October 2000

Central Asia and the South Caucasus: Reorientations, Internal Transitions, and Strategic Dynamics-C

Conference Report

The views expressed are those of individuals and do no represent official US intelligence or policy positions. The National Intelligence Council routinely sponsors such unclassified conferences with outside experts to gain knowledge and insight to sharpen the level of debate on critical issues.


Executive Summary

In April 2000, the National Intelligence Council sponsored a conference that examined the strategic dynamics of the Central Asian countries of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, and the South Caucasus countries of Armenia, Azerbaijan, and Georgia. The conference brought together approximately 100 government and outside experts, including officials and scholars from the countries concerned. It consisted of six panels with presentations from more than 30 academic and regional experts, followed by question-and-answer sessions. The purpose of the conference was not to arrive at a consensus but to deepen understanding of the region. The views expressed are those of the individual participants and do not represent in any way official US intelligence or policy positions.

Keynote presenter Gen. Anthony Zinni focused on the 10 key challenges facing Central Asia, which ranged from creating a national identity and reconciling the role of Islam in society to coping with political, economic, and military reform. Dr. James Schlesinger made a lunch presentation that cast doubt on the realization of the Baku-Ceyhan pipeline project, given the trade-off between means and ends.

Participants and panelists made a number of salient points during the conference that should be considered by those who analyze developments in the South Caucasus and Central Asia. These observations and judgments, however, do not necessarily represent the views of the conference participants as a whole.

Outside Influences and Relationships

Need for Clarification and Differentiation

Social Cost of Transition

Uncertain Outlook

Contents

Executive Summary

Opening Remarks

Keynote Address

Panel I
Challenges to State-Building: Internal Fault Lines and Impediments

Highlights From the Discussion

Panel II
Challenges to State-Building: The Impact of Megatrends on the Regions

Highlights From the Discussion

Panel III
Regional Dynamics

Highlights From the Discussion

Panel IV
View From the Periphery

Highlights From the Discussion

Panel V
Impressions From the Field

Highlights From the Discussion

Panel VI
Concluding Roundtable: The Outlook of the Larger
Geopolitical Environment and Key Variables

Appendixes

A. Conference Agenda

B. Participants


Opening Remarks

George Kolt,
NIO for Russia and Eurasia, National Intelligence Council

American engagement with Central Asia and the South Caucasus as regions in their own right began only a few years ago. Not surprisingly, there is much we still have to learn. This conference attempts to gain a new and deeper understanding of changes in the political, economic, and strategic orientations of each of the states of Central Asia and the South Caucasus and to explore how these states fit into the larger regional context. The panels were designed to examine the character and extent of these states' internal transitions, and the effects of these transitions on international orientation; explore how and in what directions the states of Central Asia and the South Caucasus could be reorientating both within the region and beyond; and assess the new strategic dynamics that are unfolding throughout Eurasia.

In the past we became accustomed to thinking about Central Asia and the South Caucasus through the prism of Russia. Today, Russia's shadow looms large in both regions but most states have moved in new directions. This conference seeks to move beyond the traditional Russia-centric filter, but is not intended to be anti-Russian in focus. Russia will continue to have a role to play but it will be one among many actors in these regions. Essentially, we do want to explore each of these countries and regions in their own right as well as the connections between them but without equating the two regions.

Presentations are on-the-record and will be included in a conference report. Discussions are not for attribution, thus speakers will be identified only as discussants, panelists, commentators, and so forth. The views expressed by participants and panelists are strictly their own and not necessarily the views of the NIC or the United States Government.


Keynote Address

A US Strategic Perspective on Central Asia

Gen. Anthony Zinni, Commander in Chief, United States Central Command

US Central Command (CENTCOM) is a newcomer to Central Asia. After the demise of the Soviet Union, several of the military commands sought to bring Central Asia into their area of responsibility. Long deliberations ensued over whether to include the region in the European Command or in the Atlantic Command, both of which lobbied to take over responsibility for the region. CENTCOM, which is largely focused on activities in the Middle East and the Persian Gulf, did not seek out new responsibilities, but the Department of Defense finally decided to grant CENTCOM responsibility for the five Central Asian states in October 1998.

My initial impressions were that the new states in Central Asia are "fragile" but that the region is important as a crossroads for great powers. There are 10 key challenges that must be addressed by the governments in the region.

Fundamentalism and the Role of Islam in Society

The governments must reconcile the role of Islam in society to counter the new fundamentalism emanating from Afghanistan and Pakistan and to mitigate the effects of the turmoil in the North Caucasus. This "new jihadism" that consists of disparate, radical groups coordinating their activities from Afghanistan and Pakistan poses the most urgent threat to stability in Central Asia.

Military Reform

The Central Asian states have inherited Soviet military capabilities--for example, heavy motorized vehicles--that were designed to fight the United States and the West. These systems are not compatible with the security problems that these states face today; the most immediate security concerns are border security, internal security, and narcotrafficking. To counter these threats effectively, the governments in the region need to restructure and re-equip their militaries with light, highly mobile units that can operate in mountainous terrain. This reengineering process will require support in the areas of education, training, and leadership development.

Power Plays in the Region

These fragile states are pulled in all directions by China, Russia, the West, Iran, Pakistan, Turkey, and other actors with an interest in the region. Each actor is driven by a different combination of interests--economic, political, strategic, cultural, religious, or social. Energy pipelines represent an example of the external dynamics that will fundamentally shape Central Asia and the South Caucasus. Which direction will the pipeline go--north, east, south, or west? All the surrounding states seek to secure a stake in Central Asia's energy riches.

Regional Identity

These states do not view themselves through the same prism that we do. We think of them as the "stans," which are part of a discrete region that is defined by various regional organizations, such as GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan, and Moldova) and CIS (Commonwealth of Independent States). It is clear that each country has its own view of the security threats in the region. If security cooperation is to be successful, it cannot be imposed by external actors but rather worked out together by the external actors and the individual states in the region.

Economic Development

The initial euphoria about the energy riches in the region has led to high expectations. Until now, those high expectations have only led to disappointment in the region.

Soviet Legacy

The new states in the region struggle with a love-hate relationship with their Soviet legacy. They seek to discard their Soviet identity, but would like to retain the social protection that the Soviet system provided. Artifacts, such as national borders that poorly correspond to ethnic groups, impede the development of new national identities.

Search for Identity

Each ethnic group is searching for its own identity after years of suppression. Given the constraints within which they must operate, ethnic groups are striving to reestablish themselves. The ethnicity map is a recipe for trouble for the governments in the region as this search for identity unfolds.

Speed of Democratization

The United States is committed to democratization in the region, but there are substantial obstacles.

Environment

The region suffers from the horrific environmental legacy of the Soviet Union. The Department of Defense (DoD) is focusing on water-related problems in the region. Water, not energy, probably will be the cause of a conflict in the region within five years.

Corruption, Crime, and Drugs

Drug trafficking is tied inextricably to Islamic extremism. Afghanistan, as a leading producer of opium, is a source of revenue for extremists in Afghanistan and Pakistan. Corruption-drug- and non-drug-related-continues to plague all the governments across the region.

The United States must pay attention to this region because of its centrality in Asia and its strategic importance. This region will continue to be an area of great power competition. The challenge for the United States is to understand the threats and interests in Central Asia and assimilate them in a way that will intersect with US objectives.

Panel I
Challenges to State-Building: Internal Fault Lines and Impediments

This panel examined the internal conditions and challenges that the governments across the region face as they modernize their political and economic institutions. The panel also explored how the history of these countries is shaping their future direction and what might be expected of the new generation of leaders who will inevitably be taking control during the next decade.

Chairman: S. Enders Wimbush
Hicks & Associates, Inc.

Modernizing State Institutions in Central Asia and the South Caucasus

Gregory Gleason
University of New Mexico

In all of the states of Central Asia and the South Caucasus, the public sector has undergone significant redefinition since national independence. How capable are the new states of the region at promoting their national interests as they approach the close of the first decade of national independence? Have the states accommodated international standards of good governance and best practice? To what extent have the public institutions of these societies redesigned themselves so as to accommodate the emerging challenges of the 21st century? What necessary domestic institutional changes have been avoided or postponed in this first decade, and what do these facts imply? Finally, what are the dynamics at work and the boundary conditions at play in public sector redesign in this part of the world? How can outside actors influence these?

