Publication: Monitor Volume: 7 Issue: 171

Overshadowed by the terrorist assault on the United States and ensuing events, Russian President Vladimir Putin’s official visit to Armenia passed unnoticed internationally. The September 14-15 visit, his first to that country, yielded decisions that cemented the Russian-Armenian military alliance and promise also to bind Armenia closer economically to Russia.

Defense Ministers Sergei Ivanov and Serge Sarkisian signed an agreement on the legal status, remuneration and other issues relating to the activity of Russian military “advisers and specialists” in Armenia. This category of personnel is distinct from the Russian troops stationed in Armenia, which are covered by a status-of-forces agreement. According to Ivanov, “the new agreement will enable us to dispatch to Armenia our advisers and specialists on a legal basis and on contract.”

In his speech at Yerevan University, which included a question and answer session, Putin focused on regional security issues and the Armenian-Azerbaijani conflict. He restated the familiar position that any settlement acceptable to both sides would be acceptable to Russia as well. That position suits Armenia because it has built an impregnable status quo, owing mainly to Russian arms deliveries and the seizure of Azeri territories beyond Karabakh. Putin, furthermore, renewed Russia’s offer to “guarantee that the peace settlement, once reached by the two sides, will not be breached.” That offer is understood in both Yerevan and Baku to imply the deployment of Russian troops in an area to include Azerbaijan, which (unlike Armenia) is free from Russian troops and would not trust Russian military guarantees.

Yet, Moscow is currently seeking to gain a measure of Azerbaijani trust by offering to reequip that country’s army. Defense Minister Sergei Ivanov discussed that subject with his Azerbaijani counterpart Safar Abiev in early September in Moscow. Putin will undoubtedly firm up those proposals when Azerbaijan’s President Haidar Aliev visits Moscow this coming November. Then it will be Armenia’s turn to look uneasily at the trends in Russia-Azerbaijan relations, just as Azerbaijan is now uneasily assessing the implications of Putin’s visit to Armenia.

Some in Yerevan are already uneasy about current Russian plans for massive commercial arms sales to Turkey. Addressing that concern, Putin declared at Yerevan University that Armenia “need not worry” while under the protection of the CIS Collective Security Treaty. That seeming reassurance entailed a clear, double warning: to Armenia, that its security depends on its alliance with Russia, and to Azerbaijan, that it may find security from Armenian pressure if it, too, joins the CIS Collective Security treaty (Noyan-Tapan, September 17).

The sides made progress toward a comprehensive agreement whereby Armenia would repay its debts to Russia by handing over industrial assets to Russian state and private companies. That debt is currently estimated at some US$120 million, a relatively modest level by CIS standards. The two governments are to continue negotiations over the list of enterprises to be transferred, the new forms of ownership and the distribution of equity on a case by case basis. Most of them are deeply ailing: Soviet-era enterprises, including the Metsamor nuclear power plant; the Hrazdan heating plant; the electricity distribution networks; the Electron, Orbita and Mars military electronic plants; and several nonferrous ore mining and processing enterprises.

Kocharian, seeking to reassure both Armenia and the West, assumed political responsibility for this policy: “The idea has been expressed in the press that Russia is imposing this solution of the problem on us. International financial institutions, too, have been asking whether this deal will be advantageous to Armenia. I want to state with complete clarity that this proposal was made from our side, without pressure from the Russian side. No one is trying to force anything on us.” Technically, the Armenian president is almost certainly correct, but Yerevan had little choice in the matter, because Moscow insists on collecting the debts one way or another. Kocharian, however, said nothing about the World Bank’s strong economic arguments against the planned transfer of shares, especially in the defense and energy sectors.

For his part, Putin reassured the Armenian public on television that the ownership transfer should be viewed “not as debt collection, but as a means of attracting capital investment” by Russia. “Bringing in foreign capital means [Armenia’s] entry into the economy of Europe.” No Armenian official was heard demurring that it only means an entry into the economic system of Russia. In a meeting with Armenian parliamentary and party leaders, Putin said: “The point is that Armenia’s leadership wants Russian capital to come to Armenia and revive the economy.” His pitch was geared to the reform-resistant interest groups in Yerevan, those hoping to resurrect Armenia’s Soviet-era industries through Russian capital infusions and orientation toward the Russian market. Deputy Prime Minister Ilya Klebanov explicitly referred to that motive when he told the Armenian media that “the transfer of shares [to Russia] is easier than restructuring” as a method of reviving those enterprises.

The Russian side offered a long-term gas supply agreement to Armenia at reduced prices, provided that Armenia joins the Russian-led Eurasian Economic Community (EAEC, the five-country successor to the CIS Economic Union). In Yerevan, the Russian delegation announced a new policy whereby discounts on natural gas are offered to EAEC member countries collectively, rather than to individual EAEC or CIS countries. That new policy seems designed to enlarge the EAEC and penalize refusenik countries.

The presidents signed a framework agreement on Russia-Armenia economic cooperation through 2010. Beyond the usual declarative provisions, the document envisages setting up “joint integration structures” as well as “coordinating their economic reforms and economic legislations.” This could form the basis for the planned industrial ownership transfers and, in a follow-up stage, the privatization of further Armenian assets by Russian capital. A coordination council is being created to deal with the debt-for-shares swaps, on which the sides hope to finalize agreements before the end if the year (Noyan-Tapan, Arka, Armenpress, Mediamax, September 14-18; Russian Television, September 15; Azg, Golos Armenii, September 18).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions