Armenia in a Region of Change
Armenia in a Region of Change


by Tony Halpin

Armenia continues to bind itself ever more tightly to Russia, even as Caucasus neighbor Georgia's relationship with the superpower has been shattered by war and politics. Supporters of Armenia's foreign policy regarding Russia feel a sense of security within the bear's embrace while opponents worry that the hug is tightening over time into a life-threatening squeeze.

The global economic crisis has been a catalyst for bringing Armenia and Russia even closer. After initially insisting that Armenia was unaffected by the unfolding credit crunch, the government in Yerevan approached Moscow for a $500 million loan to stabilize its finances.

Russia's Finance Minister Alexei Kudrin announced after a summit of the Eurasian Economic Community in February that a deal had been agreed. President Serge Sargsyan was present at the meeting in Moscow (because Armenia has observer status at the body of former Soviet republics).

Armenia is not seeking aid only from Russia—the World Bank, for instance, could lend as much as $800 million over four years to support small businesses and infrastructure projects. But history suggests that the terms of Moscow's loan (and these have not been disclosed in detail) will exact a higher price from Armenia than traditional lenders would require.

The willingness to lend to its "strategic partner" in the Caucasus may look impressive, given Russia's own economic difficulties, but Armenia was rumored to have asked for $1 billion in aid and actually secured much less help than other former Soviet satellites. Impoverished Kyrgyzstan, for instance, received $2.15 billion in loans and aid at about the same time that Yerevan's "stabilization credit" was agreed.

The Kremlin had an incentive to be generous to Kyrgyzstan because it wanted the government in Central Asia to close an American air base that is critical to the task of supplying NATO forces in Afghanistan. Kyrgyzstan duly complied—an object lesson for Armenia on the limits of sympathy in power relations.

Russia's President Dmitry Medvedev made it clear at the summit that, however warm their relations, none of Russia's neighbors can expect to get something for nothing. Countries in difficulties could expect assistance on terms "similar to those under which international financial organizations issue their credits."

All that is known about Armenia's deal is that it must repay the loan over 15 years with a four-year grace period. Interest terms and total repayments were not disclosed, although the Finance Ministry in Yerevan felt moved to state that Armenia was not under any "non-financial obligations."

Strings attached

This assurance carries little weight if Armenia fails to meet the repayment terms. Unlike the United States, which has annually provided tens of millions of dollars to Armenia in donor aid, Russia has always insisted on being paid back for its assistance.

Armenia ran up debts of almost $100 million to Russia in the 1990s—equivalent to a single year's aid from the US—and ended up handing over key industries in 2003 to settle its account. The equity-for-debt sales, which were signed by Sargsyan when he was Defense Minister alongside the then Prime Minister Andranik Margaryan, included the transfer of Armenia's largest hydroelectric power plants and management control of the Metsamor nuclear power station, responsible for half of the country's power generation.

Russian companies have also taken over Armenia's two existing mobile telephone networks, plus the fixed line service, Armenia's railway network, its electricity grid, and the gas pipeline system (including a connection that was supposed to allow Armenia to diversify energy security by importing Iranian gas as an alternative to Russia). In short, Armenia's capacity to make economic and political decisions independent of Russian wishes have been severely curtailed.

If that much was transferred when Armenia's debt was $100 million, runs the argument, what will Russia seek in return for five times that amount should Yerevan prove unable to meet the repayments? Vartan Ayvazyan, chairman of the economics committee at the National Assembly, admitted with admirable understatement that the latest agreement would "increase Russia's political influence in Armenia."

That influence is already extensive. Although largely shunned in the West after the violence and killings that followed the contested result of February 2008's presidential election, Sargsyan has been a regular and welcome visitor to Moscow. The Kremlin was quick to congratulate him on victory after the election and sealed its endorsement of his regime by sending President Medvedev on a state visit to Armenia in October. The two men swapped compliments at a naming ceremony for "Russia Square," a stone's throw from the scene of some of the most serious post-election clashes in Yerevan.

Sargsyan chose to illustrate the depth of Armenian-Russian relations by noting that the square was close to the spot where the Russian flag had first been raised above the Yerevan garrison in October 1827. Perhaps unconsciously, it was instructive of the nature of present-day relations too.

Russia is not asking awkward questions about democracy and human rights, unlike the United States and the European Union, and the controversy surrounding Sargsyan's victory was of little concern. Moscow made plain its support for Robert Kocharian's chosen successor throughout the election campaign, because the key issue for the Kremlin was Armenia's reliability as a pro-Russian outpost in the Caucasus. This was particularly important given the broken relationship with Georgia and the American and European courting of Azerbaijan as a transit route for gas pipelines from Central Asia.

