The presidents of Azerbaijan and Armenia have held several meetings, including one in Florida in 2002, to try to end the deadlock over Nagorno-Karabakh. In the meantime, the region’s ethnic Armenian population has attempted to establish many of the attributes of an independent state. The “Nagorno-Karabakh Republic,” as some Armenians have declared the region, has elected a president and prime minister and claims Armenian as the official language. The “Nagorno-Karabakh Republic” has not been recognized internationally and its internal elections have not been supported by the OSCE.

Successive governments, beginning with the one headed by the last Communist party chief, Ayaz Mutalibov, have been toppled as a result of this issue. Mutalibov was elected president by the Azerbaijani Supreme Soviet (Parliament) in May 1990, but resigned his party position after a failed coup attempt in August 1991. He then ran unopposed in the September presidential election, but, as a result of his mishandling of the Nagorno-Karabakh conflict, together with the collapse of the Soviet Union in December 1991, was forced from office in March 1992. He attempted a coup to regain power but was unsuccessful.

Abulfaz Elchibey succeeded Mutalibov, becoming the first democratically elected president in June 1992. A former academic, Elchibey remained in office until June 1993, when he, too, was ousted, following a succession of brutal defeats in the war in Nagorno-Karabakh. He fled to his native region, Nakhichevan, and was replaced by Heydar Aliyev, the former first secretary of the Azerbaijani Communist party, Politburo member, first Deputy Prime Minister of the USSR, and a KGB general, who was elected president in October 1993. In the November 1995 elections, in which OSCE election monitors found substantial irregularities, Aliyev’s party Yeni Azerbaycan (YAP) gained control of the Parliament. Aliyev, who turned 80 in 2003 and is in frail health, remains in control and plans to run for reelection again in October 2003. He has worked to move his son into a position to assume power should he be unable to continue for any reason. Azerbaijan has a strong presidential system in which the legislative and judicial branches have little real power. President Aliyev’s authoritarian rule has been criticized by international human rights groups, who claim that the many hundreds of activists opposing the government are constantly harassed and thrown in jail.

President Aliyev replaced the pro-Turkish, anti-Russian policies of Elchibey with a more pragmatic approach which included a decision to rejoin the Commonwealth of Independent States (CIS). The President claims Azerbaijan to be one of the very few CIS member states not to have Russian soldiers stationed within its borders.

The troubles associated with the war in Armenia have absorbed most of the energies of the government in the years since independence. The military defeats that the Azerbaijanis suffered in the last few years of the conflict wrought political and economic havoc. Living standards dropped precipitously, and the national currency, the manat, was weakened. The severing of transport links to Azerbaijan’s traditional markets in September 1994— as a result of fighting in Chechnya—all but stopped exports and, as a result, the gross domestic product (GDP) declined every year between 1988 and 1995. Agriculture and industry, including the oil and gas sectors, were particularly hard hit, but Azerbaijan is now on the road to recovery. In September 1994, the state oil company signed a 30year production-sharing agreement with an international consortium of oil companies (AIOC) to develop the oil fields of Chirag, Azeri, and the deep water portion of Gunashli, located offshore in the Caspian Sea. Since 1997, the GDP has been increasing at an average rate of nine percent, while inflation rates have dropped to an average of one percent during the same period.

The main challenge that Azerbaijan faces today is to diversify its economic growth to avoid reliance on a single industry, which has been a major impediment to the economic development of other resource rich developing economies. Azerbaijan’s economic growth in 1999 was due largely to an increase in oil production. Economists fear that increasing oil revenues will cause the manat to overshoot, thereby making imports cheaper and undermining the competitiveness of the national economy. To minimize the risks of underdevelopment, the government is being urged by specialists to invest its windfall revenues in education, machinery, and high-tech sectors. Foreign investment remains high and could bring more than $50 billion into the oil and gas sector over the next decade. Azerbaijan and its neighbor, Kazakhstan where a vast oil field was discovered in its northern Caspian Sea territory in May 2000 are expected to supply a large percentage of oil from the former Soviet region between now and 2015. An extensive network of refineries and petrochemical plants are scheduled to be built which will create jobs and serve as an additional boost to Azerbaijan’s economy. The major international oil companies are represented in Azerbaijan and have offices in Baku.

Export routes, however, have proven to be controversial for Azerbaijan. Until recently, it had used two separate pipelines to export its oil reserves for sale on the world market. Crude oil was transported from Azerbaijan through Russia to Novorossiysk and through Georgia to Supsa; from these Black Sea ports, it was then shipped through Turkey’s Bosphorus Straits to the Mediterranean. The Novorossiysk route was shut down in 1999 for repairs, and Turkey has encouraged Azerbaijan not to reopen the route. The Turkish government argues that increasing traffic through the Bosphorus, up from 100 to 150 vessels a year in the 1930s to more than 50,000 vessels per year in the 1990s, could result in another environmental disaster, similar to the one that occurred in 1994, when two oil tankers collided in the congested strait. To relieve some of this congestion, Azerbaijan and Turkey signed an agreement in 1999 to build a pipeline from Baku to the Turkish city of Ceyhan, just north of the Mediterranean. This project, commonly called the Baku-Tbilisi-Ceyhan Pipeline project (BTC), began in 2002 and could be completed by 2005. Additionally, a parallel gas pipeline will be constructed from Baku to Erzerum, Turkey to carry the massive gas reserves of the Shah Daniz and Apsheron fields in the Azerbaijani sector of the Caspian Sea.

"Cultural Handbook for the East European and Eurasian States" American Councils for International Eduction: ACTR/ACCELS, ed. Lisa A. Choate and Dan E. Davidson
http://www.americancouncils.org/pdfs/cultural_handbook_03.pdf