World Markets Research Centre
Global Insight
June 12 2009

U.S. Withdraws Infrastructure Improvement Assistance for Armenia over
Democracy Concerns

BYLINE: Natalia Leshchenko

The U.S. Millennium Challenge Corporation (MCC) has withdrawn its
funding for road improvement in Armenia at its board meeting, chaired
by U.S. Secretary of State Hillary Clinton. The Corporation, charged
with providing technical and developmental assistance to the
democratic transition of new states, ruled that Armenia no longer
qualifies for the aid criteria, which include freedom of the press,
administrational transparency, government efforts to prevent
corruption, and the democratic power of the people. The
U.S. Department of State, which guides MCC on democratic compliance
criteria, has raised concerns about the state of democracy in Armenia
since the controversial February 2008 presidential election, and
warned the government of possible funds withdrawal should no
improvements be made. The 31 May mayoral election in the capital,
Yerevan, which the opposition contested as flawed, was the last straw
for the U.S. agencies. The MCC withdrew infrastructure repair funding,
stressing that the decision was irreversible and laying the blame
squarely on the Armenian authorities.

Significance:The Armenian government will not see $67US million
earmarked under the 2006 agreement, which overall pledged $235US.5
million of assistance aid until 2011, of which $160US million is to be
channelled into road construction and repair; and this will certainly
lead to a halt on the projects currently under way. The damage from
the decision is more than merely operational, however, but also
political. The special relationship with the U.S. based on the
presence of a strong Armenian diaspora in the country and its active
lobbying, brought Armenia millions of U.S. dollars in development
funds since independence, and also to an extent augmented its stance
in conflict with Azerbaijan. Now the Armenian government is losing an
important helping hand, but may not care too much because of its
pro-Russian orientation. Being aware of that, the MCC still leaves a
carrot for co-operation, as it continues some irrigation and
agriculture assistance aid, but the U.S. clout over Armenia is
currently not sufficient to make its policy aid sway the government
from its pro-Russian course.