Belatedly, the opposition led by Levon Ter-Petrosian also recognized the importance of seeking the Kremlin's blessing for any political force hoping to come to power in Yerevan. Ter-Petrosian himself travelled to Moscow for a confidential meeting with Medvedev prior to the latter's election as Vladimir Putin's successor.

A Russian newspaper reported in February that Ter-Petrosian's top advisor, Levon Zurabian, met senior officials in Moscow to explain the Armenian National Congress's views and its plans for a rally on March 1 to mark the anniversary of the deaths of 10 people in the post-election violence.

Ter-Petrosian's support for Russia's actions in South Ossetia during the war with Georgia caught many of his admirers by surprise. While Europe and the US criticized Russian aggression, Ter-Petrosian praised the Kremlin for acting to prevent "genocide" against South Ossetians.

Support for separatists in South Ossetia would be consistent with efforts to gain recognition for Nagorno-Karabakh's independence, but Ter-Petrosian's position risked antagonizing Georgia, which is a critical outlet for Armenia's imports and exports. Demonstrating reliability to Moscow apparently outweighed short-term considerations about damaging ties with Armenia's neighbor.

Taking the middle ground

The war with Georgia transformed relations in the Caucasus and energized Russian policy. Armenia finds itself caught in the middle of an intensified competition for dominance between the US and Russia. While Diaspora influence and sympathies might lie with the US, hard power relations place Armenia firmly in Russia's camp. The longstanding policy of "complementarity," in which Armenia pursued its interests by balancing the competing demands of larger regional players, has proved unable to withstand the relentless pressure of Russian power and money. Nor in many ways has Armenia offered resistance, viewing Russia as the best guarantor of its security.

The presence of a Russian army base in Armenia—now the only one in the region—is the most visible sign of that guarantee. Armenia's membership with Russia on the Collective Security Treaty Organization (CSTO) carries a promise of military support against aggression, a pledge beefed up by the creation of a new rapid-reaction force in February to respond to urgent threats.

In practice, this is a mutual-defense pact directed solely at Azerbaijan, which is not in the CSTO, since Turkey's membership in NATO would transform any direct conflict with Armenia into a much larger war. Azerbaijan clearly feels the weight of that threat and recently accused Russia of supplying $800 million worth of weaponry to Armenia, including 21 battle tanks, 50 armored vehicles and at least 40 artillery systems.

Russia's Foreign Minister, Sergei Lavrov, dismissed the allegations personally, insisting that no such deliveries had taken place. But he also noted rather cryptically that Armenia's CSTO membership entitled it to special terms in purchasing weapons.

If such talk leaves Armenian defense officials with a warm glow, their satisfaction is tempered by the memory of past Kremlin manipulations of the Nagorno-Karabakh conflict to its own advantage. It is by no means clear that Moscow is ready to side with Armenia in a future settlement of the conflict just because it recognized the independence of South Ossetia and Abkhazia, the region's other breakaway republics, following the war with Georgia.

In fact, the reverse may be true. Moscow secured a lock on Georgia's future orientation towards membership in NATO and the European Union by recognizing South Ossetia and Abkhazia. Both “statelets” are now home to significant garrisons of Russian troops and Georgia's internal stability has been thrown off balance by the military defeat.

Armenia is in a far weaker economic and military position to resist similar Russian pressure in an unfavorable settlement of the Karabakh conflict. Yet Russia's security interests may tip it towards Azerbaijan as a means to trump American influence in the region and oust rival pipeline projects that would weaken state-controlled Gazprom's grip on gas supplies to Europe. These are big geo-political considerations for the Kremlin. The injured national feelings of Armenians would have little influence in deciding that a settlement favorable to Azerbaijan advanced Russia's interests more decisively in the Caucasus.

The format for resolution of the Karabakh dispute remains the Minsk Group troika of Russia, France and the United States, acting on behalf of the Organization for Security and Cooperation in Europe (OSCE). But Moscow has definitely moved to the fore since the August war as Medvedev demonstrated vividly by bringing Sargsyan and Azerbaijan's President Ilham Aliyev together for a Kremlin summit in November. This ended with the Moscow Declaration, the first time since the 1994 cease--fire agreement that Yerevan and Baku had jointly signed a document about Karabakh.

All three members of the Minsk Group have been making noises about an imminent agreement between the two sides, but an undesirable outcome for Armenia would be a severe test of its diplomatic credit rating with Moscow.

Russia as friendly resource

Popular trust in Russia runs very deep in Armenia, however, and often with good reason. Diaspora links are extensive and Russia's successful Armenian community has been a key financial driver of the construction boom that has transformed central Yerevan, and has been a primary reason why GDP hit double digits so many consecutive years. By many accounts, the Russian Diaspora is now wealthier than its counterparts in the US and the Middle East, and has much more immediate family ties to both Soviet Armenia and the independent republic. Its engagement with modern Armenia is often more direct and less judgmental than that of other Diaspora communities, partly because there is a shared experience and understanding of the Soviet legacy. Armenians feel at ease in Russia as a fellow Orthodox culture, despite the persistence of racist attacks from extremist nationalists who target "blacks" from the Caucasus.

