23 February 2020

Sunday, 18:23

CURRENCY

SOUTH CAUCASUS-2020

On Armenian illusions, Georgian uncertainty and Azerbaijani pragmatism

Author:

01.02.2020

The year of 2020 began with events that considerably shocked the international community, including the infamous U.S. attack on General Qasem Suleimani at the Baghdad airport, the ensuing tension and retaliatory strike of Iran on U.S. military bases in Iraq, the unexpected dissolution of the Russian government and the announcement of constitutional reforms in Russia, as well as the aggravation of situation in Libya. All these events had an influence on the South Caucasus in one way or another.

 

Desperate Armenian bluff

Indeed, the regional events began to take a rather interesting turn. Especially when the Armenian prime minister stated that in 2020 Armenia would bypass Azerbaijan in terms of GDP per capita and become a leading country in the South Caucasus. At the same time, he referred to some IMF data. He even said that Armenia bypassed Georgia in 2019, which caused bewilderment and indignation not only in Georgia, but also in Armenia itself. At the meeting on the results of Azerbaijan's socio-economic development in 2019, President of Azerbaijan, Ilham Aliyev, had to refute another Armenian lie, citing comprehensive evidence against the allegations of Armenia.

Before this, Georgian Minister of Economics, Natia Turnava, stated that Nikol Pashinyan did not know basic things, including the calculation of statistical indicators for GDP per capita. She pointed out that Pashinyan should first study this issue at the very basic level first.

Apparently, the reason why the Armenian government made such a desperate bluff was to somehow justify itself for the failures of "economic revolution", which Nikol Pashinyan announced a year earlier. But he had overlooked an important circumstance: how ready is the Armenian society to believe in such a bluff in the conditions of worsening living conditions. Former Prime Minister Hrant Bagratyan made a straightforward statement that the official GDP data was provided not by the International Monetary Fund, but by the World Bank. WB will publish data for 2019 in April-May 2020.

Incidentally, Hrant Bagratyan is a supporter of the ex-president of Armenia Levon Ter-Petrosyan. It is therefore likely that Pashinyan did not find anything better to retaliate against the Ter-Petrosyan's supporters than getting rid of supporters of the previous team as soon as possible. The first victim was his own press secretary, Vladimir Karapetyan, who was the protégé of the first Armenian president, but experts expect the series of resignations in the Armenian government to continue with the people of Ter-Petrosyan suffering first. Moreover, Nikol Pashinyan did not even bother to call and congratulate the ex-leader of the country on his 75th birthday, to whom he had once been very loyal and had been considered an active member of the Ter-Petrosyan team.

There are problems in the Armenian parliament too. The dominant government faction My Step is hardly half active, while the other part is acting by inertia. Nikol Pashinyan himself, apparently, is well aware that he continues to lose the popular confidence, as he cannot fulfil his previous promises. As a populist politician, Pashinyan is very afraid of comparing his power with the previous one. That is why he will try to take decisive steps to reform the judicial system this year, trying to subdue it to himself, and to achieve at least some improvement in the economy. In addition, it is expected the staff shuffling and reforms in the administrative apparatus of the government will continue. On the one hand, this allows the incumbent prime minister to blame his problems on the negligence of officials, and on the other hand, to distract public opinion from really big problems in the governance system.

Even Armenian experts admit that the state expenditures for 2020 have been increased by 250 billion drams compared to 2019, mainly due to unspent funds provided for capital expenditures in 2019. The failure to fulfil the planned programs is due, for the most part, to the slowness of the public administration system, which, in turn, is associated with a shortage of qualified personnel in government agencies after the so-called 'Velvet Revolution'.

 

Difficult problems

Pashinyan is still afraid by the possibility of counter-revolution by the Karabakh clan, which, apparently, is also attempting to regroup. It is likely that Pashinyan's former associates such as the former head of the National Security Council, Artur Vanetsyan, will take sides with the Karabakh clan. According to newspaper Haykakan Zhamanak headed by the wife of Armenian Prime Minister, Anna Hakobyan, Vanetsyan launched a real campaign against the Pashinyan family. The son-in-law of Serzh Sargsyan, the third president of Armenia, Mikael Minasyan and former head of the parliament's apparatus Ara Saghatelyan actively support Vanetsyan. They are allegedly trying to discredit the prime minister with the help of fake news with a view of changing the government in the long term.