Central Asia and the South Caucasus are political concepts that refer to clusters of countries tied together by interdependencies resulting from political, economic, transport infrastructure, market linkages, and cultural factors. Central Asia includes Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, and the South Caucasus includes Armenia, Azerbaijan, and Georgia. A survey of the region reveals some strong common tendencies:

It should also be noted:

There is a fundamental paradox in the role of the state in a globalizing society: A state that is powerful enough to control the instruments and mechanisms of public affairs is also powerful enough to abuse those instruments and mechanisms. In an effort to discourage abuse by the state, many critics of the modern state argue for a public sector that is reduced in size and scope. They also argue that increased economic efficiency is correlated with decentralization, local control, and local responsiveness. The debate regarding the size and scope of the "post-Communist state" centers around the fact that the state is both the "broker" and the principal actor in the process of post-Communist destratification.

In terms of comparative political theory, the role of the state has undergone substantial reconsideration in recent decades. Forty years ago, many Keynesian economists and public managers regarded the state as the "engine" of development. This view, in conjunction with the failure of markets to provide public goods and services, to effectively regulate the use of public utilities and natural monopolies, and to provide protection for common resources such as fisheries, forests, and rivers, provided a rationale for "strong states" that would be capable of stimulating growth or intervening in markets to protect the public interest.

In some cases increased state intervention in markets led to effective, and publicly oriented policies, but in many cases governments embarked on ill-conceived, grandiose, and fanciful, schemes that led to overextension of the public sector while squandering public resources. Failures of government often led to redoubled efforts through coercion to bring about the desired outcomes. The fusion of government and politics led to easy opportunities for corruption and conflicts of interest.

In a globalized world (that is, post-1990), the preferred model of the effective state is moving away from the role of the state as producer and provider of a wide range of goods and services to a more circumscribed role as information manager. This role emphasizes the provision of core public goods and the facilitation and regulation of the production of private services and goods, toll goods, and common pool resources.

In societies where corruption, bribery, and abuse of public office are commonplace, the reduction in the arena of control of the state may be justified. But at the same time, disestablishing the state can be expected first of all to lead to detrimental effects on the least powerful and least advantaged sectors of the society. Those closest to the state are apt to circumvent the effects of reduced size and influence, transferring the costs of downsizing or functional redesign to those less politically influential. Thus, in Central Asia, reduction in the size of the public sector is not by itself a formula for establishing a more equitable, more competent, less avaricious public sector.

There are a variety of approaches to measuring the public sector vis-a-vis the private sector. The most common are: 1) GDP comparisons; 2) work force comparison; 3) analysis of the government regulatory "footprint"; and 4) public spending ratios. Using these measures, the public sectors in the Central Asian and South Caucasus states illustrate transformations not unlike those of the modern states in other parts of the non-Communist world. "Post-Communist transition" may not be significantly different from the globalization processes we are witnessing in many parts of the world.

Legacies of the Past and New Directions in Leadership: South Caucasus

Audrey L. Altstadt
University of Massachusetts-Amherst

History

History always matters, whether or not individuals are aware of it. Finding the relevant legacies requires looking deeper into the past than one gets with a mere "outline" or "background." Furthermore, "history" is constructed on the basis of particular questions and selected documents. Myths and memories may also play a part. Thus the "use" of history is neither simple nor straightforward. Sometimes knowing a people's beliefs about the past is more informative in understanding today's motives than in knowing all the details of documented and verifiable history.

In the Caucasus, history, even including remote history, which is difficult to verify, has an immediacy that surprises most Americans. Present-day territorial claims and visions of sovereignty can be shaped by beliefs about events as far back as the sixth or second centuries.

One powerful short-term legacy is that of Russian rule under both tsars and commissars. Russian rule influenced not only cultural features of the Caucasus such as the use of Russian language and the types of schools, but also determined today's borders (aside from the de facto change in the Karabakh region), much of the economic division of labor, and the basic political culture. On the last issue, an authoritarian mentality of control is an enduring feature, both inside and outside governing circles.

Each republic, of course, has its own legacies that are shaped by its native culture, including religion, language, and its history prior to the Russian conquest early in the 19th century. On that basis, each was treated differently under Russian and especially Soviet rule; each today has its own configuration of "friends" and "enemies."

Salient legacies on which democracy and the rule of law can be constructed are profoundly lacking. These include Western traditions seen in the Enlightenment (though rooted more deeply in Western history) of individualism and the belief in the ability of human beings to think and learn rationally, and respect for the rule of law and legality. Whether these can be "imported" is an important and fundamental question for all former Soviet regions.

The New Generation of Leaders

The new generation of leaders in each republic is, of course, shaped by both native culture and beliefs about history, and by the Russian-Soviet legacies. They are also, however, affected by the changing situation of the late Soviet era and the first decade of independence, which thrust these republics into greater regional and global interaction.

The oldest "new" generation includes those leaders who led anti-Soviet or pro-independence reform movements in the Gorbachev era. They were generally people in their 30s in the late 1980s who are now in their 40s. One way to view this younger generation is to determine whether they were "insiders" or "outsiders" with respect to the old system. "Insiders" were not merely party members but those who made themselves successful within the party and old state structure. These people tend to behave like authoritarian Soviet-era leaders. Some "outsiders," however, are prone also to use strong-arm tactics and intimidation perhaps because this was the only political culture they knew--people with power act like people with power. They have not yet entirely integrated their democratic ideas with their personal actions.

The political leaders now in their 30s are even further removed from the Soviet political culture. Consequently, their direction is harder to predict. Some political figures in their 30s exhibit an authoritarian streak, and societal instability seems to reinforce this. Yet the age group is quite mixed, and each individual must be examined separately.

Directions

The directions they may take the Caucasian states are rooted firmly in their own attitudinal and behavioral tendencies, but will most likely be responsive or "reactive." It would be hard for a new generation to initiate innovative policy; it will be forced simply to react to domestic and regional (as well as broader international) pressures.

It would be hard to imagine, to take one example, a scenario in which Armenia came to regard Russia as an enemy or in which Azerbaijan became hostile to Turkey. A warmer Armenian response to cautious initiatives by Turkey (which have already taken place), however, could open the door to improved Armenian-Turkish political and even commercial relations. Armenia would clearly benefit from this, as would other states of the region. It would, however, disrupt the current balances of political influence in the region to Russia's (and Iran's) detriment. Russia might respond aggressively (likely under any ruler, but perhaps more so under Putin) to keep the region from moving too far away from Russian influence. Russia remains a check on such significant realignments of any one state in the region or of all three.

Subtle internal moves could be more effective: market reform, tax reform, and privatization as one "package," and greater political pluralism, institution of the rule of law (and an independent judiciary), and safeguarding of civil rights as a second "package." These packages would slowly "restructure" the Caucasian states individually and move them, de facto, further from Russian influence. Most younger leaders seem inclined to move in this direction but could be derailed by unrest that seems to require authoritarian measures.

Dynamics of Succession

The dynamics of succession have been and are likely to remain stormy. Armenia has had several elections with varying degrees of falsification and coercion. The events of last October show that violence can lurk just beneath the surface. Several parties contend for dominance.

Azerbaijan and Georgia present especially thorny cases because in each, an authoritarian "grand old man" of Soviet and national politics will, within the decade and perhaps in the next year or two, be ending his rule. Each controls a single dominant political party as others strive to gain strength. The instabilities and unrest in each republic in the past show that the loss of the "strongman" can plunge a republic into chaos. A Russian role in such a transition cannot be ruled out. This political puzzle, more even than oil and gas production and pipelines, should be a focal point of analysis of this region.

Legacies of the Past and New Directions in Leadership in Central Asia

Martha Brill Olcott
Carnegie Endowment for
International Peace

In many ways the Central Asian states are frozen in time. In every state but Tajikistan, the old Soviet-era nomenklatura is still in control. This is the sense in which history counts the most--those who were on top at the time of the collapse of Soviet rule intend to stay on top.

This history of the past is being rewritten to make this more possible. In Uzbekistan, Timur the Lame has become the central historical figure, helping to justify Islam Karimov's strong rule. In Kazakhstan, the role of the Great Horde is being emphasized, as this is the group that long dominated the Communist Party. Turkmenistan is creating a synthetic blend of medieval Central Asian and modern Turkish history around the person of Niyazov. The Kyrgyz trumpet the democratic nature of nomadic society.

