Following the break-up of the former Soviet Union, Armenia, Azerbaijan, Georgia, the Kyrgyz Republic, Moldova, Tajikistan and Uzbekistan (the Low-Income CIS-7 countries) faced a triple challenge to build new states, democratic institutions, and market economies.
It has become clear that the CIS7 countries and the international community underestimated the impact of the break-up of the Soviet Union and the complexity of the transition challenges facing these countries. The structural rigidities turned out to be more serious, while the political will of the governing parties to proceed with radical reforms has at times been weak. The magnitude of the initial shocks experienced by the small CIS countries after the breakdown of the Soviet Union through the adjustment of export/ import prices to world levels and loss of fiscal transfers proved to be much greater and had longer-term negative implications than initially thought. As a result of this and many other factors, such as the landlocked geographical location of these countries, disruption of business relations with established CIS partners, weak institutions etc., the CIS7 experienced a sharp collapse of GDP during the first half of the 90s (see table below).
During the past ten years, considerable progress has been made in most CIS-7 countries towards meeting the transition challenges. In some cases, the reforms have been implemented inconsistently, which affected the ability of the economies to recover at a faster pace. As a result, living standards of the population have declined sharply, and the unfinished agenda remains substantial. The urgency of the situation is shown by the large number of people living in extreme poverty (nearly 20 million across this group of countries as a whole or about 35% of the total population). Overcoming poverty and the other remaining challenges is vital both for the countries themselves, and for peace and security in the region.
In recognition of this situation, the CIS-7 countries, bilateral donors, neighboring countries and four international financial institutions (IFIs) have come together to launch a collaborative international effort to enhance the economic growth and poverty reduction prospects of the CIS-7 through greater ownership of development and reform efforts in the individual countries, with the continued strong support of the international community.
The main objective of the Initiative is to assist the CIS7 implement the Poverty Reduction Strategies through:
- Stronger reform efforts on behalf of the CIS7. The key areas that are expected to have a robust impact on growth and poverty reduction and, therefore, should be targeted by the CIS7 are:
– improving the business and investment climate, especially for small- and medium-sized enterprises;
– reducing serious spending distortions to ensure that social services and safety nets are efficient and adequately financed;
– maintaining macroeconomic stability;
– pushing forward on structural reforms, especially in energy and in financial sectors.
- Increased knowledge and partnerships support, as a key to enhancing the development prospects of the CIS7. A set of seminars and events is planned in order to help countries articulate and develop the needed reforms, focusing on the areas enumerated above.
- Improved regional cooperation. The CIS7 countries are encouraged to increase their coordination and cooperation efforts especially in the area of trade, energy and water sharing.
- Continuous support by international community of the reform efforts of the CIS7, including in the form of debt relief (if needed), greater access to western markets, continuous concessional support of bilateral and multilateral institutions.
The Initiative was officially launched during the Ministerial meeting held in Washington on April 20, 2002 by country representatives endorsing the statement of the Initiative.