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.
Shifting Geography of the South Caucasus
One year since the end of the second Nagorno-Karabakh war allows us to wrap up major changes in and around the South Caucasus. Most of the changes discussed in the scholarly works so far focused on the role of Turkey and Russia. The shifting geography of the South Caucasus, however, has been disregarded.
In many ways, the war accelerated the pre-existing trends, but also initiated new developments. The first and foremost change concerns geography. The South Caucasus has been historically dominated by neighboring states. Whether it is the Sasanian and Byzantine empires in late antiquity or later Ottoman and Persian states, the region was exclusively subject to one or two powers. The idea is that the region was mostly closed to the outside, non-regional influence. The trend continued in 19th-20th centuries when the South Caucasus was exclusively dominated by Russian power. The end of the Soviet Union changed this geopolitical reality when several powers were able to penetrate the region. Yet the pace of the change was relatively slow – Russia was still able to minimize the extent to which the neighboring or non-regional countries were able to act in the South Caucasus: Turkey, Iran, US, EU, and to a certain extent, China have been influencing the region to a limited degree.
But the second Nagorno-Karabakh war accelerated this process. The South Caucasus’ borders are increasingly shifting. No single power or even a duo of countries can dominate the region. It reflects geopolitical changes in the world where the emerging multi-polar world ushers in a different set of rules. Exclusive geopolitical control is no longer viable and the 2020 war showed exactly this.
There is also yet another dimension of the unfolding geographic change. The war also solidified that the Caspian basin and South Caucasus are inextricably linked to the greater Middle East. Russia and Turkey are basing their strategies in the region on developments in the Middle East and the Black Sea region. Not since the end of the Soviet Union has the South Caucasus been such a critical point for the powers around it. In a way, this re-emergence of close contacts between the South Caucasus and the Middle East is a return to normalcy which was disrupted in the early 19th century by Russian annexation of the South Caucasus. Indeed, in pure geographic terms the region is better connected to Turkey and Iran than to Russia, with which it shares the impassable Caucasus Mountain range.
This also means that the role of the South Caucasus in the thinking of Iran and Turkey, and by extension Russia, has grown. Considered if not as a complete backwater region in the calculus of large powers, the South Caucasus has nevertheless experienced a lack of attention. This was especially true for Iran, which now struggles to retain its weakening position in the region.
It is true that Iran was never a dominant power in the South Caucasus. Unlike Russia or Turkey, the traditional power brokers, it has not had a true ally. Tehran was certainly part of the calculus for states in the region, but it was not feared, like Ankara or Moscow. And yet, the South Caucasus represents an area of key influence for Iran, based on millennia of close political and cultural contacts various Persian empires had with the South Caucasus.
The 2020 war changed Iran’s calculus in the region as the Islamic Republic’s interests were largely unheeded. Iran has now to adjust to the changed geopolitical landscape and it can be even argued that the recent escalation it had with Azerbaijan over the detained trucks, drills, and alleged Israeli influence, was an effort to wedge itself back into the geopolitics of the South Caucasus.
Yet there is little Iran can realistically do to boost its position in the region. The South Caucasus will certainly feature higher in Tehran’s foreign policy agenda than before. But Tehran does not have an ally in the region, nor does it have financial means to strengthen its soft power. Iran can support Armenia in its efforts to balance the triumphant Azerbaijan.
The lifting of US-imposed sanctions could augment Iran’s projection of financial and diplomatic power in the South Caucasus. Still, a more realistic approach for Tehran would be to build closer cooperation with Russia. Both loath growing Turkish influence and the Islamic Republic does not object to growing Russian influence as much as it does resent the West’s and Turkey’s presence. Surely, interests with Russia do not align always, but for Tehran, Moscow is a traditional power in the South Caucasus which is about maintaining a status quo. Turkey, on the other hand, disrupts it seeking greater influence.
There has been a certain retrenchment of the Western influence in the South Caucasus. While it does not signify a definitive decline in West’s fortunes, it is nevertheless important for Washington and Brussels to formulate a more robust approach toward the region. Decreasing the tensions with the Turkey could be one of the steps. Increasing economic engagement with the region would be another. Delay could be damaging. Georgia, which serves as a door for the West to the Caspian basin and on to Central Asia, could be the biggest loser if Washington shifts its foreign policy away from the region. An alternative could be a Russian model of peacebuilding and regional order where Georgia, Armenia, and Azerbaijan will face a lack of foreign policy options if the West’s unwillingness to commit to the region continues to grow. Author’s note: first published in caucasuswatch
Russia: The Neighbor From Hell
From Belarus to Ukraine to Georgia, an arc of instability has emerged, offering opportunities for malign activities by foreign powers. This has proved too tempting for Vladimir Putin’s Russia, which openly pursues an activist foreign policy seeking gains for the Kremlin at whatever cost to its neighbors. For the West, it is time to consider the wider Black Sea region as a whole and to develop a strategy.
The migrant crisis unfolding on the Belarusian-Polish border is the most pressing and serious emergency. For some months, the Belarus dictator Aliaksandr Lukashenka and his security services have been funneling thousands of Middle Eastern migrants toward the EU border. Officially, Russia has distanced itself from the crisis, with President Vladimir Putin on November 13 denying claims he had helped to orchestrate a crisis.
Russia is often disbelieved by neighbors with unhappy experiences of its statecraft. In this case, too, there are reasons to doubt Putin’s words. Firstly, the Belarus migrant drama bears an uncanny resemblance to the events of 2016, when the Kremlin unleashed a sudden wave of developing world migrants across Finland’s and Norway’s Arctic borders. Secondly, few believe Lukashenka’s regime on its own is sufficiently organized to orchestrate events of complexity spanning two continents.
Russia’s rapid dispatch of advanced combat aircraft and paratroopers (two of whom died in the exercise) to the Belarus-Poland border and Putin’s contemptuous dismissal of Germany’s Chancellor and the EU’s senior head of government Angela Merkel (she was told to call Lukashenka herself) were open signals of approval for the Belarusian position. Only when Lukashenka mused that he might cut off gas supplies to Europe was he publicly slapped down by Russia. It was also notable that Russia and Belarus recently agreed on further steps in their on-again-off-again Union state.
To the south, in eastern Ukraine, the clouds are also gathering. Fighting is worsening with Russia’s separatists in Donbas, and ceasefire violations are spiking. US briefings now suggest around 100,000 military personnel and large amounts of armored equipment are located within reach of the border; military movements are being organized at night. Not only does this follow the deployment of large Russian formations for exercises in the Spring, but it also matches a threatening drumbeat of anti-Ukrainian rhetoric from Russian leaders including Putin, who have questioned the country’s right to an independent existence. The Kremlin has increased funding for the Donbas and pledged humanitarian support to the rebel-controlled regions thus facilitating trade between Russia and parts of Donetsk and Luhansk.
The bottom line is that Russia is putting Ukraine back on the agenda and — as some predicted — forcing the Biden administration to take notice, despite its desire to park Russia and focus on China. Putin and his aides remain determined to build a near-exclusive sphere of influence in its neighborhood and Ukraine is the crown jewel in its geopolitical thinking. If Russia is finally seeking a settlement to its seven-year-long forever war, that would require agreement from Ukraine to effectively hand control of eastern regions to Russia and its local agents, plus a commitment to stop the country from joining Western military and economic institutions. There is no sign that Ukraine will agree to such constraints on its sovereignty.
Further south in the South Caucasus, Georgia, the West’s only partner in the region, is suffering a continuing crisis following the municipal elections in October and the former president Mikheil Saakashvili’s stealthy return to the country. He is now in prison on a hunger strike. Russia lurks here too. It might not be orchestrating the crisis, as in Belarus, but it does benefit. Russian media has been actively addressing the events in Georgia and playing on recurrent tensions between the country and its Western partners, especially the European Union (EU). As always, chaos — sometimes resulting from direct Russian interference, and sometimes not — makes it harder for candidate countries to meet the membership terms of Western clubs while emboldening those European countries sympathetic to Russia and skeptical of expansion. This makes it harder for organizations like the EU to engage Georgia.
Russia’s grand strategic aim is to maintain its power in neighboring states. That means keeping the West at bay, and political instability serves that purpose. Belarus, Ukraine, and Georgia are distant, but the Kremlin is always present. In some cases, it resorts to military pressure to gain momentum, in other cases it sits and waits, but the pattern signals a clever use of opportunities as they arise, exploiting the space given by a West signaling decreasing willingness to engage in the wider Black Sea region.
Seen from the long-term perspective, the 1990s and 2000s were a period of a slow but steady decline of Russian influence in what then constituted the former Soviet Union. From the Kremlin’s point of view, the present period is much more productive, with concrete gains and the reversal of the West’s military and economic expansion. For Putin and his ministers, it seems likely that the US considers defending Ukraine, Georgia, and even involvement in the Belarus-Poland border crisis costlier than the potential benefits of having these countries within America’s geopolitical perimeter.
The ground is now prepared to seek a reversal of the West’s geopolitical gains and cast aside the wishes of the people of Ukraine and Georgia. The push against aspiring liberal democracies is now gathering pace, timed to coincide with a wider geopolitical shift, namely the recalibration of US foreign policy to east Asia.