Russia represents economic survival to many, perhaps most, Armenians who have at least one male family member working there to send money home. It is no exaggeration to say that Armenia's impressive economic growth of recent years has been founded on the cash remittances sent home by Armenians working in Russia.

The Central Bank of Armenia reported recently that banks in the republic received $1.5 billion in non-commercial money transfers last year, equivalent to 14 per cent of gross domestic product and a 26 per cent increase over 2007. A similar amount is reckoned to have arrived by non-bank wire transfers or with Armenians travelling into the country, which would mean that foreign remittances accounted for over a quarter of the republic's annual GDP.

Russia is easily the main source of these remittances. Armenians do not need visas to travel to Russia and can live and find work there easily. The absence of barriers is in stark contrast to the US and European Union, where even simple requests for holiday visas are met with suspicion.

The economic crisis now sweeping Russia carries the risk of an intensified downturn in Armenia as remittances decline and people lose their jobs and travel home, where economic consumption also plummets as cash flow dries up. The Central Bank recorded a seven per cent drop in remittances in November compared to 2007, the first sign of impending trouble and a possible explanation of why the government in Yerevan felt compelled to ask the Kremlin for an urgent loan.

Armenia has financed its enormous trade gap for years on the income generated by its citizens working abroad. The reduction in foreign remittances threatens to add to Armenia's difficulties by deepening the deficit, which exceeded $3 billion in 2008, and enhancing its dependence on Russia for aid.

Russia is already Armenia's principal trading partner, accounting for about a fifth of annual turnover worth some $1 billion. Moscow's trade representative to Armenia, Alexander Zaitsev, disclosed in December that Russian investments had almost doubled in the first nine months of 2008 to $570 million.

Russia is the front-runner to secure the contract to build a new nuclear power station to replace Metsamor by 2016. Sargsyan also reportedly discussed Russian involvement in building a railway line to Iran during Medvedev's visit to Armenia.

Does it matter that Armenia has grown so dependent on Russia less than 20 years after the collapse of the Soviet Union? Many argue that it doesn't, given the history of close ties between the two peoples, and that Armenia's proximity to its giant neighbor makes a degree of dependence inevitable.

Indeed, geography and geopolitics have left Armenia little choice after the war with Azerbaijan, Turkey's continuing refusal to open its land border, repeated upheaval in Georgia, and ongoing tensions between the US and Iran.

At times, Russia has seemed the only predictable and friendly option as a long-term partner and protector. By comparison to Moscow's commitment of hard cash and hard power, promises of support from the US and EU look nebulous and unreliable to many Armenians in a region that remains perilously unstable.

The war in Georgia brought this into sharp relief. Despite the avowedly pro-American regime of Georgian President Mikhail Saakashvili, the US did not come rushing to his aid when push came to shove against Russia. That was a lesson drawn widely throughout the former Soviet space, nowhere more so than in Armenia which remains in a state of unresolved war with a belligerent Azerbaijan.

But arguably the balance has tipped too far. Perceived security has been bought at the cost of many of the dreams of independence that Armenians nurtured for 70 years and which inspired the mass movement to win freedom from the Soviet regime.

The condition of Armenia's democracy mirrors that in Russia, with a history of rigged elections and a security state determined to maintain control at any cost.

Responsiveness to the Kremlin's wishes becomes just another way for the ruling elite to hold on to power, as it was in Soviet times.

It follows that Armenia's room for independent maneuver in foreign relations is limited by Moscow's interests. Whether gas relations with Iran, closer engagement with the European Union, or even a Georgian-style "color" revolution, the key factor is Russia's attitude rather than the wishes of Armenia's population. Any prospect of a political settlement built on the common interests of the Caucasus states and their geographic advantage as a bridge between Europe and Asia now seems very remote.

If it isn't the dream, it isn't a disaster either. Modern Armenia may be closer to a vassal state than an independent democracy but it retains much greater freedom of action than it did as a Soviet republic, when its people were slaves to a regime in Moscow that was both brutal and incompetent.

However difficult, there always remains hope for the better. Armenians have long historical experience of turning tight spots to advantage and there is no reason to believe they can not do so again. If a popular desire emerges to re-balance the relationship with Russia in favor of alternative options, then so will the means.

British journalist Tony Halpin is Times of London newspaper Moscow Bureau Chief and a co-founder of internet journal.

Originally published in the May 2009 ​issue of AGBU Magazine. Archived content may appear distorted on your screen. end character

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