With the exception of Kyrgyzstan, none of these models provides any basis for transfer of authority from leader to leader or generation to generation. The Kyrgyz model facilitated it, which is one reason why the Kyrgyz seem to have abandoned it. President Akayev sees that his position is threatened by these democratic principles.

In general, the authoritarian and semiauthoritarian nature of political rule in the region has led these societies to be more static than in some of the other Newly Independent States. One of the serious consequences of heavyhanded politics is that a class of independent entrepreneurs has been slow to develop. This is especially true in Turkmenistan and Uzbekistan, where there has been great resistance to radical economic reform. The lack of an economic elite with an independent power base creates pent-up demand in each of these countries and makes it difficult to predict how the inevitable succession struggles will unfold. This makes it very difficult to predict who will come to power, when, and how.

None of the region's leaders are likely to give up power willingly. Yet each country will become vulnerable to interelite struggles as he physically weakens. Tajikistan has already experienced one such struggle, which resulted in a lengthy civil war. The elite structure in Uzbekistan is still complex enough, even after more than a decade of Karimov's rule, to permit serious behind-the-scenes power struggles. The process of coalition-building could lead to the empowerment of a radical alternative elite.

Kazakhstan also has a highly complex pattern of elite relations. There is less a risk of upheaval here, in part because the country is further along in its economic transformation. The size of the country and the tradition of relative isolation of regional (and sector-specific) elites makes it unlikely that there would ever be a coup against President Nazarbayev. Should he try to pass power to the younger generation, however, the "heir" would most likely face a considerable challenge in consolidating power. It is still too early to know how pro-Western or pro-Russian (or pro-Chinese) the next generation of Kazakh leaders will be. Much depends upon the success of economic reform and the speed with which Kazakhstan develops its natural resources.

The pattern of elite relations is less complex in Kyrgyzstan and seemingly so in Turkmenistan as well. In both cases, the ruling family seems to be successfully consolidating economic control, but is doing so in different ways. The different economic patterns in the two states make it difficult to generalize across the two. In a decade or so the Kyrgyz ruling family may decide that conditions in Kyrgyzstan are so bleak that it prefers to move its assets abroad, rather than risk a difficult succession struggle. The "prize" in Turkmenistan is definitely worth the struggle. The shape of the struggle, though, is more difficult to predict as traditional Turkmen society is relatively opaque to the outside observer.
Country Data                                            
             1994 1995 1996 1997 1998 1999a
Armenia                                  
GDP Percent growth 5.4 6.9 5.8 3.0 7.2 4.9
Industrial output Percent growth -10.3 5.3 1.5 1.2 0.9 -2.5
Average annual inflation Percent 5,273.4 176.9 18.8 13.8 8.7 3.1
Exchange rate, end-year Dram per US $ 405.5 402.0 435.1 495.0 522.0 548.6
Consolidated budget balance Percent of GDP -16.9 -8.9 -8.6 -5.9 -5.9 -6.1
Current account balance Percent of GDP -16.0 -17.4 -18.2 -18.8 -20.7 -20.4
Georgia              
GDP Percent growth -10.4 2.6 8.6 11.3 2.9 2.4
Industrial output Percent growth -39.7 -9.8 7.7 8.1 -2.7 1.9
Average annual inflation Percent 15,605.5 162.7 39.4 7.1 3.6 20.1
Exchange rate, end-year Lari per US $ 1.4 1.2 1.3 1.3 1.8 1.9
Consolidated budget balance Percent of GDP -16.5 -4.7 -5.2 -3.5 -3.6 -4.1
Current account balance Percent of GDP -20.9 -12.7 -7.0 -10.1 -11.0 -7.2
Azerbaijan       
GDP Percent growth -19.7 -11.8 1.3 5.8 10.0 6.5
Industrial output Percent growth -24.8 -21.4 -6.7 0.3 2.2 4.1
Average annual inflation Percent 1,663.5 411.8 19.9 3.7 -0.8 -5.9
Exchange rate, end-year Manat per US $ 4,182 4,440 4,098 3,888 3,890 4,410
Consolidated budget balance Percent of GDP -10.3 -5.2 -2.9 -2.6 -2.0 -4.5
Current account balance Percent of GDP -6.5 -16.6 -29.3 -23.8 -33.1 -34.5
a Projected.


Economic Change and Modernization: South Caucasus

Ben Slay
PlanEcon, Inc.

Despite some common legacies in terms of history, geography, and Soviet rule, the economies of the South Caucasus present as many contrasts as commonalties.

Commonalties

First, the region is at low levels of economic development. When measured at market exchange rates in 1998, Georgia had the highest level of per capita income at $900, followed by Azerbaijan at $540, and Armenia at $500.(1) When measured via purchasing power parity (ppp) exchange rates, 1998 per capita income was greatest in Armenia ($2,700), followed by Georgia and Azerbaijan ($1,900).

Second, all three countries went through a transition shock during the early 1990s, when steep declines in output and high inflation rates were recorded. The output shock reflected a number of factors, including: (1) disruptions in economic activity that accompanied the dissolution of the USSR; (2) inflationary consequences of price liberalization in the context of the ruble zone; (3) weaknesses of nascent economic policy institutions; and (4) military conflicts over Nagorno-Karabakh, Abkhazia, and South Ossetia. The introduction of national currencies in 1993-1994, and the conclusion of agreements with the International Monetary Fund (IMF) and World Bank allowed these countries to sharply reduce inflation rates. But despite the rapid growth recorded by Georgia in 1996-1997 and by Armenia and Azerbaijan in 1998-1999, living standards for much of the population in all three countries probably remain well below pre-1992 levels.

Third, Russia remains all three countries' most important economic partner. In 1998, Georgia's exports to other members of the Commonwealth of Independent States (CIS) was 54 percent, for Azerbaijan this ratio was 38 percent, and for Armenia 37 percent. Azerbaijan had the highest import share (38 percent), followed by Georgia (35 percent), and Armenia (25 percent). When compared with data from 1992, these shares reflect a sharp fall from 80 to 100 percent of both exports and imports.

Differences

Perhaps the largest difference among these three countries lies in the fact that Azerbaijan is endowed with significant hydrocarbon resources while Georgia and Armenia are not. Although much of its potential remains unexploited, Azerbaijan's oil sector accounts for more than 50 percent of industrial production and 10 percent of Gross Domestic Product (GDP). Oil-related investment, trade, and service activities account for additional large contributions to GDP. The approximately $1 billion in foreign investment that Azerbaijan is now attracting annually translates into 33 percent of 1998 GDP. On the other hand, the Azerbaijani economy is potentially quite vulnerable to swings in world energy prices.

By contrast, the nonhydrocarbon economies rely more extensively on agriculture and the service sector. In Armenia, agriculture produces about 40 percent of GDP. In Georgia, agriculture accounts for 26 percent of GDP, and industry and trade account for 12 percent each. Armenia and Georgia are also quintessential small open economies with large current account deficits that are financed by transfers and concessional lending from abroad.

Economic trends during 1998-1999 are a third major difference. Azerbaijan and Armenia were the only two CIS countries to report strong GDP growth in 1998 and 1999. Oil production and oil-related construction projects picked up in Azerbaijan, while a bumper crop in Armenia boosted the all-important agricultural sector. Georgia's GDP growth decelerated sharply from 11 percent in 1997 to 3 percent in 1998, and to about 2 percent last year.

Economic Change and Modernization: Central Asia

Boris Rumer
Harvard University

All these negative dynamics threaten to doom the economies of Central Asia to protracted stagnation, at least in the foreseeable future.

In assessing the current state of affairs in these countries, it is essential to acknowledge the paucity and unreliability of much of the statistical information emanating from the region. Particularly important is the lack of accurate data about the scale of the shadow economy, which some experts estimate to be as high as 40 percent of the GDP. Much is also written about the enormous magnitude of the drug business; in the apt phrase of some, the medieval "silk route" has turned into the "narcoroute." Despite the importance of illicit activities, it is impossible to determine the actual scale of production and trafficking.

