Armenia / Georgia
Armenia / Georgia


by Richard Giragosian

Faced with the challenge of proving his own legitimacy and mending the wounds of an injured republic, Armenian President Serge Sargsyan endures lingering doubts and continued challenges amid unresolved political shortcomings.

Having assumed office during a state of emergency imposed by his predecessor, President Robert Kocharian, after a violent crackdown on opposition demonstrators on March 1 that left at least 10 dead and hundreds wounded, the Sargsyan government remains unable to fully overcome a crisis of confidence. Although the initial months of the Sargsyan government have been marked by some hopeful signs of progress, the overall record of governance and reform has been mixed.

Armenia has also weathered a summer of discontent, as the opposition managed to sustain its momentum through the traditionally passive months of the hot Armenian summer. Further, in mid-September, it won a long battle with the Yerevan Municipality, securing the right to hold a sanctioned rally, its first since days of protests were shut down in March.

The endurance of the opposition suggests that a lasting political awakening has emerged from the country's post-election crisis. For the opposition, it also demonstrated a new capacity to maintain a sense of unity that had been missing in previous anti-government movements. Although the opposition was able to maintain its pressure on the government through public rallies and daily protests on Yerevan's Northern Avenue pedestrian walkway, the beginning of Sargsyan's rule has been more of a political stalemate than an open confrontation.

This continuing political standoff is fueled as much by an inadequate government response to the new political reality as defined by the opposition's capacity to build a broad-based consensus advocating true political change. This deadlock can also be traced to the country's structural deficiencies of institutional fragility, a weak rule of law and a lack of checks and balances on state power. Further impeded by entrenched corruption, the lack of public confidence and absence of public trust in the state and its institutions has only heightened the Sargsyan government's lack of legitimacy.

For its part, the Armenian National Congress (HAK), an alliance of 16 opposition groups led by former President Levon Ter-Petrosian, has also acknowledged that the standoff with the authorities has reached an impasse. Ter-Petrosian himself said, "I know that the authorities have problems and are even in deadlock... (and) have trouble communicating with the public, not with us, and becoming more acceptable to the public." At the same time, the opposition movement has vowed to wage a "civilized" struggle against the "criminal" administration of President Sargsyan, yet ruling out the "color revolutions" that brought new leaders to Georgia and Ukraine.

Critical Assessment

Echoing these concerns, Armen Harutiunian, Armenia's human-rights ombudsman since 2006, admitted that the authorities have at times created "artificial obstacles" and interfered with his mission, which he added includes a duty "to systematically identify and bring to public attention both serious abuses of human rights and instances of maladministration." Harutiunian also complained that such government interference with his work was "shortsighted, counterproductive, and risked undermining people's trust in national institutions... At the international level, it can be damaging to Armenia's national interests."

Harutiunian's reference to the damage to Armenia's international reputation has also been supported by international reaction to the issue of political persecution in Armenia, specifically the continued detention of scores of opposition activists and leaders. Referring to most of the detainees as "political prisoners," the Council of Europe Parliamentary Assembly (PACE) has repeatedly warned the Armenian authorities that failure to release them would only jeopardize Armenia's continued membership in the Strasbourg-based organization. In resolutions adopted in April and June 2008, the PACE also demanded "full restoration of civil liberties" that were restricted by Armenian authorities following the deadly post-election crackdown by state security forces.

The ombudsman further noted that while "some progress" had been achieved, he could "not consider the situation satisfactory as long as some government institutions ignore their duty to observe basic human rights." He also raised the "problem of double standards and the selective implementation of justice," stressing that "in Armenia, as in many other transition countries, an oligarchic system of governance has taken root that, to a considerable extent, controls the media, political parties, and state institutions." It was this foundation that he further argued "has disproportionately widened the income gap between different segments of society and precluded the formation of a middle class that could become the social basis of state stability."

While the ombudsman's concerns do not necessarily reflect any new or startling view, it is significant that the negative assessment of the current Armenian political situation emanates from a figure well within the state establishment. Moreover, Harutiunian contends that "Armenian society faces a choice: to develop by strengthening democratic values and institutions or to reinforce authoritarian trends in power, thereby widening even further the gap between the authorities and the majority of society."

These concerns reveal more of the deep-seated nature of the problem, whereby the deeper challenge to the Sargsyan government stems not so much from the opposition, however, but is rooted more in its underlying lack of legitimacy and the unresolved problems of corruption and widening disparities in wealth and income. Within this broader context, economic factors are the fundamental priority, posing the most serious challenges to the government, while also offering the most important means to forge real stability in Armenia.

In terms of a new economic opportunity, one of the most significant developments during this period has been the historic visit of Turkish President Abdullah Gul to Yerevan on September 6. While the two presidents sat side by side to see the Turkish national soccer team defeat the Armenian side in a World Cup Qualifier, the off-the-field implications of "soccer diplomacy" drew greater attention.

Aside from the visit's obvious value in providing President Sargsyan with an important foreign policy success, the first-ever visit of a Turkish head of state to Armenia also offers new hope for a breakthrough in ending the Turkish blockade and opening the long-closed Armenian-Turkish border. Such a development is a longer term imperative for the Armenian economy, especially in light of the recent demonstration of the vulnerabilities of Armenian trade and economics when the Russian-Georgian conflict in August not only cut imports of Russian natural gas through Georgia by onethird, but also led to a five-day shortage of gasoline throughout Armenia.

While expectations for real progress in relations with Turkey remain dampened by the difficulty of dealing with Turkey on a number of contentious issues, such as the Armenian Genocide and Nagorno-Karabakh, most notably, the Turkish president's visit in itself was significant in starting a new process of engagement that is in both sides' interests. The next step, of course, includes both moving toward normal diplomatic relations, opening the border and opening talks on the genocide issue. This is an opportunity for both Armenia and Turkey, but one that is still fragile and susceptible to a number of complications, ranging from pressure on Turkey from Azerbaijan, to a Turkish failure to fully and sincerely tackle the past. But for Armenia, this is also an economic imperative in order to further open the domestic Armenian economy, extend its trade routes and enhance its ties to global markets.

Looking past the potential future benefits from a breakthrough in foreign trade and new economic ties with Turkey and beyond, the present need to deepen Armenian economic reform is perhaps a more pressing challenge. For example, in the context of the government's six-month record on economic reform, progress seems to be limited to fits and starts, with each step forward followed by a sudden reversal.

The most obvious example of this contradiction in economic reform can be seen in the government's handling of the tax and customs sectors, each of which are critical prerequisites to the success of the government's anti-corruption plan and economic program. In a decision heralded by the government as Sargsyan's commitment to instituting necessary yet even painful reform, the president dismissed Armen Avetisian, a close associate, as the head of the State Customs Committee (SCC) during the new president's first month in office.

The bold decision was essential, as Armenia's customs service has long been recognized as one of the most corrupt state entities, marked by an often flagrant abuse of office in extorting exorbitant bribes from nearly all of the country's businessmen. In fact, despite the close personal ties between Sargsyan and Avetisian, the president himself openly—with TV cameras as witness—criticized the "thriving corruption" within the customs body, charging that customs officials were complicit in smuggling and other illegal corruption-related crimes and warning them to "work honestly."

Following that very public rebuke, several local importers noted an immediate and dramatic reduction in the scale and scope of bribery and corruption by customs officials. This focus on cleaning up the customs service was capped by the June appointment of Gagik Khachatrian, a former deputy customs chief, to replace Avetisian.

Customs concerns

The elevation of Khachatrian as the new head of the customs service, however, brought its own problems, as the new chief holds extensive business interests of his own and has been involved with one of the country's largest customs-related corruption cases. That case featured Royal Armenia, one of Armenia's largest coffee processing and packaging companies. The company's senior executives were arrested in 2005 after they reportedly refused to participate in an alleged fraud conspiracy with senior customs officials, including Khachatrian himself. (Charges against them were later disproved.)

The new customs chief has also been subject to repeated allegations of impropriety by several businessmen, charges that center on Khachatrian's personal ownership of several large business interests that is said to result in his undue influence over free enterprise and fair competition in several business sectors.

Sargsyan has also attempted to inject a new professionalism and spark reforms within the State Tax Service (STS), aimed at improving the country's statistically low and inefficient rates of tax and revenue collection, which at about 16 percent of GDP last year, remains far behind other post-Soviet transition economies. The move to improve tax collection started in the latter period of the Kocharian presidency, as confirmed by the roughly one-third increase in tax revenue for the first quarter of 2008. But a sustained improvement in tax collection is particularly crucial for the new Armenian president, as the state budget is highly dependent on planned tax revenue.

There is a deeper structural problem in the Armenian taxation system which this administration will need to address in order to achieve its apparent goals. Specifically, state revenue has traditionally relied on proceeds from the value-added tax (VAT), most of which emanates from imported goods. Accounting for a little more than half of all state revenue, the VAT has now become its leading source, far beyond the meager level of corporate profit tax collection.

Yet after several years of double-digit economic growth, such a discrepancy between a dangerously high reliance on the VAT and a meager rate of corporate tax is worrisome for two reasons.

First, such an over-reliance on the VAT for overall tax collection is not sustainable over the long term and, as the low level of corporate tax revenue shows, has only deferred more serious budget shortfalls while tax evasion and under-reporting has gone unpunished. In addition to that structural problem, the high dependence on VAT-related tax revenue rather than more significant corporate and import taxes tends to impose an unfair tax burden on the country's lower and still-emerging middle classes, as individual consumers are increasingly forced to endure even higher sales and value-added taxes than medium- and large-scale business enterprises.

Will to reform

Even more significant in terms of the dangerous linkage between the state budget and tax collection, the Sargsyan government already faces a potential economic crisis. The danger stems from the combination of a possible downturn in economic growth with a potential rise in inflation set off by the onset of dramatic price rises for food, gas and other basic commodities as part of a global crisis that is expected only to worsen.

But while the integral focus on modernizing the state's customs and tax collection capabilities offers an important new sense of direction and vision, the more pressing priorities of strengthening the rule of law, improving the business environment and implementing other "second-generation" reforms depend on the government's political will to tackle powerful vested interests. The need to confront corrupt officials and so-called "oligarchs" may also be too much to expect, especially in light of an August decision to merge the state customs and tax bodies while naming the controversial Khachatrian head of the renamed State Revenues Committee (SRC). And while the test of political will remains to be seen, it will be from within the broader economic context that the Sargsyan government will face its most serious challenge.

Most importantly, the challenge facing the third man to lead independent Armenia comes from the combination of political deadlock and economic polarization, coupled with an underlying crisis of confidence. And with the Sargsyan government already weakened by internal discord and a lack of legitimacy, the onset of a new economic crisis represents one of the most significant threats to security and stability in Armenia.

Thus, it seems that even beyond the context of Armenia's current political instability, the new Armenian government faces an even more challenging economic crisis against a backdrop of simmering tension and impatience. But even as Ter-Petrosian has admitted, the "course of reform and change needed to correct the path toward a law-based society is difficult and far from certain in Armenia."

If the first months of the Sargsyan government are indication, it seems very likely that Armenia faces critical challenges in the months to come.

Originally published in the November 2008 ​issue of AGBU Magazine. Archived content may appear distorted on your screen. end character

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