Ambassador Reno Harnish III
Speech to the American Chamber of Commerce

March 25, 2004

Thank you. Thank you for the kind introduction, Stan. It is a real pleasure for me to be with such a distinguished audience of members and guests here today at the American Chamber of Commerce. It was a little over half a year ago that Leslie and I arrived here in Baku - and it has been a hectic period. Perhaps we should take comfort from the words of the greatest Azerbaijani poet, Nizami Ganjevi, who said, "Toil is the remedy of complaint and beyond every toil there is rest." Anyway, I arrived a little more than one month before the October election and its aftermath. The death of former President Heydar Aliyev marked the passing of an era and signaled a fundamental change in the political dynamic of the nation. During this period, we also had numerous high level official visitors, including Senator John McCain, Defense Secretary Rumsfeld, General Wald from the European Command, and tomorrow, Deputy Secretary of State Richard Armitage.
In this short period, Leslie and I have grown to love Azerbaijan. Azerbaijan has an interesting history, sitting as it does at the crossroads of East and West, of Europe and Asia. The territory has many beautiful sites, presenting a wide range of topography and climate zones. Leslie and I have traveled to the West, to the South, and to the North. We are anxious to get back on the road to explore Naxcivan and the rest of this country. We have been made to feel very welcome everywhere we've been in Azerbaijan, and we are looking forward to the next three years - to developing the
bi-lateral relationship between our nations.

Bi-lateral Relationship

The United States and Azerbaijan have a strong bi-lateral relationship - a strategic partnership - based on the pillars of counter-terrorism and security cooperation; achieving a just, lasting, peaceful settlement to the Nagorno-Karabakh conflict; development of the East-West energy corridor; and development of Azerbaijan's economy to spread prosperity to all of it's people. My government is working closely with Azerbaijan to promote each of these pillars. Our goal is to support the development of a modern, democratic, market-oriented Azerbaijan, allied to Euro-Atlantic institutions and a part of the new Europe.

Security Cooperation

Azerbaijan has been an active supporter of the Global War on Terrorism, rendering terrorist suspects and deploying itssoldiers in Peace Keeping Operations in Kosovo, Afghanistan, and Iraq. The Caspian Guard program is aimed at preventing the smuggling of Weapons of Mass Destruction and terrorism. Several recent visits have begun to define this program and we hope for its development in the coming years. We support Azerbaijan's desire to get closer to NATO and European institutions. We wish Azerbaijan well and have offered technical support with the wish to develop an individual partnership action plan for the Partnership for Peace.

Nagorno-Karabakh

On Nagorno-Karabakh, we understand that the conflict cannot remain frozen. While little progress was made duringmuch of 2003, with major elections taking place in each country, we are pleased to see some small steps sincetheelections, such as the meeting of the Presidents in Geneva and the meeting of the Foreign Ministers in Bratislava.Weare fully engaged in the Minsk Group process, and we will continue to propose new ideas to reach a peaceful settlement of the conflict. Renewal of the conflict would be a disaster for everybody.

Political Development

It is the policy of my President to promote reform and to promote democracy throughout the world. The United States Government is committed to supporting the emergence of democracy and democratic institutions in Azerbaijan. We have been working day-by-day with the Government of Azerbaijan to make it clear when we believe they damage their own image in the world with human rights abuses or anti-democratic practices. We were encouraged and welcomed publicly the pardoning decree at Novruz. We believe Azerbaijan would profit by the continued existence of a free pressand the development of an independent broadcaster, perhaps through a new public television station. We were encouraged that the Public Television Law was sent back to Parliament for reconsideration. We are also working tocreate a functioning civil society - including modern political parties that are capable of engaging in constructivedebate. President Ilham Aliyev pledged to be the President of all Azeris - we look forward to the development of dialogue between the parties.

Energy Corridor

We have seen real progress in building the East-West Energy Corridor, which will allow the Caspian Region to develop its energy resources - for commercial benefit, yes, but also in a way that will help diversify world energy supplies and will help secure the sovereignty and independence of the Caspian and Caucasus nations. The United States Government has been firm in its support of the pipelines. The United States' Export-Import Bank and the Overseas Private Investment Corporation have played a significant role in the financing, and we are seeing the results now, as work on BTC continues, with oil expected to be flowing in 2005.

Economic Development

Azerbaijan has achieved impressive rates of growth over the last several years. It has a stable currency, low inflation, and low debt. When the pipelines come on line, Azerbaijan will reap an enormous windfall from its energy wealth. But Azerbaijan must make effective use of its macroeconomic stability and its energy wealth to promote economic development for all of its people.
And, to do this, Azerbaijan will need to make some fundamental changes to the structure of its government and its economy.

President's Reform Agenda

President Ilham Aliyev has put economic reform at the top of his agenda. His November decree on Social and Economic Development called for action in employment, education, health, regional development, and infrastructure. The decree tasks ministries to improve the business climate, promote small and medium enterprises, combat monopolies, and promote transparency. The President re-iterated these goals when he addressed the Entrepreneurs' Council, and in so doing, put corrupt officials on notice.
Making these reforms will be difficult. There have been some positive signs - for the first time in memory, the Ministry of Communications does not top the list of business climate problems. But breaking monopolies or promoting transparency will invariably run up against entrenched interests. For example, IBA wields near-monopoly power in the banking sector, preventing competition and inhibiting the full development of the financial sector. And despite Presidential Decrees committing the government to privatize the bank, progress is slow.
Working in cooperation with the World Bank and the IMF, the government has created an impressive poverty reduction strategy. The key to any of this, of course, will be implementation, and success is not guaranteed.

USG Technical Support

We are supporting these reforms with technical assistance projects. We have programs supporting government budget reform, tax administration reform, domestic energy market reform, and WTO accession. We have programs supporting regional development and rural finance. USTDA has just approved a $1 million grant to help the State Oil Fund in asset management, and we are looking to provide assistance to develop a long-term revenue management strategy.
In addition to providing assistance to the government, we have promoted development with practical support to U.S. business and investment here. We have made interventions on behalf of particular U.S. businesses, and we will continue to work with and support the American Chamber, which has had a huge impact in improving the business climate.

Task Force

At the February meeting of the US-Azerbaijan Economic Task Force in Washington, we discussed ways to increase our economic cooperation and to improve the economic climate. We're now following up on the items from the Action Plan. The Task Force meets again here, in Baku in May. I'll be anxious to hear from the Chamber what issues are crucial, and what steps need to be taken, to keep things moving in the right direction. You are our best resource for measuring the business climate, and we will continue to champion your issues.
In conclusion, I'm encouraged by what I've seen during my first seven months here. The East-West Energy Corridor is on track, Security Cooperation is deepening, and we are re-engaging on Nagorno-Karabakh. We've been through sensitive, sometimes difficult transition, but I believe President Aliyev is now on the right track - for both democratic and economic reform. We are committed to working with him, his government, and the people of Azerbaijan to see this country democratic, market-oriented, and a part of the new Europe.
Thank you.