Problems Encountered During the Transition to Market Economy in Azerbaijan and Solution Attempts

Problems Encountered during the Transition to Market Economy in Azerbaijan and Solution Attempts

Ph.D. Candidate Elchin Suleymanov Ph.D. Sabuhi Yusifov Faculty of Economics and Administration, Qafqaz University Khirdalan city, Hasan Aliyev str. 120,Baku, Absheron Tel: +994 (12) 4482862-66 E-mail: esuleymanov@qu.edu.az; syusifov@qu.edu.az

Abstract

After re-gaining its independence on 18 October 1991, the Republic of Azerbaijan started to transform to the market-based economy and to integrate into the world economy. The country’s oil and natural gas reserves have been considered the main source for financing range of government programs for reforms. On the one hand, these reserves had to be used effectively; on the other hand, there was a huge demand for foreign investment for extraction. To this end, Azerbaijan has signed “Contract of the Century” in 1994. Although Azerbaijan has wide oil and natural gas reserves, it has faced a number of difficulties in its transition way. This study analyzes these problems and reforms for solving them. One of the types of the problems were related to the economic structure of the former Soviet Union: disruption of the economic ties between the republics resulted in decline of production, high levels of unemployment and prices and consequently led to an economic recession in all of the republics. Another set of problems was related to lack of sufficient institutional bases to transform to the market economy. Moreover, internal conflicts between the political parties and groups for having authority as well as political chaos in the republic can be considered other serious problems during the transition period. Furthermore, Karabakh war and occupation of 20 percent of the Azerbaijani territory by the Armenian military forces had made the situation extremely complicated. Despite all of these extremes, Azerbaijan transformed to the market-based economy decidedly and even became one

of the fast growing countries of the world....