Author’s note: first published in cepa
Five Important Principles for a Successful Mandatory Funded Pension for Ukraine
The government’s plans to launch a mandatory funded pension scheme (the so-called second pillar) has provoked a lot of debate about future of pensions in Ukraine. Over the past quarter century, second pillars were introduced in several of Ukraine’s neighboring countries. Contrary to common belief, such schemes are not immune to politics, as they change and evolve constantly. So, it would be important to ensure a design for the program that can be preserved and perpetuated in Ukraine’s specific economic, social and political context.
Neither of the two types of pension schemes – solidarity and fully funded – is better than the other. In fact, they work best when they complement each other, as each is exposed to different risks. Thus, an effective reform will need to be centered around enabling synergies between the two schemes.
While the funded system is proposed as a risk mitigation strategy for the solidarity system in Ukraine, it also carries important implementation risks. To make Ukraine’s pensioners more secure, the Ukrainian government will need to map out all such risks and address them along the path to launching the new system. From global experience assessed by the World Bank, there are five key principles that should guide the preparatory work.
1. Strong regulatory and fiduciary framework. This is a key precondition for safety of the pension assets. First, no funded system should start without a regulator that is well-equipped and able to effectively enforce all legal provisions. Bill 5865 in Rada introduces a proper regulatory framework and powers of the regulator. This bill should certainly form part of the reform package. Second, it will also be important to establish proper segregation of assets and records between the activities of the existing voluntary plans and the new mandatory scheme. And third, several governance issues pertaining to non-state pension funds (especially the ultimate fiduciary responsibility of their boards, risk management and internal controls) will need to be addressed to have these funds prepared for their new role and be seen by the public as effective and trusted custodians of their pension assets.
2. Sustainable financing. The funded system can be introduced either as a complementary scheme to the current solidarity system or as a substitutional system. The current government proposal is a hybrid: on the benefit side, it is complementary, but on the revenue side, part of the solidarity system contributions is proposed to finance the new funded scheme. Such an approach may limit the effectiveness of the new system fiscally and socially, aggravating the risk of falling benefits in the solidarity system. This may result in no net improvement in the future combined retirement benefits from this reform. Instead, to maximize the impact of the new funded system, it will need to be funded from new contributions, without tapping into the same fiscal space that provides for the wellbeing of current pensioners. Ideally, these new contributions should come from employee wages, so there is personal attachment to the pension account – a signature element of individual responsibility in such programs. Such employee contributions could further be co-financed by the employer and/or by the government, as an incentive to contribute more for retirement.
3. Efficient administration. The mechanism of money and information flows in the new system should be carefully designed and tested, so that the administrative costs of the new system are minimized. No single Hryvna should be lost on its way from employers to an individual account, as it passes through the government machinery of revenue collection. For this, every detail of the process needs to be elaborated and all risks mapped and mitigated. It can be shown that a 1% annual charge on pension assets over someone’s full work career reduces around 20% of their pension benefits by the time of retirement. Therefore, cost reduction is key – and it has been shown that centralizing core administrative functions is an effective cost reduction strategy. Finally, simple provisions need to be introduced for individuals who do not actively choose a fund. This would pave the way to establishing a “default” fund with a life-cycle investment strategy. Importantly, a gradual implementation approach should help minimize various operational risks. So, Ukraine should start with a simple design that can be easily understood by the general public – and add more complex elements to the system over time.
4. Overall pension system design. The new funded scheme will be only a small supplement to the current system. With a 4 percent contribution rate, it will take an individual about 25 years of contributions for the account value to reach their corresponding annual wage in that year in the future. This is a rather insignificant amount, considering that this accumulated amount equivalent to one year’s wage will have to be spread over the remaining life of an individual after retirement. Therefore, better coordination with the solidarity system, especially its system of minimum income guarantees, is required
5. Well-defined role of the state. Explicit legal provisions about what government can and cannot do will put the system on the right track. The state plays several important roles here: ensuring proper regulations and fair competition in service provision; facilitating a “default” fund; providing co-financing from the general budget to stimulate participation; enabling core record-keeping infrastructure and standards of member services; facilitating markets for financial instruments to promote diversification of investments; providing well-coordinated general minimum income guarantees at retirement, through the solidarity system; and so on. So, having a clear implementation plan and well-defined transitional arrangements will be instrumental to the success of this reform.
A lot of work needs to be done to ensure that Ukraine’s future pensioners have an adequate pension that will allow them a dignified retirement. Therefore, learning from the successes and mistakes of other countries, the government should target a realistic timeline to build the second pillar – with well-coordinated preparatory work yielding a consensus on key design elements (incorporating all the above principles).
Originally published in UKRINFORM via World Bank
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