During the 1990s, the countries of post-Soviet Central Asia have had to traverse a tortuous, twisted path--ne that has led them for a euphoria of unbounded hopes to a mood of profound despair and disenchantment. The exhilaration that accompanied the sudden (and unexpected) realization of independence at the start of the decade has given way to intense public frustration and a pervasive economic crisis. From 1991 to 1998, the level of economic activity plunged catastrophically--by 39 percent in Kazakhstan and Kyrgyzstan, 45 percent in Turkmenistan, and 66 percent in Tajikistan. The exception to this pattern was Uzbekistan, where GDP decreased by less than 10 percent during this period. Although that country exhibited some signs of modest economic growth (at least according to official statistics) those gains are highly misleading: Uzbekistan has actually been rebuilding the Soviet economic model, a policy that will most likely lead only to stagnation and perhaps even a crash.

This economic crisis has been unfolding against a background of continuous demographic growth. The impoverishment of the broader population in the region has reached truly menacing proportions; the gulf between the fragile stratum of super-rich ruling elite and the majority living below the poverty line has reached dangerous levels.

The main factors contributing to economic growth in Central Asian countries have been foreign trade, foreign investment, and foreign loans and credits. The economies of the countries of the region are critically dependent on foreign trade. The foreign trade turnover in these countries represents 60 to 70 percent of the GDP. In all countries, imports exceed exports. So, the dynamics of the Central Asian economies are totally determined by the conditions prevailing on world raw material markets. The sharp upturn in world prices of oil, metals, and cotton brought about an improvement in the economic situation in Central Asia in 2000 from the previous two years. If one disregards the low starting point, the growth can appear quite impressive. One should not rush to any conclusions, however, about the stability of this raw material model: at any moment, a sudden decline in world prices could burst this fragile bubble of prosperity.

It became increasingly apparent that the model of development chosen by Central Asian governments is in need of serious correction. To judge from the available evidence, the opportunities for extensive expansion of exports are diminishing. The exception is Kazakhstan's oil: despite some delays, the Caspian Pipeline Consortium is making progress in its project to enable the shipping of oil through the Russian port of Novorossiisk. Once complete, this pipeline will permit Kazakhstan to increase its export of crude oil to a profitable market.

Macroeconomic stabilization, together with political stability, make it possible to begin large-scale structural changes and to give greater attention to the domestic market. The agrarian sector should become the main priority of development, at least in Uzbekistan and Kyrgyzstan. In both countries, agriculture provides employment for about 45 percent of the total labor force, produces between one-third and one-half of the GDP, and accounts for a significant part of exports that earn hard currency. In both countries, economic policy actually discriminates against the agrarian sector, which has been transformed into a source of reserves for import-substitution in industry (Uzbekistan), or which is used in the interest of commercial intermediaries (Kyrgyzstan). The proportion of budgetary, credit, and investment resources for the agrarian sector does not correspond to its role and significance in the economies of the Central Asian states. By functioning as a "donor" for the other sectors of the economy, the potential is rapidly increasing for a crisis to beset the agriculture sector itself. To a significant degree, this discrimination against the agrarian sector explains the depressing social and economic situation in these countries. The eradication of poverty and indigence is not possible without a change in economic policy addressing the needs of the agrarian sector.

Top priority in the policy of development must also be given to the expansion of light industry and the processing of agricultural commodities. It is precisely these branches of industry that have been subjected to the greatest destruction during the processes of transformation and that are now situated on the periphery of attention in official economic policy. Without a reorientation of investment resources to these branches, the Central Asian states are doomed to remain exporters of agricultural commodities and products with a low level of processing--as is to be seen at the current time.

At the dawn of the post-Soviet era, the union of the Newly Independent States of Central Asia at first appeared to be entirely natural and realistic. Indeed, many regarded this unity as an important precondition for political stability and economic development in the region. By the end of the 1990s, however, the hopes for any kind of unity have receded into oblivion. As ethnic elites built their states and consolidated the authority of their leaders, each head of state began to play his own game and pursue his own interests. The breakup of the Soviet Union actually served to accelerate this regional disintegration. The post-Soviet era has allowed differences in the economic potential of individual Central Asian countries to become clearly apparent. The states of Central Asia follow economic strategies, which are to a large degree, incompatible. Whereas Kazakhstan and Kyrgyzstan carried out a policy of reducing the state's regulatory role in the economy, Uzbekistan and Turkmenistan pursued a contrary course. It should be painfully evident that this institutional discordance can hardly contribute to the process of drawing these five states closer together in the economic sphere. In this sense, 1999 became a year of unprecedented economic confrontation among the states of Central Asia. The disputes erupted in those spheres where economic interests of the different states intersected: trade, energy, transportation, and water.

In early 1999, the states of Central Asia began to impose severe restrictions and customs duties on imports inside the region. Kazakhstan, Uzbekistan, and Kyrgyzstan established trade barriers against each other. It reached the point where President Akayev of Kyrgyzstan accused his neighbors of organizing a trade blockade against his state. Simultaneously, a "transportation war" erupted between Kazakhstan on one side and Uzbekistan and Kyrgyzstan on the other. Uzbekistan regularly cuts off the delivery of natural gas to southern Kazakhstan and Kyrgyzstan. In addition, Kyrgyzstan, as an upstream country for all the major rivers in the region, shuts off the delivery of irrigation water to southern Kazakhstan in spring of 1999. It did so after Kazakhstan failed to deliver coal, as stipulated in an agreement between the two countries. Kazakhstan has its own grievances.

This suggests that economic relations among the countries of the region have been increasingly tense. Antagonism is mounting and could lead to more severe confrontations if these trends continue.

Highlights From the Discussion

Economic Development

Regional economic statistics are important but unreliable. In addressing the presenter's point about the unreliability of data, discussants focused on two likely reasons for this problem. 1) Data collection by local governments is underfunded, and as a result, it tends to be spotty and erratic; and 2) even if data are collected professionally, they do not accurately reflect the economic transactions in the informal economy (for example, the black market and drug trade), nor do they reflect real income levels. One panelist noted, however, that available data do reflect trends and suggest where the country is headed in the future.

Economic challenges lie ahead in Central Asia and the South Caucasus. One panelist argued that the social and economic data on the region suggest pervasive economic stagnation in the future unless drastic measures are taken. Even if specific sectors flourish, their success will fail to translate into a trajectory of growth. The discussion reemphasized a number of economic challenges that were outlined by the panelists. These issues include:

Foreign direct investment and external assistance are the most important drivers for economic growth in the region. Panelists agreed that foreign direct investment (FDI) is essential for growth in the region, but the regional governments must attract FDI to a range of sectors, not just the energy sector. One panelist argued that economic globalization could assist the region in two ways: 1) FDI and foreign assistance could provide alternative sources of economic opportunity to the drug trade; and 2) globalization could mitigate problems associated with the regions' ethnically and politically irrational borders. Attracting international capital, however, requires politically sensitive economic reform.

To boost the economic prospects in the region, Western assistance should be focused on three areas:

A contrarian view of Tajikistan. Conventional wisdom holds that Tajikistan, a state plagued by regional divisions and violence, is the most dramatic failure among Central Asian states. Several discussants, however, noted bright spots, including the recovering economy and the growing political pluralism in the country. Some panelists also expressed surprise at how quickly economic growth started, once the civil war ended.

Political Reform

Democratization is problematic. Participants who expressed their views generally agreed that democracy was not about to bloom in Central Asia and that current leadership will not willingly transfer power. Even if successions occur peacefully during the next several years, new authoritarian leaders probably will replace the current ones. It was noted that the Russian model, where elections of local officials have limited the power of central authorities, may apply in some states, but each country is likely to follow a distinctive path.

States face common political problems. Despite the different political and economic situations in each country, discussants raised a number of internal and external issues that impede the development of democracy in the region. They include the following:

Panel II
Challenges to State-Building: The Impact of Megatrends
on the Regions

This panel examined the impact of global and regional trends that are shaping the region and beyond, and explored how the states are dealing with these challenges and opportunities.

Chairman: S. Enders Wimbush
Hicks & Associates, Inc.

Globalization, Economics, and Communications

Rajan Menon
Lehigh University

There are, of course, significant variations between and within Central Asia and the South Caucasus no matter what the topic of comparison. That said, if one focuses on the contours of the forest, and not the peculiarities of the trees, it is possible and appropriate to make generalizations that highlight broad trends.

