AZERBAIJAN - Stability Prospects.

There is a big question mark about Azerbaijan's future now that the elderly Aliyev has gone and the country is ruled by his son Ilham. With Ilham being a mere figurehead for an elite surviving by a combination of repressive rule and corruption, petroleum wealth without governmental accountability in the coming years will lead to more corruption and a population impoverished further.

As pro-democracy activists have lost faith in the new system, a violent alternative to the current opposition movement becomes a possibility. This can be expected when either of the neighbouring powers, notably including Russia, shows keen interest in destabilising Azerbaijan. In that case, an armed opposition group could emerge and pose an immediate threat to the new regime.

Although Ilham Aliyev appears genuine when he says his main concern is to see the people's living standards improve, his aides' old habits will be hard to end. Unless he stages a coup against the elite surrounding him, Ilham cannot stem corruption and establish a true democracy.

In October 1997 the then British Ambassador, Roger Thomas, told a conference organised by the Baku chamber of commerce that corruption in Azerbaijan was getting out of hand. He spoke of "the hijacking of assets and wealth by a few people while a large part of the country goes empty-handed". He said foreign companies were being "frightened away" from Azerbaijan by excessive and arbitrary taxation. He said corruption, in the form of "unofficial overheads", provided "a further disincentive to invest".

Thomas' remarks, unusual for such a ranking diplomat en poste, were significant in view of the important stake held by British companies in the Caspian. BP, by far the biggest investor in Azerbaijan, leads the two main E&P consortia and three other groups with each having a major PSA.

Sabit Bagirov, an opposition economist who used to head Socar under the previous regime (see DT), says the elderly Aliyev used to read and understand every IMF and World Bank proposal but would not clean up and liberalise the economy or the political system. He warned before the elderly Aliyev died that there would be chaos unless Azerbaijan had a government permanently under the control of society and parliament.

Bagirov, now president of the Entrepreneurship Development Foundation, says the present parliament serves as a rubber stamp for presidential dictates. It is dominated by Aliyev's ruling party, Yeni Azerbaijan. He says Ilham Aliyev will not be able to liberate himself from the elite that surrounds him.

In 1997, the elderly Aliyev designated June 15 as a National Salvation Day and, like the late Ataturk in Turkey, his portrait was - and still is - in every school or office. Along many roadsides, billboards bear quotations from his speeches, such as, "I have devoted my entire life to my country".

On Aug. 1, 2001, Azeris took what the elder Aliyev hoped will be a great leap forward towards Europe as the country began writing the local Azeri language with a Latin alphabet. The change capped a ten-year campaign to discard the Russian Cyrillic alphabet which during the Soviet era Stalin imposed on Azeri (closely resembling Turkish). Newspapers, signboards and even street signs had been rescripted since July 2001, when Aliyev decreed that all official and business documents should use the Latin script as from Aug. 1 of that year.

Azeri began the 20th century being written in Arabic, as was the case in the rest of the Turkic world, before switching initially to an adapted Latin-based system after the Communist revolution in the 1920s. After independence in 1991, Azeri nationalist groups lobbied to re-institute the Latin alphabet, although proponents of the switch are to be found across the political spectrum. They argue that the change will strengthen links between Azerbaijan and Europe and contribute to modernisation, as Ataturk maintained when he ordered a switch from Arabic to the Latin alphabet as the start if his regime in post-Ottoman Turkey.

Unspoken but implied was also the desire to wean Azerbaijan from its dominant Russian neighbour. But not everyone was delighted on Aug. 1, 2001. While children had been taught Azeri in Latin script since the break-up of the Soviet Union, Azeris over the age of 30 were educated during Soviet times in Cyrillic. As a result, they can read their native tongue only when it appears in Russian letters. Many people only understand Azeri with Cyrillic letters but they barely speak Russian; and, since Aug. 1, 2001, they have given up reading local newspapers.

Yeni Musavat, until end-July 2001 the largest selling daily and a main organ for the opposition, has seen its circulation reduced from 18,000 to less than 10,000 and has incurred great loss. Many sellers of other newspapers now cannot even understand what the publications say.

On July 31, 2001 the State Oil Fund of Azerbaijan (SOFA) decreed by the elder Aliyev in late 2000 began organising the management of billions of dollars of expected oil wealth with the aim of diversifying the country's economy. By then, about $368m had been deposited in the fund, with the government predicting the state would earn more than $1 bn per annum from oil by 2006.

The fund's creation followed an agreement on it with the IMF. The IMF approved a $100m, three-year poverty reduction and growth loan for Baku, with $10m for immediate use. Two key conditions for the loan were that Baku agree a long-term programme to reduce wealth discrepancies in the country and establish rules to manage SAFA's assets. The fund's board of directors, led by Aliyev-appointed banker Samir Sharifov, had in June 2001 published a set of asset management rules, defining the institutions in which the fund could invest. Later the fund appointed asset managers through tender.

Under the agreement with the IMF, the fund should issue quarterly and yearly reports and undergo audits by international accounting firms. But the questions remain on what projects the money should ultimately be spent and how it will be monitored. The president of the republic, including Ilham now, exercises tight control over the fund. Kazakhstan, where another corrupt government is tightly controlled by its ruler, now has a similar oil fund.

The elderAliyev's image got a major boost on May 22, 2002, as Pope John Paul II arrived in Baku on a two-day visit. The then 82-year-old pontiff, suffering from Parkinson's disease, was lowered to the tarmac by hydraulic platform and was received by Aliyev. The pope vowed to continue his peace-seeking missions "as long as I have breath within me" (see Vol. 59, No. 6).