VZCZCXYZ0000
RR RUEHWEB

DE RUEHKB #0010/01 0041138
ZNR UUUUU ZZH
R 041138Z JAN 08
FM AMEMBASSY BAKU
TO SECSTATE WASHDC 4546

UNCLAS BAKU 000010 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
FOR EUR A/S FRIED, DAS BRYZA, EUR/ACE ADAMS 
ALSO FOR EUR/ACE, EUR/CARC 
 
E.O. 12958: N/A 
TAGS: EAID ECON PGOV AJ
SUBJECT: IMPLICATIONS OF FSA BUDGET REDUCTION FOR AZERBAIJAN 
 
 
¶1.  (U) As we have started to implement our FY08 assistance 
programs, we are beginning to appreciate in very real terms 
the magnitude of the FY08 budget cuts.  The 40 percent 
reduction in our FSA budget in a single year will have a 
serious impact on our ability to advance our political and 
economic agenda supporting western-oriented democratic 
development and advancing U.S. interests in freedom and 
stability in Azerbaijan.  The 40 percent reduction will mean 
slashing successful programs that are just beginning to 
achieve important results, many launched only in 2002 with 
the waiver of Section 907.  This is a decade late, relative 
to some of our efforts in other former Soviet republics. 
Democratic reform remains a major challenge and requires 
sustained effort here.  Ten months from a presidential 
election, press freedoms and freedom of assembly remain 
constrained.  Corruption threatens the significant gains of 
Azerbaijan's vast oil wealth.  Azerbaijan is beginning to see 
signs of religious extremism which, if fueled by continued 
poverty and corruption, increased inflation, and lack of 
political openness, could flare over time. 
 
¶2.  (U) We have no illusions about returning to FY07 funding 
levels.  However, we feel compelled to document the expected 
impact of these cuts, to inform discussions about next year's 
funding levels.  Moreover, as we have discussed in the 2008 
Elections Assistance Strategy, we have identified key 
activities where we can use performance funds to leverage 
reform in the critical areas of freedom of assembly, freedom 
of the media, and rule of law in the run up to the 2008 
Presidential election. 
 
¶3.  (SBU) We recognize the logic of OMB and others that 
focuses assistance budget cuts on countries that have 
significant non-assistance income potential.  Azerbaijan, 
however, is not yet at the point at which it will on its own 
strongly promote a Western-oriented reform agenda, 
particularly in the critical areas of building strong 
democratic institutions, fighting corruption, breaking up 
monopolies and opening the economy to competition. 
International assistance to spur and support reform remains 
key to bolster nascent efforts to build democratic 
institutions and strengthen democratic forces here.  The 
majority of our assistance programs began only after the 
waiver of Section 907 in 2002.  They are only now beginning 
to show results.  Dramatic cuts to USG assistance to 
Azerbaijan at this time work contrary to U.S. interests in 
pushing for urgently needed reform.  In the long-run, they 
can be costly to our broader interest in promoting stability 
and economic and political development in a highly strategic 
country. 
 
¶4.  (U) USAID's Civil Society and Community Development 
projects and INL's law enforcement and judiciary support 
programs have been the hardest hit of our assistance programs 
this year.  This year's cuts were particularly difficult to 
prioritize as they were so large.  We chose to cut areas in 
which we hoped our activities could continue, albeit at a 
reduced level of effectiveness.  We also chose to cut 
entirely some projects where it was no longer efficient to 
maintain the infrastructure for small projects.  We are 
particularly concerned that we had to slash civil society, 
economic growth and agriculture programs, but this year's 
funding reductions were so large that only cuts in these more 
costly programs would allow us to balance our budget.  This 
year's reduction also is creating an imbalance in our 
assistance levels (DTRO, EXBS, ODC, and DoE programs) now 
easily surpass what we are spending on economic and political 
reform.  Below are a few examples of the programs we are 
being forced to scale back or eliminate: 
 