In virtually all eight states in these two regions, the economic collapse reflected by plummeting Gross National Product (GNP) values has been arrested and recovery has begun, albeit from a very low level. While this is good news, it is clear that it was bound to happen: economies hit rock bottom eventually; output does not descend to zero. In the meantime, however, the toll taken on public welfare has been immense, and the implications for the developmental trajectories of these countries are staggering--and worrisome. Inflation and budget deficits have likewise been brought under control, due in no small measure to the tutelage and discipline of global economic institutions such as the IMF and World Bank. However necessary this stabilization may be--and conceding that it has created a better climate for growth and investment--the hardships imposed on citizens by cuts in expenditures for health, education, and welfare, have worsened life for the average person. Unless improvements are carried out, the support for reform could dry up inasmuch as it will become identified with penury. A backlash in the form of instability, radical movements, and anti-Western sentiments cannot be ruled out.

Trade patterns show that while the activities of Turkey, Iran, and the West have reduced the role of Russia in some post-Soviet states, the commonplace view that Russia is an economic disaster is false. Russia retains a significant position in the trade profiles of the countries in Central Asia and the Caucasus. It leads the West as a whole in trade with Azerbaijan, Kazakhstan, Kyrgyzstan, and Tajikistan, and holds a position that is not significantly inferior in the other four. The reasons are easily understandable. The outside world is still relatively unfamiliar with these two regions. Many of them have not made it easy for Western firms to forge ties. The ruling elite (regardless of the rhetoric) is a Russified stratum forged by the Soviet system. Established markets and communications routes lead north, not east, south, or west. With time, Russia may yet be displaced, but any notion that it is no longer a player is a case of wishful thinking.

Nor is there much evidence that a flood of foreign direct investment (given the near absence of viable capital markets, there is no portfolio investment to speak of) will render Russia irrelevant. As compared to other parts of the world that qualify for the designation "emerging markets"--say, East Asia or Central Europe, or even South Asia, the amount of foreign investment is pitifully small--and smaller still if one excludes the energy sector. Because hydrocarbons account for the bulk of investment from abroad, Azerbaijan, Kazakhstan, and Turkmenistan dominate the picture. Outside the oil and gas sector, it is other raw materials, not manufacturing, which attract investment. This makes for a pattern with potentially pernicious consequences that are well known to development economists: given that the prices of raw materials and energy tend to be volatile, there are significant risks to banking on growth spurred by foreign direct investment that is so sector specific.

Perhaps the most disturbing part of the economic story has to do with popular welfare as indicated by the data on unemployment, income inequality, corruption (which primary benefits the wealthy and powerful), and public services. As is true in most (but not all) of the post-Soviet region, the situation is bleak. People are poorer and less apt to be employed, and income equality is much larger than in 1991. To make matters worse, this reality exists alongside severe cuts in public spending and the social safety net, exacerbating the vulnerability of the poor. The public health systems in these eight countries are a shambles, the educational systems suffer from everything ranging from unsanitary and unsafe schools to a lack of textbooks. The bottom line is that the human and physical capital needed for recovery and robust growth in the new century is not being created. This does not augur well for the prospects for democracy (which is not particularly good, in any event, outside Georgia and Armenia, and perhaps Kazakhstan and Kyrgyzstan) and civil peace.

Globalization is not an option (even for North Korea), it is the reality, if by globalization one means the rapid and multiple ways in which what is familiar is shaped by what is beyond and unfamiliar. Having been opened up to the world following the Soviet Union's collapse, Central Asia and the South Caucasus will experience these potentially dramatic effects of globalization--and with little prior experience. Some of the consequent effects will be benign (greater access to information and assistance); others will or could be malign--disruptive challenges to tradition, expectations that are raised by external influences but that cannot be fulfilled by internal authorities.

Central Asia and the South Caucasus are in a worse position relative to much of the rest of the world to adjust to the shocks of globalization while taking advantage of its opportunities. They have weak polities that are, albeit to different degrees, "overpersonalized" and "underinstitutionalized." Moreover, the post-Soviet transformation has already forced them to take on a great deal without their having to contend with the social mobilization and dislocations that globalization could bring. Worst of all, they may be unable to harness the many benefits of globalization. What will be the net effect? As Zhou Enlai said once when asked about the effect of the French Revolution: "It is too early to say."

Civil Society: Grassroots Organizations
in the South Caucasus

Stephen Jones
Mt. Holyoke College

An essential function of any democratic state is the creation of a legal and economic framework for civil society. Democracy is meaningless without the capacity of citizens to participate in policymaking. In the South Caucasus states, the elements of an effective civic community--enlightened self-interest, mutual trust, horizontal links between groups, economic independence, and respect for the rules--are weak or in many areas outside the capitals, nonexistent. In Georgia, Armenia and Azerbaijan, as in other post-Communist societies, the obstacles to interest and associational group development are related to multiple factors--an absence of clear social cleavages, a limited consciousness of common interests, organizational inexperience, the existence of more traditional loyalties to kin and patrons, and ignorance of new laws.

But the Soviet legacy is only part of the problem. The new governments have, on the whole, legislated the formal framework for the existence of associational and interest groups, but they cannot or will not meet other important requirements for the establishment of a democratic civil society. I would list those in approximate order of importance to be: an economic environment that serves the population's basic needs; an effective state capable of implementing, monitoring, and correcting mismanaged policies; a relatively clean government, or a government that attempts to control corruption; and the public accountability of executive and legislative structures.

Civil society is a partnership between state and society, but in the Caucasus, the states are no longer partners. The states' withdrawal from their responsibilities in major sectors of economic life has undermined the capacity of the majority of the population to participate in policymaking, permitted vastly unequal access to political power, increased the scope for corruption and the growth of powerful unaccountable private interests, widened the gap between state and society, and reinforced popular cynicism. J. K. Galbraith's remark that "nothing . . . sets a stronger limit on the liberty of the citizen than a total absence of money" is particularly appropriate in South Caucasus societies.

Michael Mann has pointed out that the active involvement of the state in society--what he calls "infrastructural power " or the state's ability to centrally coordinate and regulate civil society--is perfectly compatible and necessary even to effective democracy. Such regulatory involvement with society is not the same as "despotic power" or the state's ability to arbitrarily exercise power over society. Maintaining infrastructural state activity in society rather than emphasizing its separation from society is the best means to democracy and a functioning civil society. This is true particularly in the conditions of systemic collapse and political transformation when the state has to create the authority, consensus, and rules that sustain liberalism. A weak state in terms of an absence of infrastructural support for its population, which is the situation in all three South Caucasus states, will produce the very elements that undermine liberal ideals--economic decline, gross inequalities, and public cynicism.

In this context, civil society exists at three distinct levels in the South Caucasus. The tendency to focus on one level, neglecting the other two levels, which compose a large segment of the populations in the South Caucasus states, leads to a misunderstanding of the level of development of civil society in the region and to counterproductive policies intended to foster civil society. The three levels of civil society are:

Civil Society: Grassroots Organizations in Central Asia

Fiona Hill
The Eurasia Foundation

At the end of the 1990s, the common view of the states of Central Asia is that they have been effectively transformed into oligarchies rather than representative democracies and that there are few opportunities for citizen participation in government or civic and economic affairs. Although this view is not inaccurate, it is certainly incomplete. During the last decade, there also have been some significant positive achievements in the new states of Central Asia. Perhaps the most important development is that as state institutions have collapsed, small and medium-sized enterprises, business incubators, professional associations, new and innovative educational institutions, independent media outlets, and NGOs all have appeared.

A decade after independence, these grassroots efforts are in fact beginning to make their presence felt, to engage with governments and certainly to shape the civic and economic landscape, even if they have not yet become a major factor in domestic politics. They offer both opportunities and challenges to regimes--opportunities where they provide crucial social services that governments cannot afford on a mass scale, thus helping to alleviate social pressures; and challenges where they question government policies or call for new laws or major change. Internal and external NGO programs to strengthen the independent media have perhaps been the most challenging to local governments, although programs by groups such as Internews to offer broader access to information for mass media outlets.

