Colloquium 1995 Panel II : Living Standards and Social Welfare

Living Standards and Social Welfare in Azerbaijan Fikret Pashayev Azerbaijan is rich in natural resources, but it is still finding the road to a market economy heavy going. Wages are trailing prices, with the result that three-quarters of the population are living below subsistence level. Fikret Pashayev says economic reforms create an economic transformation in the long term - but at the moment, it's a question of 'all shock and no therapy'. He also points out that in managing its reform programme, the government has done its best to protect the most vulnerable - and to help the one million refugees from the conflict in Karabakh. Fikret Pashayev is First Secretary at the Department of International Economic Relations, Ministry of Foreign Affairs of Azerbaijan Republic, Baku.

The Breakdown of the Economy Azerbaijan, as one of the republics of the former Soviet Union, was closely integrated in the intra-soviet "market" which was based on command economy principles and regulated by the central authorities in Moscow. After the dissolution of the Soviet Union and emergence of newly independent states the traditional economic links were destroyed. Since all industrial enterprises were public and did not have the flexibility for adaptation to the new market conditions, dramatic falls in output have occurred. The problem was aggravated by the reform policy, especially by the liberalisation of prices, inflation, political and economic crisis, and the emergence of the giant refugees' army. Rich natural resources, particularly oil and gas deposits, iron and alunite ores, sources of building and other materials, as well as water and land resources have allowed Azerbaijan to create a well-developed industrial and agricultural infrastructure. At present more than half of the Gross National Product comes from the republic's industries. The republic has facilities for advanced oil and gas extraction, oil refining, and chemical complexes, to meet local and export needs. More than one-third of the national income is produced by agriculture. Traditional crops include cotton, grapes, tobacco, tea, vegetables, fruits and various subtropical produce. Of the country's total arable land of 134.3 million hectares, some 1.4 million hectares are cultivated. In spite of a series of developed production facilities, the first years after gaining independence were critical for the economy of Azerbaijan. In 1994 the fall in industrial output was 24.8 percent in comparison with 1993. According to the "Economic Survey of Europe in 1993-1994" (UN, ECE, 1994, pp. 52, 63), the fall in GDP in Azerbaijan in 1992 was 28.1 percent, in 1993 - 13.3 percent. The fall in agricultural production in 1992 equalled 25 percent, in 1993 17 percent. According to the special report of the Ministry of Labour and Social Security of the Azerbaijan Republic (Baku, 1995), food production declined more intensively (30.4 percent).

Production of food has further fallen, for several reasons. Among these are: The crisis of agricultural relations and previous forms of land ownership in agriculture (which was based on collective property - kolkhoses and sovkhoses). The rising price of agricultural machinery, equipment, mechanisms, stores, fertilisers. The loss of 20 percent of the Republic's territory as a result of external aggression. The presence of more than one million refugees and displaced persons, a substantial number of whom are rural workers. The table below shows some figures which illustrate production trends for the main food products in recent years. Production of some food products (in thousand of tons) 1992 1993 1994 Meat 28.2 17.8 9.9 Fish 31.2 22.2 19.2 Milk 81.1 49.8 40.3 Oil 22.5 14.2 9.6 Butter 2.9 2.3 1.4 Sausage 7.7 9.5 3.9 Macaroni 16.9 14.3 10.0 Sugar 18.8 11.7 3.5 Salt 21.9 3.8 6.9 Cheese 9.5 7.6 4.6 Source : Special Report of Statistical Committee of the Republic of Azerbaijan, Baku, 1995

