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Central Asia/Caucasus: Former Soviet States Seen As Flawed But Capable Of Reform

The emergence of many former Soviet states as strategic partners in the war on terrorism has provided them with sudden opportunities for economic development after nearly a decade of neglect. But a conference looking at regional security and business prospects in the area known as Eurasia heard a mix of cautious optimism and deep concern by experts familiar with the region and international development issues.

New York, 18 September 2002 (RFE/RL) -- A conference looking at security and economic prospects in Eurasia -- an area encompassing most of the former Soviet Union -- has highlighted the need for deep reforms, especially among the ruling elite.

Speakers ranging from U.S. Treasury Secretary Paul O'Neill to the administrator of the United Nations Development Program, or UNDP, Mark Malloch Brown, focused on the need for sweeping reforms in countries throughout Central Asia and the Caucasus in particular.

They spoke at a gathering of government and business leaders yesterday organized by the Eurasia Group, the United Nations, and the Business Council for the United Nations.

O'Neill stressed the need to engage countries throughout Central Asia, noting the disastrous results of the international neglect of Afghanistan. He also rejected the notion that any new U.S. military operations in Iraq would lead to a decline in U.S. support for Eurasian countries.

But the U.S. treasury secretary said leaders in the region will need to show they are willing to enact tough reforms if they are to attract scarce investment and development aid. "Without the rule of law and enforceable contracts and attacks on corruption, it's pretty difficult to make real progress on the other things that matter in life, and it's very problematic that foreign direct investment will expose itself in the absence of those things," O'Neill said.

Authoritarian rulers have been in power through much of the post-Soviet era, and the region has suffered a dramatic increase in poverty levels. A report released yesterday by the World Health Organization provided fresh data about this decline. The report ( shows that the number of people reported to be living below the poverty line of $4 per day had risen from 3.3 percent to 46 percent in about 10 years.

But O'Neill said a recent trip he made to the region also provided a glimpse of hope about how the resources of the region can be transformed into engines of growth.

He referred in particular to the prospect for cooperation between two of the countries he visited, Kyrgyzstan and Uzbekistan, on hydroelectric-power generation. And he said during his visit to Ukraine that he saw potentially enormous benefits if the country renovates its infrastructure for transmitting natural gas. But he said such changes will not attract needed investment until the national leadership shows a commitment to a reform path. "To tap all this potential, they need to work with their neighbors to build regional cooperation and trade, invest in distribution systems, and overcome lingering distrust and Soviet economic thinking. The barriers to trade among these countries are much too high and corruption raises transportation costs even further," O'Neill said.

O'Neill said Russia is beginning to make needed reforms, but the process would be accelerated by Russia's membership in the World Trade Organization, a move the United States supports. He also expressed hope that Washington's closer ties with Russia will have a positive impact on Eurasian countries. "Beyond the immediate cooperation we've sought for military and security interests, these nations are becoming new partners for economic development, the source of long-term stability and prosperity. At the same time, our growing alliance with Russia, the most influential country in the region, in the context of Russia's improving policy environment, has made the future brighter," O'Neill said.

Speakers at a separate panel discussion on Eurasia's future were more pessimistic about the prospects for positive changes. Financier George Soros, president of the Open Society Institute, said Russia has evolved from what he called "robber capitalism" to elements of legitimate capitalism in recent years.

But he said human rights activism is suffering due to Russia's new close ties with the U.S.-led coalition against terrorism. "If you look at, for instance, how Russia has handled Chechnya, it gives you a rather terrifying example of what can happen if you carry the war on terrorism to an extreme. And we are not in a position to criticize anymore, and it is not high on our agenda to do so," Soros said.

Soros said that with developed countries unwilling or unable to force positive changes on the authoritarian governments in Eurasia, there should be more efforts to work through nonstate actors. Soros's own Open Society Institute is one of the most influential nongovernmental organizations in the region, assisting in areas like media development and education. "You can provide incentives, reinforcement, empowerment for those who are moving in the right direction. That is not an interference in the internal affairs of the countries. We don't do enough on the positive side," Soros said.

UNDP administrator Brown, addressing the same panel, spoke of the importance of transparency in government affairs. He mentioned in particular the issue of energy revenues, saying government's handling of these funds has given rise to political unrest in oil-rich countries in Africa, such as Nigeria.

Brown said countries like Kazakhstan, Turkmenistan, and Azerbaijan must be persuaded of the need for transparence in the use of their energy revenues. "If there is not a very transparent governance around the use of royalties on these pipelines, it will end up with huge costs to the foreign investors and the governments involved," Brown said.

Brown also said the developed world must also take advantage of the upcoming expansion of the European Union eastward by further engaging the countries of the former Soviet Union. He said there must be ways to bring those countries onto the same reform path embraced by the former communist countries of Eastern and Central Europe.