The paths taken by the five Central Asian states since independence have been very different, ranging from relative openness and attempts at reform in Kyrgyzstan to the maintenance of a semiclosed society with the trappings of a command economy in Turkmenistan. Given the growing political and economic differences among the states, it is difficult to make general statements about grassroots organizations in the region, and the NGO sector and its relationship with the state is different in each country.

In Uzbekistan, most NGOs are really what one might call GONGOs (government-organized NGOs). They have full government support and do not openly challenge the government on issues. The government also makes it very difficult to register an NGO, especially if it has a mandate or name that might appear potentially troublesome by mentioning the word "reform." Many NGOs listed in Uzbekistan, therefore, are not registered by the government. The lines between a more conventional NGO, government, and private enterprise are often blurred, with many self-proclaimed NGOs operating on a fee basis. Indigenous, traditional models of civil society have been actively promoted by the government, including Makhallas or grassroots neighborhood associations that existed in pre-Soviet times as a self-organizing body for groups of buildings and streets. Makhallas are now seen increasingly as a source of local leadership and a mechanism for small-scale assistance, such as loans and microcredit as well as welfare payments, and external NGOs, such as the Eurasia Foundation, have begun to work with them directly. Within Uzbekistan, at the subregional level, there are differences in relations between government and NGOs.

In contrast to Uzbekistan, in Tajikistan, many NGOs are truly grassroots organizations. Here the chaotic state and fragility of the central government in the wake of the 1992-1997 Tajik civil war, a daunting array of social and economic problems, and poor interregional communications, have distracted the government and loosened controls. NGOs have sprouted throughout the country and often joined forces to discuss key issues of reform. Public debates have taken place openly and regularly in Tajikistan that would be rare elsewhere in Central Asia. The Association of Political Scientists in Dushanbe, for example, has become the premier organization targeting the problems of establishing and developing a multiparty system in Tajikistan and in discussing the role of parties in the government.

Grassroots organizations have also stepped in to take direct action to address the country's problems. The Tajik Center for Entrepreneurship and Management in Khudjand in northern Tajikistan, for example, and other organizations like it, have created training programs in accounting, finance, management, marketing and basic business skills for farmers and would-be entrepreneurs.

In Turkmenistan, grassroots organizations are few and far between, and the number of registered NGOs can be counted on one hand. Those that are officially licensed all managed to slip their registration documents past some less than attentive government official a few years ago. Most focus on environmental issues, although there are also a number that offer specific resources and social services. The Turkmen Government deals with grassroots organizations primarily as challenges and/or threats to its authority.

In Kazakhstan and Kyrgyzstan, the growth of grassroots organizations is slow but definitely moving forward. In Kazakhstan, private enterprise NGOs, such as business and professional associations, probably have had the most success. The local government is becoming increasingly flexible (rather than obstructionist) in this area and open to innovation, especially at the microlevel. For example, in Almaty, the independent "IUS" Law Center, which is affiliated with the Adilet Higher School of Law, has created an arbitration center that offers an alternative mechanism for resolving economic and commercial disputes to the still unreformed court system. The center also offers assistance to NGOs, small businesses, and other professional associations in addressing financial and legal problems and is lobbying for the passage of a law on arbitration with the government.

In Kyrgyzstan, independent financial institutions, NGOs, and other grassroots organizations are already part of the political and economic landscape. The NGO movement also seems to be finding a voice with the government. It is not uncommon for NGOs to advocate through the courts, parliament, or legislature. In the Ferghana Valley, for example, the Osh-based Fund for Legal and Economic Reforms offers legal support for NGOs, is creating a traveling legal clinic to address land disputes throughout the Kyrgyz portion of the Valley, and is lobbying the government for court reform and new legislation. This program is a testament to the people's growing belief in their ability to influence domestic politics.

In spite of the differences, regional NGOs share common problems, not least of which are difficulties in obtaining funding. Moreover, and the activities of external NGOs are hindered by legislation and difficulties in registration. One major problem with NGOs across Central Asia is a lack of a constituency base or membership. An additional problem in Central Asia is the growing "technology divide"--not only with the West, but also with Russia, and between the regional capitals and provincial cities and rural areas. A sense of information deprivation prevails across the region, which is particularly acute in the more remote areas of Central Asia, and critical regions like the Ferghana Valley. Grassroots organizations have serious difficulty in establishing contacts with similar organizations to share experiences and best practices. NGOs and citizens in Central Asia are reaching out to each other at the same time that regional governments are moving further apart, focusing on state-building and consolidation, and carving out spheres of influence.

In sum, in spite of the obstacles, there are numerous new and potentially significant developments at the grassroots level in Central Asia. Although these are still in their infancy and it is difficult to project just how these efforts will shape the region, clearly authoritarian presidents, oligarchs, and corrupt business and government elites are not the "only show in town". In Central Asia, the states are authoritarian, not totalitarian. This means that there are cracks in the political facade that civil society is able to push through. With patience and funding, indigenous grassroots organizations and external NGOs can work there in the larger interests of the people of the region.

Islam and Other Ideologies

Olivier Roy
French National Center for Scientific Research

Political Islamic movements of the 1970s and 1980s have moved in two different and contradictory directions. On one hand, the mainstream movements became more moderate and integrated in national politics. On the other hand, a more conservative Islam is emerging that is not revolutionary, but is more militant, supranationalist, and anti-Western/anti-United States in its orientation.

Islamic fundamentalism in Central Asia and the Caucasus refers to the salafi-jihadist model, except in Tajikistan. But, despite its internationalist claim, the salafi-jihadist movement in Central Asia and the Caucasus tends to be more localized--an expression of local identity in areas such as Ferghana, villages in Daghestan, and upper Gharm valley--rather than national or even supranational movements. Generally speaking, Islamic radicalism tends to reenforce national, ethnic and regional divides. Sometimes the ethnic and national faultlines match, but more often they do not. Consequently, in Central Asia these salafi-jihadist movements are a divisive factor and not a unifying one.

The Central Asian states are secular. Islam shapes society, but does not influence the politics. The governments in the region give lipservice to traditional Islam as a factor of social conservatism. The governments in the region seek to control the official clergy, which have power over the great mosques in the region. But at the same time, we see conservative cultural trends where Islam is blended with tradition. Polygamy in Turkmenistan is an example of the social influences of Islam in the region. But it does not lead to political mobilization. In most of Central Asia radical Islam is not a threat to the state. In Tajikistan, Islamic nationalism has been a critical driver of state consolidation. This has also been the case in Iran. Uzbekistan, however, represents the only country where political Islam may challenge the ruling order.

Islam does not play a role in the foreign policy of these states, except when the governments perceive a threat, such as the salafi-jihadist threats emanating from Afghanistan, Pakistan that is fomenting localized instability.

Narcotrafficking and the Rise of Independent Militias

S. Fredrick Starr
Central Asia-Caucasus Institute

In Central Asia, the traditional Western definitions for drug dealers, mafias, and militias blur. All three categories have become so inextricably linked that one cannot distinguish one from the other. The activities and support of all three categories are far more international than ever before, particularly in terms of funding.

Narcotrafficking

No development in Central Asia has greater geopolitical significance than the worldwide shift of heroin production from Burma and the Golden Triangle to Afghanistan between 1995 and the present. Whereas the wholesale value per kilogram of cocaine in any major world capital is between $10,000 and $40,000 dollars, the corresponding value for heroin is between $150,000 and $250,000. Afghanistan (and, increasingly, adjacent areas of Pakistan, Tajikistan, Kyrgyzstan and Xinjiang) produces and/or processes 85 percent of heroin consumed in Europe and also meets a rapidly growing percentage of Asian (mainly Chinese) demand. Ninety percent of the raw product derives from Taliban-held areas of Afghanistan.

Central Asia is now by far the largest of four main export routes (Iran, Pakistan-China, Pakistan-India). The traffic is dominated by international cartels based increasingly in Moscow but also in Nigeria, Columbia, the Caucasus, and the Balkans. Powerful local traders are responsible for their own territories and are paid by the cartels "in kind." This is leading to the rapid growth of consumption across Central Asia.

The value of drug trafficking in Central Asia is not known but it probably now constitutes the largest national income stream in Tajikistan and close to that in Kyrgyzstan. Both opposition and official branches of the Tajik Government receive money from this source, as do some law enforcement officers, customs officials, and military officers in the other countries, according to local informants.