As a result of a fall in food production and restrictions in imports, the consumption of some products has declined. For instance, the decline in meat consumption in 1992-1994 equalled 32 percent, milk 11 percent, sugar 14 percent, eggs 27 percent. In recent years, some steps have been taken to reform the economy, such as: liberalisation of prices and decentralisation of management of enterprises; creation of a national currency; the birth of a private sector; and a number of other measures to transform the totalitarian system of management. Reform Measures: 1990-1994 Between 1990-1994 a number of radical measures were undertaken to reform the economy. These include: 1990-1991 witnessed the reform in management of enterprises aimed at increasing their authority to determine their economic programmes. It was the first step toward setting up market relations. In 1992, central planning of production was terminated. That created favourable conditions for flexible management of the economy in conformity with market conditions. Accordingly, enterprises were given the right to regulate salaries and wages as well as the number of employees. Since January 1992, prices and tariffs of all kinds of production and services, except bread, fuel and public transport, were liberalised. As a result, inflation has grown. The average monthly rate of inflation rose to between 15 to 20 percent, while individual incomes increased no more than 7 to 9 percent. All this resulted in a considerable decrease in the standard of living - and along with that, the process of polarisation caused by aggravated disparities in incomes - caused more than 75 percent of the population to have income levels below the minimum subsistence level. The difficulties of the transition period had a negative impact on the different aspects of social life. Social Infrastructure Under these circumstances the minimum wage has to correspond to the minimum consumer budget of the population. In 1991 the minimum wage equalled 41.8 percent of minimum consumer budget, in 1992 it was 24.5 percent, in 1993 - 10.8 percent, in 1994 - 2.8 percent, in March 1995 - 2.3 percent. In March 1995 the value of the minimum consumer budget in Azerbaijan was an estimated $54, the average wage - $11, the minimal wage - $1.2. The introduction of a national currency (the Manat) - initially gave the opportunity for the government to ensure through emission the appropriate quantity of money for covering expenditures on wages, but the critical situation in production brought high inflation. The financial difficulties did not allow the government to pursue the adequate indexation policy. In 1992-1995 the index of consumer prices has risen 239 times, but the average wage 57.5, and the minimum wage 22 times. In the period between 1993 and 1994, along with the increase in prices which were regulated by the government, specifically for bread and fuel, the state carried out measures to protect the more vulnerable strata of the population including students, pensioners and families with many children. The strategy of economic reform is focused on revamping of property relations based on principles of economic pluralism and conversion from the strictly centralised command to a regulated market economy. Coordination of economic and social policies is needed to protect the welfare of the people. Though it is obvious that in the long term, the reformed economy will pull the country out of this current plight, a shock therapy may result in grave social consequences. In Azerbaijan, with more than one million refugees and 20 percent of its territory under occupation, this problem is especially real. From the strategic point of view, the first priority is to maintain a minimum of social security for the population, to ensure the irreversibility of reforms and a minimum standard of living for the vulnerable strata of the population. There are plans to increase transfer payments to this vulnerable strata of the population - pensioners, students, families with children. The social protection of these strata will be mostly provided for from the funds realised by the sale of state property. In the draft law of privatisation presented to the parliament it is planned to allot 25 percent of the proceeds from the of selling state enterprises to the fund for the people's social security. Azerbaijan's economic policy for 1995, as worked out jointly with the International Monetary Fund, is based on the premise that economic and financial stability can best be achieved by a gradualist social policy, as well as by cutting the state expenditures and freezing investments by government. The problem of creating programmes aimed at fighting poverty, and assisting the socially vulnerable strata of the population, remains unsolved.

Social Security Policy The radical changes to the life of the country caused by the transition to the market economy call for the entire existing social security system to be transformed. Therefore, a new system of social guarantees is needed. Azerbaijan developed a system to regulate salaries and wages on a 19 point scale. It pays special attention to creating a durable legal base for the social security of the population. The Azerbaijan parliament has adopted a law on guaranteed pension rights, social security of the disabled, and vacations. A new system of social guarantees would grant pensions, allowances and compensations to low-income families and the disabled. In view of the liberalisation of prices and the growth of inflation, certain groups (soldiers and veterans, teachers, pensioners, the disabled and others) have been granted discounts for use of municipal utilities, telephone, and public transport. Today the system of obligatory social guarantees in Azerbaijan embraces 1,200,000 pensioners, about 300,000 invalids, 1,000,000 refugees and displaced persons, 2,000,000 children and about 130,000 students. A great part of the system of social guarantees is financed by taxes on companies. The minimum wage level has been reviewed to account for inflation and other factors. Salaries, pensions, stipends and allowances are indexed to the minimum wage. The present social security system based mainly on centralised government financing is inadequate. The population is not protected from rampant price inflation. Therefore, to build an effective welfare structure the state has focused on controlling inflation and overcoming the economic crisis by reviving production, attracting foreign investment, and creating conditions for private entrepreneurship.

