The Prospects for Long-Term Economic and Social Stability in Central Asia and the South Caucasus

From 1991 until the terrorist attacks of September 11, 2001 in the United States, the states of Central Asia and the South Caucasus were often considered by U.S. and other international policymakers as a single geographic unit. Along with Russia and Iran, they are part of the broadest extension of the Caspian Sea Basin. They are crossroads for transportation and communication between Europe and Asia, and between Russia and the countries of the Middle East and South Asia. They shared a common political and economic development as part of the Soviet Union for more than seventy years. And, after the dissolution of the USSR, they all emerged as independent, but fragile states, with nascent national identities and a staggering array of challenges in creating new political and economic systems. Although Central Asia and the South Caucasus share a common set of problems, they are also two very sharply distinct regions with their own external and internal dynamics. Even within the shared Soviet space the regions had different histories and cultures and, today, each country must contend with its own particular challenges in its own way.

The transition from the Soviet command economy and authoritarian political system has been much more complex and difficult than anticipated for Central Asia and the South Caucasus. The Central Asian states were the poorest and least developed in the USSR, and both sets of states had to begin almost from scratch in their development in the 1990s. Progress in market reforms, institutional development, and democratic reform has been limited. Attempts at macro-economic reform have led to economic stabilization but have not been matched by local-level developments. Thanks to extensive borrowing from international financial institutions, reforms have saddled regional states with high and unsustainable debt burdens. Governments are weak, poorly committed to economic reform priorities and reluctant to engage in political or sub-regional reform efforts. Instability in Central Asia, the risk of failing to consolidate peace in Afghanistan, and intractable ethnic conflicts in the South Caucasus threaten further progress.

The prospects for long-term economic and social stability in Central Asia and the South Caucasus are, therefore, uncertain. They are dependent on the governments’ and the international development community’s ability to capitalize upon the inter-linkages and dependencies within and between the two regions while, at the same time, acknowledging the states differences when responding to individual needs and circumstances.