Where is the focus of activity? It is found not in the urban areas but principally in the mountainous rural areas, where other economic alternatives are scarce. The drug trade is fueled by the poverty in the most neglected regions. The Ferghana Valley has been a center of activity. Despite the efforts of Uzbek authorities, interdiction hovers at about 5 percent.

Independent Militias

Like the drug traders, militias are almost always international in character, formed at bases outside the former Soviet space, and supported by Middle Eastern and Pakistani patrons and drug dealers. Militias feed on unemployment rather than political repression. Interviews with dozens of former Tajik militia members now in the Tajik army indicate that the promise of financial rewards, often extending to their entire families, rather than reaction against repression or the presence of an attractive ideology, is the main motivation for participating.

The international community can take steps to cut back the drug traffic and militias and reduce demand for drugs. Drug production is demand-driven and the main consumers are in the West.

Highlights From the Discussion

The Impact of Islam

Commentators should be mindful of how they talk about Islam. How we define Muslim states and refer to Islamic groups or movements is constrained and distorted by terms, which are inaccurate or is misunderstood by the West. Several examples were raised during the conference:

Divided views over the role of Islam in Central Asia emerged. There was some disagreement over whether Islam plays a role in fomenting conflict and instability in the region. Several panelists argued that Islam is a moderate force in Central Asia. Others observed that Islam strengthens national and ethnic identities and fuels internal tensions.

There was concern that Central Asian leaders may exaggerate the threat from Islamic extremists to attract sympathy and aid from the West and that in reality some of these governments are creating their own internal stability problems by repressing even moderate expression of Islam. One discussant, on the basis of his time in the region interviewing captive Uzbek and Kyrgyz Islamic militants in Afghanistan, argued that the growing number of Islamic militants are largely "pushed" out of their countries to escape ethnic discrimination, police abuse, and a lack of economic opportunity, rather than "pulled" by the appeal of extremist Islam.

Afghanistan

Stability and prosperity will only follow a solution of the Afghanistan conflict. Afghanistan is the nexus for training and staging of Islamic militants and the narcotrafficking that sweeps across the continent from Burma to Turkey. Instability at the core of the region inhibits energy transportation. Russia will continue to use instability in Afghanistan to justify its presence in Central Asia.

Pakistan feeds the Afghanistan problem. One discussant highlighted the inextricable link between the Afghanistan problem and Pakistan by detailing the involvement of the Pakistani military in the training and funding of the Taliban and other Islamic militants. He witnessed the shipments of weapons and food from Pakistan to training grounds in Afghanistan. Therefore, policy directed at solving the Afghanistan problem will have to contend with Pakistan's contributory influence.

A stable Afghanistan is no panacea, While these panelists agreed that the Afghanistan conflict must be resolved to bring stability to Central Asia, a multipronged approach is required to address the drug trafficking problem. First, the demand side of the cocaine and heroin problem must be addressed to effectively stymie drug trafficking. Second, international aid and development programs must focus on creating alternative economic opportunities for populations that are forced to live off the drug trade, particularly in rural areas. A stable Afghanistan will reduce the immediate Islamic threat in Central Asia but will not eliminate Islamic militant movements, which are international and enjoy a vast network of supporters across Asia, from the Philippines to North Africa.

Problems and Opportunities in the Development of Civil Society

Central Asia and the South Caucasus may be faced with a "lost generation." The flight of human capital, combined with declining resources available for education, is a critical problem in both regions. Education infrastructure is rapidly deteriorating, leaving the young generation to grow up with little or no formal education. One panelist enumerated a number of factors contributing to the education problem.

Some panelists noted that these education problems could pose insurmountable obstacles for the economic development in these regions and that these countries could be left behind in the era of globalization. Several panelists commented that private institutions funded by a variety of international organizations have begun to fill the vacuum created by the collapsed public education infrastructure. But for the most part only the elites have access to these private institutions. One panelist disagreed, however, with this assessment in the case of Uzbekistan, where public education institutions have shown great resourcefulness in managing scarce resources and in instituting fee-paying programs under the auspices of the public organizations. He also noted that entreprenurialism in the education sector is fueling the establishment of a myriad of educational institutes--for secondary and higher education--across Uzbekistan, which are not only available to the country's elite.

Civil society projects should focus on the microlevel. Several panelists and discussants agreed that large-scale change is difficult to initiate, but that significant progress is being made at the local and microlevels through targeted assistance and the work of NGOs- termed the "thousand points of light" approach by one panelist. Microlevel change can only be achieved by working on the ground with the local people, particularly in the rural areas. Numerous small enterprise associations are developing in Central Asia. However, more microcredit is needed for such enterprises to make a larger contribution to growth and employment in these societies. One discussant, who is a native of the Central Asian region, lauded the Eurasia Foundation for its dedication to sustainable projects. Several discussants observed that women in Central Asia are taking leadership and decisionmaking into their own hands to improve their situation, especially in Uzbekistan and Kyrgyzstan.

NGOs are shaping civil society but must focus on sustainability. To be successful, the organizers of external assistance programs must make an effort to understand state and civil society relationships in these regions. Much of the civil society activity in these countries takes place among labor groups, farmers, and pensioners that live outside the capitals and therefore, are currently neglected by Western NGOs. One panelist argued that international NGOs must focus on developing local, self-sustaining NGOs. Currently, active, international NGOs in theses regions tend to generate resentment among the locals because they often fail to foster a sense of equality or partnership with domestic organizations. This results in a growing dependency on the NGO and little preparation for a "post-NGO" environment. Consequently, when the advisers leave, the communities are ill equipped to carry on by themselves, making many civil society-building projects unsustainable.

Panel III
Regional Dynamics

This panel examined how each new state views its relationships with surrounding states, including both other Newly Independent States and those outside the boundaries of the former Soviet Union, taking a regional approach, not an intraregional approach. This new regional context has many new features that also involve outside states. Speakers from the South Caucasus and Central Asian regions were asked to outline how each of their respective countries is thinking about its strategic universe.

Chairman: Tom Zamostny
Office of Russian & European Analysis

Strategic Universe of the States in the South Caucasus

Paul Henze
RAND Corporation

Russia's shadow hangs heavily over the entire South Caucasus region. All the states of the South Caucasus--Armenia, Azerbaijan, and Georgia--suffer from the effects of two centuries of Russo-Soviet domination, a form of colonialism more pernicious than that experienced by most Third World countries. Seen in broad historical perspective, Russian imperial domination enforced peace in the region and generated economic momentum. These were positive gains, but 70 years of Soviet rule badly distorted Caucasian countries' evolution, subordinating economic development to Moscow's priorities, creating a sense of political powerlessness and irresponsibility among the citizenry, and laying the basis for intensified ethnic tensions once KGB controls were relaxed.

To compound matters, Russians (with and without varying degrees of governmental support) engaged in irresponsible political maneuvers during and after the collapse of Soviet power which have left a legacy of unsettled conflicts in each of these countries. In addition, instability in Caucasian regions that remain within Russia--the entire North Caucasus--continues to affect the countries on the southern side of the mountains. Russia has been unable to develop a coherent Caucasus policy or to rein in military adventurers, old Communists, and neo-imperialist nationalists. Thus it has stumbled from one brutal intervention to another in both North and South Caucasian affairs. It has generated fear and distrust in Georgia and Azerbaijan. It has exacerbated political, economic, and social problems in its North Caucasian republics.

Strategic Universe

Georgia and Azerbaijan share deep distrust of Russian neo-imperialist tendencies. Both blame Russia for exacerbating internal ethnic strains. Both suspect Russia of abetting assassination attempts against their leaders. Both wish to reduce residual dependence on Russia and reorient all their relationships in a West-East, rather than North-South direction. Both give high priority to good relations with Turkey. Both desire closer relations with NATO. Both aspire to becoming part of an economic corridor extending from Eastern Europe through Central Asia all the way to China.