-- We will be reducing our civil society support program by 
60 percent.  Down from a previous annual funding level of 
roughly $6.3 million, the FY08 budget of $2.5 million will 
significantly reduce our ability to strengthen civil society 
and carry-out critical community development and consensus 
building activities in vast regions of the country 
long-ignored by the government and the international donor 
community.  USAID's five-year Civil Society Project made 
significant progress during its first two years by achieving 
a nation-wide framework for citizen participation with buy-in 
from 250 leaders from national and local government, 
businesses, and civil society organizations.  Advocacy will 
be hit particularly hard, reducing available funding for 
grassroots advocacy campaigns from the planned 54 
organizations to only 18 organizations.  These budget cuts 
reduce total annual funding available for NGO technical 
assistance and training from 400 NGOs to only 30 NGOs, 
severely hampering project outreach in poor rural and 
semi-urban areas.  At the same time, these programs represent 
an investment in the longer-term success of political 
development in Azerbaijan -- laying the foundation for an 
empowered, educated and engaged citizenry, key to effective 
democracy. 
 
-- Our Community Development Activity has broad outreach in 
14 regions in Azerbaijan and works at the grassroots level 
with 90 communities to build citizen participation and 
increase cooperation between citizens and government.  Great 
strides have been made in two years:  thousands of people 
have made significant contributions of cash and labor 
($700,000 est.) to share the expense of over 180 community 
projects; communities are appealing to local government 
authorities for assistance ($70,400 in municipal 
contributions have been provided thus far); municipalities 
are conducting open hearings on local budgets for the first 
time ever (80 municipalities published budgets and are 
conducting hearings); and citizens from these communities are 
addressing their concerns to Parliamentarians.  These 
programs, as well, strengthen the foundations for successful 
longer-term democratic development. 
 
-- Funding for the Community Connections program, which 
supports study tours for groups of selected public and 
private sector representatives to the U.S., will be 
eliminated in its entirety.  The program has been important 
in terms of acquainting Azerbaijani Muslims with U.S. culture 
and religious freedom. 
 
-- One of the hardest hit areas of our FY08 budget has been 
our funding for reforms in the critical areas of law 
enforcement and the judiciary.  We expect a minimum of 
$790,000 to be cut from this already modest program.  While 
just barely allowing us to keep our legal advisor and law 
enforcement advisor, it draws down to zero our ability to 
fund complementary training and education activities for 
judges and police officials.  These nascent programs have 
already shown results in terms of judicial examinations and 
selection and shaping police training.  The absence of a 
modern, independent legal and judicial system is a key 
impediment to Azerbaijan's political development. 
 
-- In addition, the reduced funding will limit the scope of 
USAID Economic Growth Programs, particularly in the area of 
fiscal reform.  This will inhibit our capacity to help 
Azerbaijan avoid the worst aspects of the oil curse.  Funding 
for agriculture, originally budgeted at $400,000, will be 
eliminated in its entirety, as well as $500,000 in funding 
supporting workforce development - a critical human capacity 
building activity. 
 
¶5.  (SBU) Finally, with your help, we have involved the GOAJ 
in a promising, if difficult, discussion on co-financing.  As 
you know, the GOAJ has long participated through cost 
sharing, but co-financing represents a new approach.  While 
co-financing may boost our economic reform programs, we do 
not anticipate GOAJ co-financing in the democracy and 
governance sector, although we have requested GOAJ 
co-financing to support our Civil Society and Community 
Development projects. 
 
¶6.  (U) We welcome the support of EUR/ACE as we undertake 
these dramatic cuts, both in terms of guidance about 
preserving the best of our programming, but also in terms of 
supporting our request for supplemental funding to address 
ongoing policy priorities, such as media freedom and the 
upcoming elections.  We also urge that Washington consider 
the key role that USG assistance plays in supporting 
democratic retorm in Azerbaijan, both political and economic, 
as FY09 funding decisions are made.  It is difficult to argue 
that we stand strongly behind continued reform and democratic 
development, both economic and political, in Azerbaijan, when 
our concrete support has been reduced so significantly. 
LU