Having been mired in internal political squabbles, Armenian Prime Minister is still trying to get as far as possible from the settlement process of the Karabakh conflict. Indeed, for the Armenian government, the Karabakh settlement is an additional unbearable burden. The Armenian government understands that the adoption of unpopular decisions related to the transfer to Azerbaijan of at least the areas not associated with Nagorno-Karabakh and its consent to the return of Azerbaijani refugees to these areas are inevitable. This may give a chance to the Karabakh separatists to accuse Pashinyan of betrayal of national interests. Given the expected elections of the so-called President of Karabakh in September 2020, this scenario is clearly unacceptable for Pashinyan. In his desire to appear more Catholic than the Pope himself, he is aggravating the situation not only on the front line, but also on the Armenian-Azerbaijani border. The death of the Azerbaijani border guard Farzali Farzaliyev in the Gazakh District of Azerbaijan on January 7 also confirms this. Alas, we have to say once again that with this approach of Yerevan to the settlement of the Nagorno-Karabakh, we can expect no real improvement in the settlement of the Armenian-Azerbaijani conflict.

 

Georgia expects hot autumn season

Meanwhile, this year is expected to be hotter in terms of politics than the past in neighbouring Georgia. The next parliamentary elections in the country to decide the fate of Georgia’s political course for the next four years are scheduled for October 2020. In recent years, internal political stability in Georgia has been affected not only and not so much by the opposition’s active actions, but by the frequent change of the Georgian government. Over the past three years, three prime ministers have been replaced in the country. It seems this is not the limit.

The current Prime Minister, Georgi Gakharia, did not have time to get used to his post, which he took in September 2019, as information began to spread about his possible resignation. According to some media outlets, this decision was allegedly made by the richest businessman in Georgia and the leader of the ruling party Georgian Dream, Bidzina Ivanishvili. He allegedly decided to elect the current speaker of the Georgian parliament, Archil Talakvadze, as the new head of government. If this decision is connected with the "personal disagreements" of Ivanishvili and Gakharia, then we can assume that the billionaire clearly does not have a dialogue with his associates. Since one of the main reasons for eliminating the previous prime ministers was also called a discrepancy in the views between them and Ivanishvili.

In general, Georgia is currently challenged with two important issues - the holding of regular parliamentary elections and ensuring economic sustainability. Finding solution to the latter in the pre-election year is of utmost importance. So, contrary to the statements of Nikol Pashinyan, who, due to various circumstances, decided to show himself as an economic expert in the region, the Georgian economy demonstrated steady growth in 2019. According to the state budget for 2020, the government set an economic growth forecast of 5%. Meanwhile, the inflation rate reached 10% last year, and there are still fears that it may rise this year amidst political uncertainty associated with both the pre- and post-election periods.

During the reign of the ruling party, the government had failed to solve the most acute problems of society - unemployment and low living standards. The Georgian government was unable to attract international investments by creating a favourable business climate. The situation around the Anaklia port is very indicative in this sense. The pressure on TVS Bank, the main Georgian actor in the project, led to a breakdown in the deadlines for the construction to move forward. As a result, the consortium collapsed - foreign partners decided to stay away, while the head of the bank went into the political opposition. The authorities made sluggish attempts to recreate the consortium, but the interest was shown more in words than in deeds. One way or another, the project is actually suspended, and its future is in question.

Many observers connect the prospects for the development of the socio-economic situation in the country with a political future, the fate of which can be decided in the autumn parliamentary elections. At the same time, according to sceptics, little shows a noticeable change in the situation in the coming years. The authorities are not so weak as to finally give up their positions, but they are not strong enough to ensure full control over the political field. However, the opposition is not ready to regain the power either. All this creates uncertainty and instability and does not warrant against the recurrence of the crisis phenomena of the recent years.

 

Towards sustainability

For Azerbaijan, which is also going through the intensive reformation of the government apparatus, the situation in neighbouring countries underlines once again its stable and predictable political and socio-economic dynamics. In particular, in his recent article published on the website of the World Economic Forum (WEF), President Ilham Aliyev noted that the economy of Azerbaijan has been on a steady upward trajectory since 2007. The country is positioned as a strategic transport hub between Europe and Asia. The article further praises the details of the successful development of hydrocarbon pipelines (TANAP, TAP), which will allow Azerbaijan to significantly increase the export of natural gas to Europe.

It is noteworthy that foreign direct investment in the Azerbaijani economy exceeds the investment in Armenia and Georgia combined. And this is an eloquent evidence of the stability of the Azerbaijani economy. Moreover, if at the first stage of development of Azerbaijan foreign investments were mainly directed to the oil sector, now the structure of investments is changing with a predominance of investments in non-oil sectors of the economy, which contributes to Azerbaijan's stability.

As for political processes, the obvious modernisation of Azerbaijani society, the increase in social dynamics are not accompanied by phenomena that can destabilize the domestic political situation. To strengthen Azerbaijan's position in the international arena, this is more than enough, but to reduce political risks across the region, the political will of the leadership of all three countries and the will to implement full-scale regional cooperation is necessary. While the Azerbaijani and Georgian leaders have such an understanding, then the Armenian leaders, alas, are still captive to their illusions, continuing to confuse everyone with their ambiguous calculations. This, certainly, does not contribute to improving the political and economic situation in the region.



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