The fact that the population of Georgia is overwhelmingly Orthodox Christian while that of Azerbaijan is predominately Shia Muslim has little effect on public attitudes or on these countries' political orientation. Both give cooperative relations with each other high priority. Georgia values close relations with Turkey, Ukraine, and Europe, especially with Germany. The United States looms large in Georgia's interests and expectations. Georgia also aspires to close relations with the FSU states of Central Asia, particularly Uzbekistan. It has close relations with Israel and a fairly close relationship with Iran. Azerbaijan has an edgier attitude toward Iran stemming from its people's links with and interests in the much larger Azeri population of Iran. Azerbaijan enjoys a good relationship with Israel. In almost all other respects, Azerbaijan's attitudes toward other countries and peoples, including the United States and Europe, parallel those of Georgia.

Armenia continues to be led by men who favor Russia as a protector. Armenia pays lip service to notions of regional and, specifically South Caucasian, economic cooperation but has isolated itself by its aggression against Azerbaijan. Russia's inability to formulate a rational, forward-looking Caucasus policy leaves it locked into its old imperial habit of exploiting Armenia as a base for politicking in the region. For neo-imperialist Russians, Armenian reconciliation with Turkey (which would bring the country many economic advantages) is undesirable, as an Armenia enjoying constructive relations with its geopolitical neighborhood could no longer serve Russia as a pawn. Armenian leaders, encouraged by diaspora extremists, have so far been unable to extricate themselves from this predicament.

Armenians are beset with victimization complexes. Armenia feels tied to Russia (even though it cannot always trust it) and distrusts Turkey; as an alternative it is pursuing close links to Greece. Armenia looks to Iran as a tactical friend and shares many of the conventional attitudes of Russians toward Arab and Balkan countries, seemingly preferring radicals and mavericks among them. Among European countries, Armenia feels warmest toward France, where there is a large Armenian diaspora. Armenia wishes to be regarded as a European/Western country, but its close links to Russia limit the enthusiasm with which it participates in European and NATO activities. Armenia regards the United States as an important friend but relies on its diaspora in America to press the US Congress, against the desire of the Executive and public opinion, to maintain punitive measures against Azerbaijan.

Regional Cooperation

The most constructive alliance for the South Caucasian nations would be one that brought all three together in a common market with security and political dimensions as well as far-reaching economic cooperation. It would require a full settlement of differences between Armenia and Azerbaijan. There is good reason to believe that Russia, as presently led, would go to considerable length to discourage and/or block realization of any South Caucasian alliance, preferring to deal separately with each South Caucasian country and retain the option of encouraging rivalry and strain among them.

What makes these alliances possible? A South Caucasus common market would be logical from an economic and energy viewpoint; it also makes geographic sense, given the importance of expanding all forms of transport through the region in coordinated fashion. Security cooperation among the three is another important dimension that would be mutually beneficial in controlling smuggling, drug traffic, and terrorism.

Nature and Future of Regional Institutions

Georgia and Azerbaijan give great importance to all regional organizations, arrangements for cooperation with NATO, the European Union and the Organization for Security Cooperation in Europe (OSCE); both countries are enthusiastic about unilateral and multilateral military training arrangements, East-West transport schemes, Black Sea cooperation efforts, and regional economic cooperation initiatives with Middle Eastern countries to the south. It is too early to foresee how GUUAM will develop, but Georgia and Azerbaijan see it as having a significant future with the potential for developing into a roof over other cooperation and alliance arrangements. None of these regional cooperation arrangements is yet fully structured; most are dependent on meetings between presidents and other political leaders which sometimes entail little followthrough.

All three South Caucasian countries value membership in the United Nations and most of its subordinate organizations. All recognize that it provides a framework for some degree of mitigation of territorial disputes. All welcome the various kinds of assistance that UN agencies can provide. None of these countries, however, has unrealistic expectations about the UN's ability to deal with major problems and areas of
tension.

As long as Armenia retains close strategic links to Russia, it is likely to be primarily a nominal participant in most of the cooperative arrangements that Georgia and Azerbaijan value. If the status of Nagorno-Karabakh were to be regularized and a formal reconciliation between Armenia and Azerbaijan achieved, accompanied or followed by the opening of a normal relationship between Armenia and Turkey, a whole range of possibilities for Armenia's wholehearted participation in regional cooperative arrangements would open up. Russia remains the primary impediment to cooperation in the region. Stability, consolidation of democracy, and steady social and economic progress in the South Caucasus will be possible only when Russia reconciles itself to the loss of imperial conquests in the region and adopts a constructive concept of the future of the region.

Cascading Effects of the Ongoing Regional Conflicts

The conflicts between Armenia and Azerbaijan over Nagorno-Karabakh adversely affect the economic and political development of both countries. It has created a festering refugee problem in Azerbaijan that is a serious social and economic burden. The areas of Azerbaijan occupied by Armenia are condemned to stagnation. The same is true of the situation in Abkhazia. Costs of rehabilitation of both of these areas will increase steadily the longer the stalemates persist. The same is true to a lesser extent of the situation in South Ossetia.

Continuing ethnic stress, political tension, and relative economic stagnation have resulted in an ongoing population drain from each South Caucasian country. Loss of population is most serious in Armenia and Georgia, and less so in Azerbaijan, the most populous of the South Caucasian countries. This emigration has two medium- and long-term negative dimensions: (1) if and when economic resurgence occurs, a labor shortage could inhibit development; and (2) a brain-drain deprives each of these countries of some of their best educated, talented and motivated men, women, and youth.

Russia's brutal assault on Chechnya, compounded by efforts to intimidate Georgia and Azerbaijan for their sympathy with the Chechens, has reverberated through the South Caucasus. Stability in the South Caucasus is inevitably affected by developments immediately to the north. The Soviet Union was never able to devise a satisfactory political approach to the entire Caucasus region and instead fell back on the Tsarist habit of divide et impera. The problem has been compounded for the rulers of independent Russia by the independence of the South Caucasus. So far, they have failed to meet the challenge.

Georgia's Perspective

Ghia Nodia
Caucasian Institute for Peace, Democracy and Development

Georgia views its fundamental political choices in the system constituted by two poles: Russia and the West. Although views of Georgian political elites and Georgian public may have become somewhat more complex and sophisticated as compared to the period of pro-independence euphoria ten years ago, this fundamental bipolar view of the political situation in the region has not changed, and probably will not change in the foreseeable future.

In this view, Russia mainly represents a threat to the newly acquired Georgian independence and symbolizes the past, while the West represents hope of security protection and consolidating independent statehood, but also hope for future development, that is democracy and market economy. Georgia thinks that the Russian threat is mainly realized through support of internal separatist forces, such as Abkhazian and Ossetian movements, or semiseparatist forces, such as Ajarian leader Abashidze. Although these two reference points may directly concern foreign policy orientations, whose attitude to them also strongly correlates to stands taken in domestic politics: being pro-Western usually means supporting democratic and market reforms at home, while being pro-Russian more often means nostalgia for strict governmental control over all aspects of political and economic life. This means that in almost all political campaigns, including parliamentary and presidential elections in 1999 and 2000, the difference between "pro-Western" and "pro-Russian" forces rather than traditional ideological differences between "left" and "right" continue to be the most conspicuous dividing line between political groups.

Pro-Western mood has been prevalent in Georgia both on the level of political elites (as the analysis of elite discourse would show) and wide public (as is clear from public opinion polls). The exception may be the years 1993-94, when after suffering a humiliating defeat in a war against Russian-backed Abkhazian separatist forces, Georgia reconciled itself to the status of a strategic satellite of Russia. Joining the CIS in November 1993 was considered the first step in this direction, followed by agreements on Russian peacekeepers in Abkhazia and on the Russian military bases all over Georgia. Although these decisions were considered humiliating, they were also widely popular, because the country felt it had exhausted its resources in resisting Russian pressure. Georgia later stabilized and slowly but consistently drifted away from Russia and toward the West. This meant rapprochement with individual Western countries (first of all the United States) and international organizations. Competition for pipeline routes for transporting Caspian oil to Western consumers has been the major context in which these policy changes occurred, but from the Georgian point of view the geopolitical meaning of pipeline projects far exceeded their purely economic aspects. Building the Baku-Supsa pipeline, joining the Council of Europe and World Trade Organization (WTO), establishing closer cooperation with NATO within the Partnership for Peace program, and, on the other hand, the departure of Russian border troops and the agreement to close of the Russian bases, represent the most important achievements of the Georgian Government in its pro-Western course and represent a steady shift toward the West. President Shevardnadze has stat