Armenia: Tentative return to diplomacy

Richard Giragosian, Regional Studies Center (Armenia, Yerevan)

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Despite an important, yet still tentative resumption of the diplomatic engagement over the Nagorno-Karabakh conflict with an Armenian-Azerbaijani presidential summit meeting in Geneva, the domestic developments in Armenia, including the draft deferments ceasing and a planned increase in the defense spending, only suggested a much more cautious approach. At the same time, some pressure mounted over the dramatic price rises for the key commodities and staple foodstuffs, although even that failed to ease the Armenian government’s overly ambitious and the optimistic projects for the economic growth through 2018.

Domestic Policy. Armenia ceases draft deferments

In a widely expected vote, the Armenian parliament formally ended the process of the temporary deferments offering from the obligatory two-year military conscription. The draft deferments, largely extended to the draft-age male students with the state scholarships, were designed to provide the gifted students with a two-year compulsory service after completing their undergraduate, graduate or post-graduate studies. The move will replace these deferments with a reduced option for the students to delay their service in exchange for completing the parallel military training and serving as officers for three years after the graduation.

The opposition “Yelk” (“Exit”) bloc opposed the 27, October vote,  charging that it would only prevent many students from becoming scientists or scholars and would fail to curb the practice for sons and relatives of many senior government officials and wealthy businesspeople from evading the military service. The revised law is to come into effect in January, 2021, thereby not impacting students holding deferments.

Economy. Prices for basic staples soar as defense spending increase

The ordinary Armenian citizens were hit hard by a dramatic spike  in the prices for the basic staples goods in early October, with an increase of more than 20% in prices for butter and meat in the previous ten days alone. The price rise was also seen in other foodstuffs, as prices for beef and lamb soared by roughly 25% and pork cost about 2,600 drams ($5.40), up from 1,600-1,800 drams in August. Butter, which is largely imported from New Zealand, sold for about 4,000 drams per kilo ($8.27), up from an average price of 2,800 drams. According to the state anti-trust regulator, the State Commission for the Protection of Economic Competition (SCPEC), the increases were tied to a global surge in prices, although little statistical evidence was provided.

Reflecting the priority of the defense and security issues for the Armenian government, the officials announced  their plans to significantly increase the defense spending in 2018. The planned 17% increase, which would increase the defense spending to about $515 million for the next year, would be used to procure new weapons and equipment, primarily relying on the discounted arms from Russia.

Foreign investor pulls out of mining project

In an announcement dated 26, October, the Denmark’s Export Credit Agency (EKF) withdrew its export credit guarantee for a $62 million investment in the Armenia’s second largest copper mine, accusing the private owner Vallex Group of failing to comply with the environmental standards. The mining project, set up in Teghut in 2014, was opposed by the local environmental groups for its open-pit mining operations that were reportedly responsible for the destruction of hundreds of hectares of the nearby forest.

Denmark’s Export Credit Agency (EKF) withdrew its export credit guarantee for a $62 million investment in Armenia’s second largest copper mine

The $380 million project of the copper and molybdenum mining is largely financed by the Russian commercial bank VTB, which extended the loans to the Vallex Group, including $62 million in financing from a Danish pension fund.  The mining sector traditionally accounted for about 45% of the Armenian exports, with copper, molybdenum and other non-ferrous metals, as well as their ore concentrates as the country’s primary source of the Armenia’s export revenue.

Armenia committed to nuclear energy

In his comments in late October, the Armenian President Serzh Sarkisian stated that the country remains committed to relying on the nuclear energy but is seeking the ways to finance the construction of a new nuclear facility to replace its aging nuclear power plant, the only one in the region. Noting the significance of the Russian-managed nuclear power plant, whose one operational reactor accounts for 31% of the total electricity produced in 2016, the president has pledged to build a new facility, although the roughly $5 billion estimated cost  for a new nuclear power plant has failed to attract investors. The Soviet-era reactor has been operational since 1980, but is well beyond its 30-year design life, prompting some concerns and calls for its closure.

Meanwhile, according to the new 2018 state budget presented to the Parliament on 30, October, the Armenian government raised its projections for the economic growth to an ambitious 4.5% in open defiance of the most independent forecasts, including the International Monetary Fund,  which envisions more modest growth rates of 3.5% in 2017 and 2.9% in 2018. The proposed budget includes some $3.1 billion in total spending, representing an increase of some 7.6% from the government’s 2017 spending target.

Foreign Policy. Armenian Prime Minister visits Iran

Concluding a state visit, the Armenian Prime Minister Karen Karapetian met with the Iranian President Hassan Rouhani on 10, October to wrap up the talks aimed at expanding the bilateral trade and implementing the planned projects in the energy and transport sectors. The talks over the energy issues focused on the planned construction of a new power transmission line to significantly increase the Armenian electricity exports to Iran and the outlook for the greater Armenian imports of the Iranian natural gas, with an additional discussion of the Armenian plans to create a “free economic zone” along the southern Armenian-Iranian border, promising Iran tariff-free access to the markets in Russia and the other members of the Russian-led Eurasian Economic Union (EEU). The bilateral trade remains fairly modest, however, at a meager $173.5 million in the first eight months of this year, with Iran accounting for less than 5% of the Armenia’s overall foreign trade.

New Armenia-EU agreement

Following a visit to Armenia by Johannes Hahn, the EU commissioner for the European neighborhood policy, earlier in the month,  the Armenian and the EU officials each voiced their optimism saying that the new Armenia-EU Comprehensive and Enhanced Partnership Agreement (CEPA) could be ready for signature “during or on the sidelines” of a 24, November EU summit in Brussels. Despite the concerns that the CEPA may be delayed for the technical reasons, there are few worries that the agreement cannot be signed by the end of the year. The new, roughly 350-page document is designed to deepen the Armenia’s political and economic ties with the EU, and replaces the earlier Association Agreement that Armenia was forced to sacrifice in 2013 under the Russian pressure. Unlike that earlier Association Agreement, the full text of the new agreement was officially released on 16, October.

Armenian-Azerbaijani presidential summit

In what was described as a “constructive meeting” in Geneva on 16, October the presidents of Armenia and Azerbaijan pledged to “intensify” the peace process seeking a negotiated resolution to the Nagorno-Karabakh conflict and agreed to “reduce tensions” and “bolster” the ceasefire regime. More importantly, the presidents also committed to participating and leading the “working sessions” on a ministerial level through the coming months aimed at advancing the stalled peace process. The summit meeting of the presidents is the first such encounter since two brief but inconclusive meetings in mid-2016.