COUNTRY LIVING ON DONATIONS

The process seeking a peaceful settlement of the Armenia-Azerbaijan conflict has entered a decisive phase, but the talks are difficult and it is obvious that without assistance of the mediator countries - Russia, the United States and the EU representative, France - achieving positive results will be practically impossible.  This is why not only the co-chairs of the Minsk Group, but also the heads of foreign political departments and presidents take an interest in the progress of dialogue and take on direct roles.  However, it is not only diplomatic measures that are taken - after all, together with instruments of political pressure, there are also financial levers in use to achieve foreign political goals.

In mid-June, Moscow transferred to Yerevan the stabilization credit of $500 million which it had promised at the beginning of this year.  In addition, Armenia is already in receipt of a $822.7 million credit from the IMF and, between 2009 and 2012, the country is to receive World Bank credits totalling $545 million.  Let us remind our readers that the EU has more than once promised to allocate over $1 billion for the economic rehabilitation of the region in the case of progress in the regulation of the Karabakh conflict.

Despite the fact that Armenia takes a position on many international political problems which does not suit the United States, Washington still tries to influence the country with generous financial allocations.  Over the last 15 years, Yerevan received has greatest per capita financial assistance from Washington after Israel.

However it is not certain that this will continue indefinitely.  The decision by the previous Republican administration of George Bush to suspend funding to Armenia under the Millennium Challenge programme was the first sign.  Let us remind our readers that within the framework of that programme Yerevan was to receive a $235-million grant over a five-year period to rebuild and modernize irrigation systems and country roads.  The suspension was done in response to the disgusting manner in which the presidential election was held and the repression of the opposition who protested against it.

The annual US State Department report on advancing freedom and democracy in Armenia read:  "The significantly flawed 2008 presidential elections resulted in a political crisis that remains unresolved. On March 1, 2008, the government used force to disperse demonstrators, arrested scores of protestors and imposed a 20-day state of emergency which severely restricted media freedoms and the right of assembly. Clashes between demonstrators and security forces resulted in 10 deaths. The government's human rights record deteriorated significantly after the March violence. Authorities used harassment and the intrusive application of bureaucratic measures to intimidate and retaliate against government opponents. Police beat pre-trial detainees and failed to provide due process in some cases. The National Security Service and the police acted with impunity and engaged in arbitrary arrest and detention."

In contrast to the expectations of Armenia's lobbyists that the new Democratic US Administration would favour Armenia more, the management of the Millennium Challenge Corporation reaffirmed the earlier decision to suspend the funding of projects in the country after the elections to Yerevan City Council, which drew international criticism, and the demonstrable unwillingness of the authorities to investigate objectively the bloody suppression of the protesting opposition in March 2008.  And the belated amnesty, by which a number of sentenced prominent opposition politicians (former Armenian Foreign Minister Aleksandr Arzumanyan, the former head of the personal guard of former Internal Affairs Minister Suren Sirunyan, Armenian National Assembly deputies Akop Hakobyan and Myasnik Malkhasyan and others) will be released, is unlikely to change the situation.

The displeasure with the domestic and foreign policy of the ruling regime in Armenia manifested itself in the fact that the US Administration asked in its 2010 budget application for only $30 million, instead of 2009's $48 million, for financial assistance to that country.  The budget application omitted a clause on assistance to Nagorno-Karabakh, whereas in 2009, $8 million were allocated.  The Obama administration also planned to abandon the principle of parity in the provision of military aid, which the United States has observed in the past, and proposed $3 million to Armenia for this purpose and an additional $450,000 under the International Military Education and Training (IMET) programme.  Azerbaijan was to receive $4 million and $900,000 accordingly.

However, in this case the lobby influence and presence on Capitol Hill of a large group of pro-Armenian congressmen, the so-called "Armenian caucus," successfully promoted amendments to the bill which were in Yerevan's interests.  The US Congress House of Representatives Appropriations Committee's Foreign Operations Subcommittee voted for the maintenance of financial aid to Armenia in the budget for the following fiscal year at the previous year's level of $48 million, and did not merely restore the clause on humanitarian aid to Nagornyy Karabakh, but actually increased it to $10 million.  The subcommittee also voted for the preservation of military aid parity for Armenia and Azerbaijan at a level of $3 million.

This behaviour of US congressmen is not surprising, although the decision of the subcommittee is not final.  Discussions will take place in other committees, then the process of approvals by the House of Representatives and Senate will follow, and finally the document will be signed by the US president.  So, in the case of an unconstructive position taken by the Serzh Sargsyan regime in the talks on a Karabakh settlement, which have entered their final phase, the upward revision of assistance to Armenia might not take place.  And if Yerevan openly supports the policy of rivals of the United States in the region, Washington might not only reduce the amount of assistance, but also block the allocation of credits to Armenia by the IMF and the World Bank, where it has the final say.  And this would pose the threat of chaos in the Armenian economy, which is currently experiencing a profound crisis.

According to the CIS Statistics Committee, the Armenian GDP shrank by 19.7% in January-April 2009, compared to the corresponding period of the preceding year.  By comparison, for the CIS the fall was about 9%.  However, in Azerbaijan the GDP increased by 4.3%, and in Georgia by 2.1%.  The situation for Armenia's foreign policy is even more difficult.  Total exports shrank by 47.8%, falling to slightly more than $200 million (this is a twentieth of Azerbaijan's exports).  Imports fell by 29.9% to $1 billion.  Taking into account the fact that, in conditions of world crisis, money transfers from abroad have decreased considerably, Armenia's balance of payments is under extreme strain and, without the stabilization credits from the International Monetary Fund and Russia, default would be unavoidable.

Official representatives of the Armenian Government and its analysts, who are paid by the authorities put on a brave face, of course, try to persuade their own population and the international community that, overall, the country is handling the consequences of the international crisis well and that the situation will soon stabilize.  However, this ostensible optimism is far from universal.  Tatul Manaseryan, economic advisor to the speaker of the Armenian Parliament, argues that in mid- or late 2010 Armenia will enter the worst period of the international financial and economic crisis.  As for the loans which have effectively doubled Armenia's foreign debt, Manaseryan supported the continuation of this policy, noting that Armenia will need $10 billion to fully rehabilitate its economy.

As we can see, Armenian appetites are huge.  But where will so much investment come from to a country which, as a result of its own destructive policies, has isolated itself from the large-scale projects carried out in the South Caucasus, which has driven itself into a transport blockade and cut itself off from the large regional markets, Turkey and Azerbaijan? Chimerical projects, like the building of hundreds of kilometres of railways with Iranian money or building an oil refinery in Megri, which were already unrealistic when presented with such pomp during international financial and economic crisis and the aggravation of the domestic political situation in Iran, will have to be abandoned.

The author of this article has more than once noted during conversations and meetings with US and European diplomats that, by providing financial assistance to Armenia, which persistently refuses to act upon the decisions of the UN Security Council and withdraw its troops from the districts beyond the borders of Nagornyy-Karabakh, they indirectly become accomplices of the occupiers.  After all, Yerevan spends foreign donors' money, which it allocates to support for the troubled economy, and uses its own meagre financial resources for military purposes.  The share of military spending in the Armenian GDP is at an unprecedented high and exceeds the rate, not only of Azerbaijan, but also of all European countries.

This is why, to promote peace, it is necessary to adopt a simple formula: no money should be given to either of the parties to the conflict unless real progress is achieved in the settlement process.  If the bar of encouragement for constructive conduct is raised and sanctions for the absence of a will to compromise imposed, this will certainly have a sobering effect on the politicians and ideologues who have lost a sense of reality and live by myths and a faith that foreign territories can be seized with impunity in the modern world.