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Central Asia/Caspian: Region's Growth A Mixed Blessing, UN Warns

The oil industry is a prominent feature of Azerbaijan's economic landscape, too ( April 19, 2007 (RFE/RL) -- The UN Economic and Social Commission for Asia and the Pacific (UNESCAP) has identified Caspian-basin and Central Asian states as Asia's fastest-growing economies.

In a report issued on April 18, the commission predicts that Azerbaijan will maintain at least 30 percent growth in 2007, to lead the world. It also notes rapid growth in Turkmenistan (14 percent) and Kazakhstan (10.5 percent).

But the commission also warns that those economies are too reliant on revenues from fossil fuels and advises neighbors to seek ways to capitalize on the economic "momentum" of China, India, and Japan.

The UN's Dutch director of Development Policy and Analysis, Robert Vos, joked at a briefing that his nationality makes him an expert on the "Dutch disease."

The exception to high growth is Kyrgyzstan, where Vos says the economy expanded at a moderate 2.7 percent in 2006 after a decline the previous year.

That term is a reference to problems that arise when revenues from natural resources put unhealthy pressure on manufacturing and other sectors.

Vos noted that the fossil-fueled economies of Central Asia and the Caspian have little to worry about as long as crude-oil prices remain above $60 a barrel.

But if not, he said, the threat of "Dutch disease" is greatest in Azerbaijan, Kazakhstan, and Russia.

"What [Dutch disease] subsequently does is that [it] puts a stop on further diversification of their economies," Vos said. "So if the oil prices, for instance, would go down in the coming years, they would have major problems in keeping up the economic growth and the living standards they have now -- because they haven't diversified sufficiently in other activities."

Watching Imbalances

In Azerbaijan, the report notes that oil and petrochemicals accounted for more than three quarters (76.8 percent) of all export revenues in 2006.

Its authors say the Azerbaijani and other governments are well aware of the threat of the "Dutch disease" and have undertaken tight monetary and fiscal policies -- along with other broad measures -- to address its symptoms.

The report argues that Azerbaijan and Russia's preemptive measures have increased their immunity.

But the situation is more precarious in Kazakhstan. The report warns that reliance on hydrocarbon resources has adversely affected the structure of Kazakhstan's economy. It notes disparities between the oil sector and just about everything else.

Alternative Economic Fuel

The commission says other economies in the region -- less reliant on hydrocarbons -- fared relatively well in 2006.

Armenia's economy grew by 13.4 percent, owing mainly to a construction boom. Georgia's economic expansion continued with 7 percent growth. Uzbekistan posted 7.3 percent growth, and Tajikistan was not far behind at 7 percent.

The exception to high growth is Kyrgyzstan, where Vos says the economy expanded at a moderate 2.7 percent in 2006 after a decline the previous year.

"What's happening in the Central Asian countries [is that] either they have very strong oil exports or [they have] very strong influxes of remittances (foreign earnings that citizens send to their home countries), particularly from those that work in the Russian Federation," Vos said.

The report's authors caution that inflation is high, and rising, throughout Central Asia and the Caspian region -- with the exception of Armenia -- despite tight monetary policies.

Armenia was able to contain inflation at 2.9 percent in 2006 through the government's willingness to allow the national currency, the dram, to appreciate against major Western currencies. The dram has appreciated more than 40 percent against the U.S. dollar since the beginning of 2004, the report notes. That has hurt Armenia's exporters and its citizens who are dependant on cash sent from abroad.

Women At A Disadvantage

The UN commission also confront the issue of gender discrimination throughout Asia and its negative economic effects.

It notes that female access to health services and education leaves women "powerless intellectually, materially and politically."

Young journalists undergoing training in Almaty (RFE/RL file photo)

But here it finds a silver lining for Central Asia and the Caspian region. Vos suggested that countries there are at least faring better in that regard than in some parts of Asia and the Pacific.

"In educational attainment, the countries in Central Asia are doing better than the countries in South Asia," Vos said. "Generally -- in the inequality in health, but also in economic opportunities [and] the gender gap in economic participation and opportunities -- the countries in Central Asia score relatively better than many of the other countries in the region, particularly South Asia."

Looking Ahead

The report offers a broadly positive forecast for the Asia-Pacific economies, although it expects a slowing compared with 2006 levels.

Much of the "momentum" is expected to come from China, India, and Japan, the authors say. They suggest it is incumbent on the other countries in the Asian neighborhood to find ways to take advantage of the "considerable opportunities" that arise as a result.

Azerbaijan is forecast to grow by 30 percent in 2007, with its main policy challenge lying in maintaining macroeconomic stability.

Kazakhstan is expected to see 10 percent economic growth in 2007. The UN report warns that the continuing rise in GDP and steadily increasing inflation suggest that the economy may be "overheating."

Turkmenistan's annual growth is forecast at around 8 percent in 2007-08, and inflation has already risen to double digits. To ease inflationary pressure and reduce risks of a downturn in fuel prices, the UN authors advise a moderate fiscal policy and a tight monetary policy.

GDP growth in Armenia is expected to remain steady at 8 percent in 2007.

The report forecasts continued improvement in the investment climate in Kyrgyzstan, with economic growth accelerating to 6 percent in 2007. But as the economy stabilizes and growth picks up, the report warns that inflation from Kyrgyz working abroad to feed families at home (in Kyrgyzstan) could rise.

Uzbekistan's average annual GDP growth in 2007-08 is expected to be higher than in 2006, owing to favorable trends in global commodity prices -- particularly of its staple crop, cotton.

(Read a summary of the UNESCAP report.)

Central Asia In Focus

Central Asia In Focus

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