Armenia This Week – 11/08/04

Monday, November 8, 2004

NATO Secretary General Jaap de Hoop Scheffer was in Armenia last week for
talks with Armenia’s President Robert Kocharian and other officials. De Hoop
Scheffer’s visit comes following a recent appointment of a NATO envoy for
the Caucasus and Central Asia. While in Yerevan, De Hoop Scheffer noted that
“the relationship between Armenia and NATO is developing very well indeed,”
pointing in particular to Armenia’s decision to launch an Individual
Partnership Action Plan (IPAP), a most extensive NATO cooperation program
short of membership, and Armenia’s role in Kosovo peacekeeping. Kocharian,
in turn, expressed a desire to be more actively involved in NATO programs.

Also last week, the NATO Secretary General urged Azerbaijan “to turn a page”
in relations with Armenia amid continuing Azeri threats over the unresolved
Karabakh conflict. Two months ago, NATO commanders were forced to cancel
peacekeeping exercises, due to take place in Baku, over its last-moment
refusal to allow Armenian participants to enter the country. Armenian MPs
are due to attend a seminar organized in Baku later this month by the NATO
Parliamentary Assembly, and radical groups linked to the Azeri government
have already expressed their opposition. In an interview last week, U.S.
Ambassador to Azerbaijan Reno Harnish recalled that in accordance to NATO
charter all partners are welcome to Alliance events and that Baku should
make a firm decision in that regard. (Sources: Armenia This Week 7-12, 9-13;
AzerNews 11-4; Haykakan Zhamanak 11-4; Zerkalo 11-4; AFP 11-5; Arminfo 11-5;
RFE/RL Arm. Report 11-5)

Armenia’s economy continues to grow robustly, despite a 25 percent fall in
diamond processing over the period, the country’s flagship industry in
recent years. In a report covering the first three quarters of 2004, the
National Statistics Service reported that the overall Gross Domestic Product
(GDP), the main economic indicator, has grown by over 10 percent.

Even though Armenia’s economy is estimated to be close to recovery from the
post-Soviet slump, few Armenians appear to be satisfied. A recent poll of
nine countries by ROMIR Monitoring, one of Russia’s leading public opinion
agencies, found that only eight percent of Armenians gave a positive
assessment to the state of the country’s economy, just ahead of Ukraine (6
percent) and Bulgaria (4), but behind Kazakhstan (32) and Moldova (22).

Last week Armenia’s government unveiled a draft budget for 2005 that calls
for a 30 percent increase in social spending and overall government spending
is due to increase by 18 percent to total $702 million. Deputy Finance
Minister Pavel Safarian anticipated continued growth in revenue based on
estimated eight percent GDP growth and improvements in tax collection next
year. Social Affairs Minister Aghvan Vartanian argued recently that 300,000
Armenians underreport their incomes and 130,000 others have jobs, but are
not officially registered at all.

Armenia is also set to receive additional low-interest loans from
international financial institutions to cover budget deficits. The World
Bank’s South Caucasus Director Donna Dowsett-Coirolo confirmed that
additional funds would be forthcoming noting that “independent evaluators
overall found that Armenia was one of the best users of [World Bank] credit

Official reports also indicate continued stabilization of Armenia’s
population, which declined significantly throughout the 1990s. According to
this data, Armenia’s population grew slightly year-on-year to over 3.2
million. Real estate prices continued to skyrocket in Yerevan (33 percent)
and grow significantly in smaller towns (11 percent).

In January-September 2004, Armenia saw its exports growing by 1.3 percent to
$511 million and imports by 4 percent to $975 million. Dependence on outside
supplies of energy and fuel continued to keep the trade deficit large. The
European Union (EU) countries remained Armenia’s top trade partners –
accounting for 37 percent of the total turnover. The list of Armenia’s top
trading partners continued to be topped by Belgium (17 percent of all
exports and 9 percent of imports), Israel (12 and 8), Russia (11 and 13),
and the United States (10 and 8).

Armenia’s trade with Russia continued to decline, making up just over $152
million in the first three quarters of 2004. A decline in Armenian purchases
of Russian rough diamonds, modernization at Armenia’s Russian-owned aluminum
processing plant and a nearly two-month closure of the Russian-Georgian land
border largely accounted for the decline. Armenia currently has the smallest
trade turnover with Russia of all former Soviet republics. Over the same
period, Russia’s trade with neighboring Georgia and Azerbaijan amounted to
$224 and $475 million respectively. (Sources: Armenia This Week 8-2, 9-27;
RFE/RL Armenia Report 10-15, 29; Arminfo 10-20, 30, 11-1, 2, 5)

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[AAA Note: For your information below is a letter from the Co-Chairs of the
Congressional Caucus on Armenian issues.]

Congress of the United States
Washington, DC 20515

November 7, 2004

The Honorable Colin Powell
Secretary of State
Department of State
2201 C Street, NW
Washington, D.C. 20520-0001

Dear Mr. Secretary:

We are writing to share with you our alarm over the prospect that
Azerbaijan’s continued efforts at the United Nations to manipulate the
Nagorno Karabakh conflict will, if unchecked, undermine our clearly
articulated national interest in the stability of the Caucasus.

We refer, of course, to Azerbaijan’s recent introduction of an ill-advised
resolution on the “situation in the occupied territories of Azerbaijan.”
This intentionally disruptive resolution threatens the principles and
procedures of the Organization for Security and Co-operation in Europe
(OSCE) as well as the Minsk Group mediation effort, co-chaired by the United
States, France and Russia, to resolve the Karabakh conflict. Azerbaijan’s
proposal represents a hostile declaration against the entire peace process,
aimed only at fostering increased divisiveness. Its consideration can only
set back the cause of peace.

We are deeply concerned that the OSCE Minsk process cannot survive
Azerbaijan’s destabilizing tactics. Continued tampering with this process
will inevitably produce a chain reaction resulting in its demise. We cannot
afford to allow Azerbaijan to continue to disrupt the work of the OSCE,
which, as you know, has been recognized by the UN itself as the lead arbiter
in this conflict.

We value the special role the United States plays as an honest broker in the
Nagorno Karabakh peace process. In this capacity, given our desire to keep
the parties talking and moving forward, we need to act forcefully against
destabilizing steps that will unravel the peace process. Our interests are
best served by the continuation of dialogue on the outstanding issues
related to Nagorno Karabakh within the OSCE framework, not by the
fragmentation of this orderly process.

Efforts to reinforce stability and reduce the risk of conflict are in the
best interests of the U.S. and the South Caucasus region. To this end, we
urge that the United States forcefully renounce this proposal, secure its
retraction, and impress upon the Azerbaijani government that it should drop
such counter-productive tactics in favor of a serious and lasting commitment
to the OSCE Minsk Group process.

Thank you for your consideration of our views. We stand ready, of course,
to assist you in addressing this matter in the interest of the American


/s/ /s/
Joe Knollenberg Frank
Pallone, Jr.
Member of Congress Member of