ARMENIA: SPURNED BY MCC, YEREVAN LOOKS TO IRAN, RUSSIA FOR ROAD MONEY
Marianna Grigoryan

EurasiaNet
July 14 2009
NY

The Millennium Challenge Corporation’s recent decision to slash
funds for its Armenia program has prompted the Armenian government
to seek alternative financing for infrastructure improvements from
Iran and Russia.

Citing the Armenian government’s alleged inability to meet the
program’s "eligibility criteria" on civil rights, the Millennium
Challenge Corporation’s board of directors decided on June 10 to take
$64 million out of an original $235.6 million budget for rural road
reconstruction. [For background see the Eurasia Insight archive]. MCC
Senior Executive Director Rodney Brent noted in a statement that "I do
not anticipate that the Board will revisit this issue in the future."

Hit hard by the global financial crisis — the Armenian economy could
shrink by 20 percent this year, according to Prime Minister Tigran
Sarkisian. Thus, the MCC decision is forcing the Armenian government
to scramble for ways to make up for the lost funding. The MCC program
was touted as a way to support the country’s agricultural sector and
to slash poverty rates. "Reconstruction of rural roads is highly
important and we will do our best to restart the program with the
support of other international structures," stated Eduard Sharmazanov,
spokesperson for the governing Republican Party of Armenia.

Sharmazanov said discussions had been held with Iran about providing
some part of the $64 million. But those discussions took place before
Iran’s bout of post-election unrest began in Tehran in mid-June. Iran,
which borders Armenia to the south, is an ally with whom Yerevan has
enjoyed growing energy ties. The two countries share a gas pipeline and
work has begun on a cross-border railway. Plans for an oil pipeline
have also been announced. "We were discussing the involvement of the
Iranian side [with Tehran] before the political tensions there began,"
Sharmazanov said.

Emma Hakobian, an advisor to Economy Minister Nerses Yeritsian,
whose ministry coordinates the road reconstruction project for the
government, said that the possibility of asking for funding from
Iran and Russia was debated internally as soon as the MCC made its
June 10 decision. Russia has already pledged to extend a low-interest
$500 million "stabilization" loan to Armenia this year. [For details,
see the Eurasia Insight archive].

Neither Hakobian nor Sharmazanov would elaborate about the status
of discussions to find make-up funds. Talks with "very weighty
[international] organizations" about compensatory financing had
commenced, said Hakobian, who declined to identify the organizations
by name. "We’ll announce their names shortly, as soon as everything
becomes clear," she said.

Some 25 kilometers of road had been reconstructed and put into use
before the June 10 decision hit, according to Millennium Challenge
Armenia Chief Executive Officer Ara Hovsepian. About 350 kilometers
of road were originally slotted for repair. Work has since stopped on
the project until alternative financing can be found, Hovsepian said.

Further cuts for US assistance to Armenia could be in store. On July 9,
the US Senate Appropriations Committee approved a bill that would slice
2010 aid to Armenia by $17 million compared to this year’s allocation,
according to the Armenian Reporter, a US-based weekly publication.

Meanwhile, the blame game for Armenia’s lost MCC funds has
started. Despite a recent political amnesty that scored points with
international observers, government critics charge that Yerevan
still has far to go in proving its democratic credentials. They argue
that not only was the March 1, 2008, political violence in Yerevan
responsible for the loss of MCC funding, but also the government’s
conduct during the May 31 City Council elections in the Armenian
capital – a vote that opposition leaders allege the Republican Party
stole. [For background see the Eurasia Insight archive].

"Authorities . . . do everything just the opposite way of how they
should!" complained Hrant Bagratian, who served as prime minister
from 1993 to 1996 under former president Levon Ter-Petrosian, who
now leads Armenia’s main opposition movement.

Others blame the recent slow-down in Armenia’s diplomatic rapprochement
with Turkey. With the normalization initiative stalling, Armenia is
losing leverage as it tries to curry favor with the international
community, argued independent analyst Yervand Bozoian. [For background
see the Eurasia Insight archive]. "Armenia has drastically lost its
credits internationally due to both its foreign and domestic policies,"
Bozoian said.

It remains unclear what specific action or actions triggered the
MCC’s decision to revoke road-construction funds.

Armenia MCC Director Hovsepian told EurasiaNet that "[t]he decision
to suspend the financing of road construction programs temporarily
was made after last year’s March 1 events." [For background see the
Eurasia Insight archive]. In a March 20, 2008 letter to then-outgoing
president Robert Kocharian, MCC Chief Executive Officer John Danilovich
warned that the crackdown "could have negative effects on Armenia’s
eligibility for MCC funding."

A May 2009 letter from US Secretary of State Hillary Clinton to
Armenian President Serzh Sargsyan, however, noted that Yerevan’s May
31 municipal elections "will definitely play an important role while
discussing Armenian issues during the session of the MCC’s board
planned for early June."

Republican Party spokesperson Sharmazanov dodged the suggestion that
the MCC took action in response to the government’s questionable
election practices. While there are "some problems" with democracy
in Armenia, he said, building a democracy is an ongoing process. "We
don’t think Armenia has regressed," he said. "[E]verything has been
done to comply with the criteria for a democratic country."