Azerbaijan's prospects for movement toward a market economy are enhanced by a fairly well-developed infrastructure, an educated labor force, diversity in both agricultural and industrial production, and yet-untapped oil reserves. Obstacles to reform include the rigidity of remaining Soviet economic struÍÍÍÍctures, the Nagorno-Karabakh conflict, continued trade dependence on the other former Soviet republics, insufficient economic expertise to guide the transition, and capital stock that is inefficient and environmentally hazardous.

Price Liberalization

In January 1992, about 70 to 80 percent of producer and consumer prices were decontrolled, although prices for commodities such as gasoline were artificially increased. Further rounds of price liberalization took place in April, September, and December 1992. Because most industries are still monopolies, price-setting is supervised by the Antimonopoly Committee, which approves requests for price increases and reportedly grants most such requests. Because the state still procures much of Azerbaijan's agricultural production, prices are set by negotiations between the state and producers.

Retail price inflation surged after the first round of price liberalization in January 1992. Thereafter, the monthly rate eased somewhat, averaging about 24 percent during most of 1992. According to official figures, in 1993 average living expenses exceeded income by about 50 percent. The ratio of expenses to income was about the same in Kazakhstan and worse in Armenia and Turkmenistan. Although prices for items such as bread and fuel remained controlled during 1993, in November 1993 the government announced price rises because commodities were being smuggled out of Azerbaijan to be sold elsewhere where prices were higher. By the end of 1993, it was reported that the minimum weekly wage would not even buy one loaf of bread and that hundreds of thousands of refugees in Azerbaijan "simply face starvation," a situation that heightened social and political instability.

Data as of March 1994