Employment and Unemployment Since gaining its independence, Azerbaijan has joined a number of international organisations including the International Labour Organization (ILO) and has ratified 57 ILO conventions. On the basis of these conventions, it has worked to solve the unemployment problem. In 1991 the law "On the Employment of Population in the Azerbaijan Republic" was adopted, and labour boards were created. Since then, 151,000 people have applied to the appropriate state authorities, of whom 79,500 found jobs, 65,000 entered retraining programmes, and, 36,000 were registered as unemployed and provided with unemployment benefits. All these measures are financed from an employment fund supported by taxes on business. For a long period, especially in the 1980s, job creation did not keep up with the growth of the workforce, leading to the steady growth in the number of unemployed. According to some estimates which do not provide a detailed breakdown, the number of unemployed exceeds a million. Application of international statistical standards may improve the estimates. Azerbaijan is traditionally regarded as a republic with abundant labour resources. The problem of unemployment is aggravated by two factors connected with the external aggression - on one hand over 250,000 jobs have been lost in the occupied territories, on the other hand, the arrival of more than 1,000,000 refugees and displaced persons worsened the strained situation in the labour market. Up to now Azerbaijan has not foreseen any assistance in managing its unemployment problem. But serious work has already begun. With UN and ILO aid, a project, entitled "A review of Manpower in the Azerbaijan Republic" has been launched to refine definitions and estimates of unemployment. It is evident that solving the unemployment problem depends on economic growth. Only in this way can the peoples' right to work be guaranteed by legislation. Azerbaijan needs to attract foreign investment, encourage duty-free commerce, and obtain lower barriers to the free migration of labour. Demographic Situation The Azerbaijan Republic's population totals 7.5 million, 53 percent living in towns and 3.5 million (47 percent) living in rural areas. In the past years, growth of the population has been only attributed to the birth-rate, which indicates a positive demographic situation. On average 180,000 children are born each year, about 500 children per day. In previous years, Azerbaijan maintained a high birth-rate. Lately, this figure has decreased because of the economic situation and external aggression. In 1994, the index per 1,000 inhabitants dropped to 22, while in 1985 it stood at 27. The annual average rate of growth of population stood at 3 percent between 1959-1970, 1.8 percent between 1970-1979, 1.5 percent between 1979-1989, 1.1 percent between 1989-1994: the negative tendency of decrease is evident. Azerbaijan has long been characterised by a relatively low and stable rate of mortality. However, the present situation has resulted in heavy human losses, and consequently a considerable increase in the mortality rate. In 1993, 52,800 deaths were registered at a rate of 7.3 in 1,000, compared to the figure of 6.8 in 1988. Stresses and shocks suffered by pregnant refugee women, lack of elementary sanitary facilities, systematic malnutrition of future mothers, shortage in medicine and food for infants - all these reasons determined the growth of infant mortality. In 1992 the infant mortality per 1,000 live births equalled 28.2. The mortality figure is reflected in the indicators for average life span, at 70 years compared to 71 in 1959. The average life expectancy for men is 65 years, and for women 74 years. Azerbaijan has, since ancient times, been considered a country with exceptionally long lives. The oldest man in the world, as recorded in the Guinness Book of Records, is 162 year-old Shirali Muslumov from Azerbaijan. But the number of long-livers has sharply decreased in the recent years.

