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Armenia: Internal Instability Ahead
Europe Report N°158
18 October 2004
EXECUTIVE SUMMARY AND RECOMMENDATIONS

Armenia, which regained its independence in 1991 and won its 1992-1994
war with Azerbaijan, is at peace and rebuilding its economy but its
stability is fragile. Nagorno-Karabakh remains an unsettled problem
that easily could reignite, and the regional economic isolation that
the war over it produced could become permanent if there is no
resolution soon. Corruption and violations of democratic procedure
have disillusioned a population half of which still lives below the
poverty line. Armenia’s friends in the West and in Russia need to work
together to help it overcome old enmities with Azerbaijan and
Turkey. Donors should do more to press for democratic reforms and good
governance.

The past two decades have been turbulent. In 1988 a disastrous
earthquake rocked the north of the country, killing at least 25,000
and affecting one third of the population. The collapse of the Soviet
Union destroyed traditional economic ties and social texture and was
followed immediately by the war over Nagorno-Karabakh. Ten years later
the country is at peace and busy rebuilding its economy, though the
legacy of the conflict and significant sources of insecurity remain.

The May 1994 ceasefire that ended the war marked a military victory
for Armenian forces, but there is no real peace. There are no
mechanisms on the ground to prevent the conflict from restarting, and
the negotiation process is stalled. Now that Azerbaijan is drawing
significant dividends from its oil industry and developing military
partnerships with, among others, the U.S., Turkey and Pakistan, there
is a temptation among certain forces in Baku to consider trying to
retake the enclave. Such a conflict would have disastrous consequences
for the entire Caucasus, perhaps even spilling-over to affect
simmering disputes in South Ossetia and Abkhazia. Until Armenia and
Azerbaijan solve the Nagorno-Karabakh problem peacefully (an issue to
be addressed in a subsequent ICG report), it is unrealistic to talk
about long-term stability and full economic cooperation in the region.

The March 2003 Presidential elections were a missed opportunity for
the state to demonstrate in practice its commitment to democracy and
the rule of law. An uneasy political stalemate has set in, with the
opposition boycotting the Parliament and the government refusing to
implement the Constitutional Court’s recommendation to organise a
popular referendum on the legitimacy of the 2003
elections. Opportunities to express political grievances freely —
through fair elections, an active parliament, and open media — remain
limited. Consequently many choose to disengage from politics or to
migrate, while a handful resorts to street demonstrations or in some
instances violence.

Internal stability was most recently shaken during several weeks of
opposition protest in April 2004, which revealed the intensity of a
segment of the population’s dissatisfaction with the regime and its
policies. Yet, the numbers that turned out were relatively small and
did not represent the totality of those unhappy with existing economic
inequalities, high unemployment, worsening access to social services,
and corruption. While the present opposition — divided and seen by
many as more interested in regaining power than truly fixing the
system — does not have wide popular resonance, the situation could
become much more explosive if a charismatic leader emerged.

Armenia has benefited from substantial macroeconomic growth in the
past ten years. Gross Domestic Product (GDP) growth, currently over 10
per cent annually, is driven by the construction, manufacturing, food
processing, diamond cutting, and tourism sectors. A large and
committed diaspora and remittances from Armenians working abroad have
guaranteed a steady influx of money. However, the fruits of
development have been felt by only the relative few. Per capita
monthly income remains under $80.

Armenia has difficult relations with its immediate neighbours,
Azerbaijan, Turkey and Georgia, while cultivating good ties with its
larger partners, especially Russia, Iran, and the U.S. The Southern
Caucasus badly needs economic integration to sustain its nascent
growth but this is impeded by the Nagorno-Karabakh problem. Yerevan is
excluded from participation in all major regional trade and East-West
pipeline projects, mostly as a consequence of the unresolved
conflict. There is a growing feeling in Armenia that as Turkey,
Azerbaijan and Georgia link up, Armenia is being purposely
isolated. Increased integration would not only help Armenia address
economic inequalities within its borders but also promote regional
confidence building and increase the chances of peaceful negotiations
with Azerbaijan.

To guarantee its stability, Armenia needs to supplement economic
success with robust democratisation and strengthened rule of law. By
using force to stop street protests in April 2004, President Kocharian
and his advisors showed they are unlikely to welcome calls to make
Armenia a more tolerant, democratic and less corrupt state. Yet, as
Western European institutions and the U.S. increase their engagement,
they should condition additional support and funding on reform. Even
as its co-operation with Russia and Iran increases, Armenia is aware
that it cannot exclude potential partners and that it must extend its
ties to avoid isolation. Ultimately this is most likely to occur when
it sits down with Azerbaijan and finds the durable solution to the
Nagorno-Karabakh conflict that is in both countries’ fundamental
interest.

RECOMMENDATIONS

To the Leadership of Armenia:

1. Make appointment of members to electoral boards, including the
Central Election Commission, transparent and bring to account those
responsible for election fraud and violations.

2. Conduct a credible and public investigation into the behaviour of
law enforcement agencies during the April 2004 demonstrations, reform
laws and law enforcement agencies so as to end administrative
detention and severe physical ill-treatment in pre-trial detention,
and improve the judiciary by training and appointing new and
additional judges, and by increasing the Justice Ministry budget so it
can provide better working conditions for judges.

3. Guarantee full freedom of media, require the Broadcasting
Commission to meet and allocate new frequencies yearly, investigate
cases of harassment of journalists, and allow ownership of independent
electronic media outlets by persons not affiliated with government
circles.

4. Implement the recommendations of the international community for a
truly independent and permanent anti-corruption commission with a
mandate to conduct transparent investigations and prosecutions.

5. Implement the recommendations of the Council of Europe’s Venice
Commission on proposed constitutional changes.

6. Develop economic and legislative incentives to encourage small and
medium-sized business, such as tax breaks, better access to small
loans, and protection from administrative harassment.

To the Opposition:

7. Counter the perception that the opposition is only interested in
regime change by developing issue-based platforms on key political and
economic topics, including anti-corruption strategy and youth and
rural-oriented programs.

To the United States and the European Union (EU):

8. Condition development aid to progress on democratic reforms,
including rule of law and independent media.

To the Council of Europe (COE):

9. Continue to press Armenia to respect its commitments as a COE
member to hold free and fair elections, to investigate allegations of
election fraud without delay, and to uphold the rule of law, including
by abolishing administrative detention and severe physical
ill-treatment during pre-trial detention.

To Russia:

10. Protect Armenian migrants working in Russia from harassment and
abuse and guarantee their security from extremist groups.

To Turkey:

11. Agree with Armenia on the technical modalities involved and open
the border.

Yerevan/Brussels, 18 October 2004