Publication: Prism Volume: 4 Issue: 9

By Emil Danielyan

Hardly any other part of the former Communist bloc has seen such a dramatic economic decline as has the South Caucasus, in its transition to a market economy. The three republics of the region — Armenia, Azerbaijan and Georgia — have plunged into such a slump that it will take them years to regain the relative prosperity which they enjoyed when they formed part of the Soviet Union. Apart from the traditional economic woes experienced by other countries in transition, the region has seen a number of ethnic wars. This was the main reason for its economic collapse. But with cease-fire agreements keeping front lines in South Ossetia, Abkhazia and Nagorno-Karabakh quiet since 1994, it seems to have hit bottom and to be slowly bouncing back.

Despite many similarities, the three South Caucasus republics are adopting increasingly different economic strategies. Azerbaijan’s vast oil reserves could bring it enormous wealth. Georgia hopes to capitalize on the importance of its geographical position; most Caspian oil exports will pass through its territory. For landlocked Armenia, the situation is more difficult. It is unlikely to share in the oil revenues, due to its unresolved conflict with Azerbaijan. For this reason, Yerevan has tried to stay one step ahead of its neighbors in carrying out radical economic reforms. This has earned the country praise from international financial institutions and has made it the first CIS member state to register economic growth in 1994.

But this growth came after such a drastic decline (which reached 50 percent in 1992), that most Armenians have yet to enjoy its fruits. Macroeconomic stability has not meant a booming economy, at least so far, although it has alleviated the hardships of the first years of independence. And the unexpectedly low economic indicators in 1997 demonstrate just how precarious this stability is. In 1997, the economy grew by only 3.3 percent and the inflation rate was 21 percent, versus forecasts of 6 and 10 percent respectively.