Ecology and the Environment In Azerbaijan, major ecological problems have accumulated in all the spheres of industry and life. The policy of the former Soviet Union on environmental protection was aimed at intensive exploitation of natural resources. All spheres of economy and industry developed their production at the cost of intensified consumption of raw materials. In doing this, the problems of resources and energy supply were not paid proper attention. Less than half of the Republic's cities have water treatment systems. The state of the water supply and sewerage system is generally unsatisfactory. The environment in Sumgait is particularly grave because there has been an intensive expansion of chemical enterprises without corresponding levels of environmental protection. The transition to a market economy must exert a positive influence, as a whole, on the efficiency of exploitation of resources, as well as on the state of the environment. But in the very period of transition the ecological situation is becoming even worse. Among the factors polluting the environment in the republic the worn-out equipment and obsolete technology must be mentioned. Discarded oil industry equipment scattered throughout the Absheron Peninsula, continues to pollute the environment and deform the landscape. The problem of recultivation of land polluted with oil is very critical. This is why environmental protection and questions of ecology have become a crucial part of state policy. Based on the principles adopted by the world community, a number of fundamental documents, namely, "Ecological Conception of the Azerbaijan Republic" and the "Law On Protection of Nature and Use of Natural Resources" were drafted in a short period of time and ratified in the parliament. Unfortunately, solutions to ecological problems are being carried out under the present circumstances of an economic crisis and acute budget shortages. It is evident that the necessary financing to resolve ecological problems it not available. The entire Baku Bay and 36 percent of coastal waters are subjected to complex pollution. More than half of the rivers (65.3 percent) of 100 km. length are heavily polluted. The inhabitants of the republic's lowlands are affected by thermal, biological and chemical changes. Lakes of the Absheron Peninsula and Kur-Araz lowland with a total area of 190 sq. km. are in a critical state. The level of the Caspian Sea increases by 144-168 mm per year, or by 12 to 14 mm per month. The entire seacoast of Azerbaijan, 830 km. is flooded along its entire length. The depth of the maximal flooding is 25 to 35 km., and for subflooding is 35 to 45 km. All the towns, settlements and economic facilities situated in this region need anti-flood protection, or relocation from their current sites. Seven cities - some 35 settlements with more than 120 buildings of cattle breeding, recreation and storage facilities, homes, recreation areas as well as a total population of about 700,000 - are situated in the area that will suffer catastrophic effects. It is predicted that by 2010, the water level will increase to 26.0 metres. Some 150,000 people - 22 percent of the population - inhabit the territory immediately affected by this increase in the sea's water level. According to preliminary estimates of experts, the investments required to restore the environment in excessively polluted areas range between $3 to $4.5 million.

Education Azerbaijan has a long history and tradition of learning. At present there are 22 higher schools, 72 colleges, 162 technical-vocational schools. Now there are 4,419 schools functioning in Azerbaijan, including 2,328 secondary schools, 969 primary eight-year schools and 522 pre-school institutions. There are 1,434,500 pupils in the schools of the republic and they are taught by more than 152,600 teachers. The system of private educational institutions is being developed. Specialised secondary schools play an important role in training more than 70,000 pupils for specific jobs. The most difficult problem of education today remains the extremely low salary of teachers in public and higher schools - $10-20 monthly. Other problems include systematic malnutrition of students, absence of necessary food for children in kindergartens, shortage of textbooks, furniture and buildings. The student hostels of higher and technical secondary schools in Baku, Ganja, Sumgait are occupied by refugees. In the territories neighbouring the occupied lands for a long time it has been impossible to organise a full scale education programme as the buildings are occupied by refugees. With the assistance of humanitarian organisations, an interim solution of building prefabricated small houses as school buildings has been organised. However, the problem is still far from being solved. Many children of refugees and displaced persons are suffering from war trauma and need special counselling and instruction. Unfortunately, this has not been made available because of more pressing problems faced by the republic. Azerbaijan has 242 pre-school institutions for 12,000 children, 616 schools of general education for 117,000 pupils, four colleges for 21,000 students and one high school in the occupied territories. Health Protection There are 735 health centres, 1,624 ambulatory services and polyclinics, including 757 ambulatory facilities and 2,288 maternity centres in the republic. Azerbaijan has lost 5,920 hospital beds in the occupied territories; among the refugees there are 1,416 doctors. The number of hospital beds totals 76,900 or 104.4 per 10,000 - well above European Community levels. But these quantitative indicators which were the main criteria for planning and financing, do not reflect accurately the state of affairs in public health. Some 90 percent of hospital beds in rural areas are in buildings unfit to be called hospitals. There is an acute shortage of medical equipment and medicine. Health receives 4.5 percent of the state budget. In circumstances of economic crisis and inflation, these allocations do not even meet minimal requirements. There are inadequate resources to maintain current facilities or to improve them. Thus they cannot provide care in adequate volume or quality. Recently, the incidence of diseases associated with social factors has risen greatly: tuberculosis, infectious-parasitic diseases, etc. Annually about a million cases of acute chronic diseases are diagnosed. Inadequate sanitary conditions have led to high percentage of "invalidism" among people with diseases. The indicator in Azerbaijan is very high, fluctuating between 60 percent and 80 percent. Health care management still follows in part the rigid Soviet model and is in need of gradual decentralisation. The search for new financing means will have to include three ways to provide health care - free state care, insurance, and patient payments. Economic and social criteria will determine the mix among these options. Extensive redesign of the health care network, as well as retraining of personnel, are also needed. For all this Azerbaijan requires the consultative assistance of international institutions. Key medicine and equipment shortages include: insulin, anaesthetics, blood substitutes, blood-transfusion equipment, disposable syringes, injections, vaccines, serums, anti-TB and cardio-vascular medicines and cancer preparations. As a whole, specialists consider health care in Azerbaijan to be in a critical state. The transition from a centralised to a market economy will definitely facilitate decentralisation of the health care system as well.

