Despite a relatively calm summer, the Armenian domestic politics were plagued by the unresolved question over the future plans of the incumbent president and whether he would seek to become the country’s next head of state once the transformation to a parliamentary government is completed in April, 2018. Despite some gains in the energy sector, the Armenian government reiterated its upbeat promises over the economy, and unveiled a sweeping new five-year reform program. The foreign policy remains a prisoner of the Karabakh conflict, as the increased tension and the escalating clashes only exacerbated the risk of the renewed hostilities
Domestic Policy. Ruling party defends embrace of Russia
Although the Armenian domestic politics were relatively calm though July and August, some lingering tension remains over the future of the country as it prepares for a systemic transformation to a parliamentary form of government in April, 2018. In his statements in July, the President Serzh Sarkisian added to the suspense over his possible move to become the country’s new head of the state, which under the new system will be the post of a prime minister, by refusing to rule out such a move.
Meanwhile the Armenian Prime Minister Karen Karapetian met some senior European diplomats in Yerevan in early July to present his government’s five-year reform program. The newly adopted strategy is aimed at fighting the corruption, boosting the exporters and improving the country’s investment climate, as well as the judiciary reforming. The government’s rather extensive 120-page plan was criticized for an untenable five-year baseline based on an assumption of the projected economic growth of at least five percent annually, a figure at odds with much lower estimates by both the local economists and the IMF and World Bank.
In comments in early July aimed at a diffusing of a deepening crisis in Armenian-Russian relations, the ruling Republican Party spokesman and the deputy parliament speaker Eduard Sharmazanov argued that although Russia continues to sell arms to Azerbaijan, it will not “impede” the Armenia’s “strategic military-political relations” with Moscow. The defensive response comes as an answer to a widespread criticism over the Azerbaijan’s procurement of over $5 billion in the offensive weapons systems from Russia, including the recent shipments of the artillery and the rocket launchers last year.
The issue is especially sensitive given the fact that such Russian arms sales have only continued even after an April 2016 offensive by Azerbaijan hat stood out as the most serious military clashes since a fragile ceasefire was reached in 1994. Despite its role as a mediator of the Nagorno-Karabakh conflict, Russia emerged in the recent years as a primary weapons provider to both Armenia and Azerbaijan, although as a member of the Russian-led Collective Security Treaty Organization (CSTO) Russia provides weapons to Armenia at the steeply discounted prices.
Economy. Boost in energy sector
The beleaguered Armenian energy sector was given a boost in July with the announcement of a new $80 million loan from the Asian Development Bank (ABD), designed to improve operations of the national power distribution network, and to increase the reliability of the electricity supplies. The loan also seeks to “help the Electric Networks of Armenia (ENA) improve the private sector electricity distribution in the country by reducing distribution losses from around 10% in 2016 to around 8% by 2021”, and to improve the distribution network and introduce the international standards of the management.
The Russian-owned electricity distributor is plagued by more than seven years of losses and is saddled with $220 million in outstanding debts to the Armenian power plants and the commercial banks since it was acquired by a Russian-Armenian billionaire from the Russian state-affiliated Inter RAO in October, 2015. That acquisition was spurred by the onset of the weeks of demonstrations in Armenia in June, 2015 after an attempt to raise the electricity prices despite a poor service and the blatant corruption. The Armenian government quickly backed down by offering of the state subsidies to cover the price rise, and instead sought to diffuse the crisis by orchestrating the sale.
The Armenian energy sector was also supported by a new 30 million Euro grant from the European Union, which installed the country’s first-ever solar-powered bus stops as a part of a broader EU effort to promote renewable energy. The remainder of that assistance is financing the ongoing construction of a new Armenia-Georgia electricity transmission line. Although the overwhelming majority of the electricity is generated by the natural gas imports from Russia and the country’s sole nuclear power plant, which is also Russian-managed, Armenia has been seeking to offset its energy dependence on Russia by expanding renewable energy and seeking the alternative gas suppliers, such as Iran and Turkmenistan.
In addition to the EU, the United States also sought to bolster the Armenian energy security, and in July, the U.S. Ambassador Richard Mills suggested that Armenia could “attract billions of dollars in investments from the U.S. energy companies” if it liberalizes its energy sector. Those comments also follow the $250 million acquisition of the Armenia’s largest hydroelectric complex in 2016 by a U.S. firm. Another key element of the energy sector is nuclear power, and the Armenian government reiterated in July and August its plans to replace its aging nuclear power plant with a new facility. In a statement by the Deputy Prime Minister Vache Gabrielian, however, the government admitted that it has yet to secure the estimated financing for a new nuclear power plant, and instead announced that it was extending the life of the 420-megawatt reactor by some ten years, with the help of the Russian loans to purchase the equipment and to pay for the additional safety measures.
In a confident, although questionable display of optimism, the Armenian Finance Minister Vartan Aramian insisted that the Armenian economy was set to post the annual growth of about 5-6% over the coming years. The comments in early July were backed by the minister’s claims that the government’s ambitious projections for the annual increases in GDP, matched by a dramatic decrease in the official poverty rate from around 30 percent currently, will be driven by the expanded exports as “the key engine for growth”. But in contrast to much more modest estimates by the International Monetary Fund and the World Bank, whose projections are a more realistic 3-3.2% increase in GDP for 2017, especially after the country’s zero GDP growth in 2016 and amid an economic contraction in Russia.
Foreign Policy. The ceasefire violations intensity increased
Against a backdrop of a stalled diplomacy and a real risk of the renewed fighting, the Nagorno-Karabakh conflict only increased tension in July and August. An upward spiraling of the ceasefire violations continued, and the tension markedly increased in this period since a 43-year old Armenian villager was detained by the Azerbaijani authorities after crossing into Azerbaijan in late June. Later in July and through August, the intensity of the ceasefire violations increased, with a deadly round of skirmishes and sniper fire that left two Azerbaijani civilians dead after the Armenian forces responded to the Azerbaijani mortar attacks from the positions in a close proximity to a village.
While the deadly incident triggered a series of allegations by each side accusing the other of starting the fight, the subsequent violations quickly escalated with the deployment and use of the serious offensive weapons systems, including the multiple-launch rocket launchers, in the first such case since the April, 2016 fighting. For its part, the Armenian Foreign Ministry called on the Azerbaijani government to comply with the confidence-building agreements that were reached by the Armenian and the Azerbaijani presidents in 2016. Those agreements called for an expansion of the OSCE monitoring, to deploy more field observers in the conflict zone and investigate the ceasefire violations, although Azerbaijan subsequently rejected the measures on the ground that they would only “cement the status quo” in the absence of any progress in the peacebuilding process.
Against that backdrop, the Armenian and the Azerbaijani foreign ministers did met in Brussels in mid-July, in preparation for a subsequent meeting in New York on the sidelines of the UN General Assembly set for September. The meeting and the ministerial talks, however, were overshadowed by the developments on the ground and there was little sign of any diplomatic breakthrough. By late August, there was one change, as the United States announced the appointment of Andrew Schofer as the next co-chair of the Organization for Security and Cooperation in Europe’s (OSCE) Minsk Group.