressing these problems has never been higher — internal and foreign challenges converge and present a fundamental challenge to what Georgia has been pursuing since the days of Eduard Shevardnadze – the Western path to development.

Author’s note: first published at cepa

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