Social Status of Refugees and Displaced Persons in Azerbaijan The President of the Azerbaijan Republic, the Supreme Soviet (the Parliament) and the Cabinet of Ministers adopted a number of significant decrees and resolutions aimed at the problems of refugees and displaced persons. All the issues related to them are covered by the "Law on the Status of Refugees and Displaced Persons", adopted on 29 September 1990. Under this Law, refugees and displaced persons will be provided with an allowance and accommodation to meet their most urgent needs; employment and education of their children are being considered and solved at governmental level. At present all refugees have been accommodated, they have jobs and are citizens enjoying full rights in Azerbaijan. However, over 200,000 refugees forcibly deported have not been paid compensations for their damages, abandoned houses, constructions, property, cattle, or all the things they had accumulated over the decades they lived in the region. This problem is waiting for its urgent solution. Displaced persons who total 143,000 families (650,000 people), including 106,666 children up to the age of five years, 357,562 women, and 86,383 pensioners have been accommodated in sanatoriums, boarding houses, hostels, office buildings, in houses of friends and relatives. A part of them are living in tent camps, dugouts, straw houses, fabricated small cottages built by international organisations and in plywood barracks. The State Committee for refugees and displaced persons and other governmental bodies dealing with the refugee problems are in need of technical and organisational support. The assistance rendered in the form of subsidies and humanitarian relief of international organisations is not enough to meet all the demand of refugees. The main source of their incomes must be their own labour. Hard living conditions and a lack of basic sanitary norms have encouraged the spreading of various diseases among the refugees. This is due to the chaotic accommodation of displaced persons and a loss of control of sanitary measures - a lack of baths, soap, detergents, and essential medicine. Most of these people have no medical documents. This all worsens the task of medical personnel. It is evident that the return of refugees requires the solution of a range of complex of problems - beginning with the economic issues and ending in the restoration of a destroyed infrastructure. The problems of stimulating the small business, farming, creating the system of training, re-training of personnel in new methods in managing agriculture are very important. References Asian-Pacific in figures, Seventh edition, November, 1993, UN, New York, 50 p. Economic and Social Survey of Asia and the Pacific, UN, New York, 1995, 156 p. Economic Survey of Europe in 1993-1994, UN, ECE, 1994 Trends in Europe and North America, UN, The Statistical Yearbook of Economic Commission for Europe, Geneva, First Edition, 137 p. The socio-economic situation in Azerbaijan Republic in Jan.-May of 1994, Baku, 1994, 60 p. Special Report of Statistical Committee of the Republic of Azerbaijan, Baku, 1995 Special Report of the Ministry of Labour and Social Insurance of Azerbaijan Republic, Baku, 1995 Social and Economic Indicators of the Black Sea Economic Cooperation Countries, Ankara, 1993, 156 p.