Running head: Armenia as a Free Nation
Armenia as a Free Nation
Linda Iguidbashian Dean
Walsh College ECN 523
Armenia has transitioned from being a republic of the United Socialist Soviet Republic (USSR) in 1991 to being a democracy with active political parties that is striving to be a free trade nation as part of the European Union in 2013. The new republic’s government is organized around having a President, Prime Minister, a Parliament, and a court system. They have gone from having corrupt elections to fair elections with multiple political parties. They were admitted into the World Trade Organization in 2002 after a great deal of turmoil.
The way in which they privatized, allowed monopolies and business cartels to take control of the import/export industries and allowed Russia to take control of their energy, telecommunications, and transportation sectors. The agriculture sector has had its problems with production causing food inflation. There is a significant shadow economy. There has been a 10% flight of Armenians out of their country in hopes for a better life and protection of their civil rights.
Even with all these problems, the Republic of Armenia (RA) has made great strides in improving its economy and human development. They are now tackling corruption in order to gain trading rights with the European Union.
Corruption in Presidential Politics. 8
Signs of Corruption in Trade. 10
Signs of Inefficiency in Agriculture. 11
Current Trends and Statistics. 12
Armenia became a sovereign nation in 1991 with the dissolution of the Soviet Union. In the transition from a centrally controlled soviet republic to a democracy, poverty and corruption ensued as privatization led to monopolies by business cartels. Armenia is dependent on Russia in their energy, telecommunications, and transportation sectors due to loan forgiveness they received. In 2009, Armenia could no longer support the cost of maintaining a fixed currency exchange rate of 305 drams to a U.S. Dollar and changed their currency to floating. Their currency depreciated and is currently worth 406 drams to a U.S. Dollar.
The government has anti-corruption policies in play in order for Armenia to become a dynamic market oriented environment. Armenia has the goal of becoming a new EU member-state. Their strategy against corruption involves having a vibrate political system with multiple parties which will promote competiveness and representation. Armenia is in an interesting situation in that there are millions of Armenians outside of Armenia due to the Diaspora that began during World War I. The Diaspora Armenians have been providing financial support, mostly in U.S. Dollars. The 2009 economic downturn saw a reduction in international support. The question now is, can Armenia keep her talent, or will they migrate away?
The following sections provide background information about Armenia. A historical perspective is presented along with where the country is today. A summary of the political and economic systems are presented. Corruption in politics and trade are discussed. Large numbers of people have migrated out of Armenia as there have been shortages of food and jobs.
History of Armenia
The Armenian people trace their heritage to the Hittites in the ninth century B. C. According to Movses Khorenatzi, “the first chieftain of Armenia was Haik, who vanquished the Tyrant Belus of Babylonia and occupied vast territory extending from the Caspian to the Black Sea and the Mediterranean, and from Pontus to the boundaries of Assyria.” (Mahdesian, 1917)
Armenia is mountainous, containing Mount Ararat, the biblical resting place of Noah’s Ark. The land is rich in mineral wealth of gold, silver, copper, iron, lead, marble, saltpetre, quicksilver and sulphur. In the valleys, where the temperature rises very high, grow plane-trees, poplars, peach, mulberry, rice, melons, olives, figs, grapes, tobacco and cotton. (Mahdesian, 1917).
The Armenian language is an early branch of the Indo-European language. The Armenians are Aryan. The Armenian translation of the bible from Greek was the first book in Armenia in 433 A.D and is considered the most accurate translation. Armenia translated many Greek writings and was one of the first nations to use the Guttenburg Press.
The Armenian nation is the first to adopt Christianity in 301. The Armenian throughout history have been zealots for Christianity, support for the Crusades, and are the founders of the Apostolic Christian church. During WWI, the Ottoman Empire killed of over one million Armenians and forced deportation (Diaspora) of Armenians throughout the world.
The Armenians are well known for their commerce, artistic talent, architecture, and education. Armenia is situated as a gateway between Europe and Asia. Being in a crossroad, Armenia has been dominated and ruled over by the Romans, Byzantine, Arab, Persians, Ottoman Empire, and the Soviet Union. (CIA, 2013)
Armenia is in Southwestern Asia, also called the Caucasus Mountain region. Armenia boarders with Turkey to the west, Georgia to the north, Azerbaijan to the east and south, and Iran to the south. Armenia has long standing conflicts with Turkey over the recognition of the Armenian Genocide, or the Turkish deportation of Armenians in WW I. Armenia is in conflict with Azerbaijan over the region called Nagorno-Karabakh where the predominantly local Armenian community took possession of the region in the 1990s which includes land historically belonging to Azerbaijan.
Per the CIA Factbook, Armenia comprises 29,743 sq km, ranks 143 in size, and is slightly smaller than Maryland. The terrain is highland with mountains, little forest land, fast flowing rivers, good soil in Aras River valley. Land use is 14.47% arable (suitable for crops), 1.8% permanent crops, and 83.74% other. Renewable water resources are 7.77 cu km with a 2.86 cu km/yr freshwater withdrawal. Current environmental issues are (CIA, 2013):
soil pollution from toxic chemicals such as DDT; the energy crisis of the 1990s led to deforestation when citizens scavenged for firewood; pollution of Hrazdan (Razdan) and Aras Rivers; the draining of Sevana Lich (Lake Sevan), a result of its use as a source for hydropower, threatens drinking water supplies; restart of Metsamor nuclear power plant in spite of its location in a seismically active zone
The population is slightly less than 3 million people with the median age of 32.9 years. Yerevan is the capital with 1.116 million people (2011). Total population is 0.89 males/females. Life expectancy at birth is 73.75 years and ranks 119th.
Armenia is land locked. Natural resources are small deposits of gold, copper, molybdenum, zinc, bauxite. The boarders with Turkey and Azerbaijan are closed.
The Republic of Armenia gained her independence from the Soviet Union on September 21, 1991. There are 11 administrative divisions (provinces). The constitution was adopted by nationwide referendum on 5 July 1995; amendments adopted 27 November 2005. They have a civil law system but have not submitted an ICJ jurisdiction declaration; non-party state to the ICCt. (CIA, 2013)
The chief of state is President Serzh Sargsaian (since 9 April 2008). The Prime Minister is Tigran Sargsian, and the Council of Ministers are appointed by the prime minister. The president is elected by popular vote for a five-year term (eligible for a second term). The Prime Minister is appointed by the president based on majority or plurality support in the parliament. President Sargsian was reelected with 58.6% of the vote from the Republican Party of Armenia (RPA) in 2013.(CIA, 2013)
The legislative branch, National Assemble (Parliament) has 131 seats; members elected by popular vote, 90 members elected by party list and 41 by direct vote; to serve five-year terms. The last election was held on 6 May 2012. The election results by party is: Republican Party of Armenia (RPA) 44%, Prosperous Armenia 30.1%, Armenian National Congress (ANC) 7.1%, Heritage Party 5.8%, Armenian Revolutionary Federation (ARF, Dashnak) 5.7%, Rule of Law 5.5%, other 1.8%; seats by party – RPA 69, Prosperous Armenia 37, ANC 7, Heritage Party 5, ARF (Dashnak) 5, Rule of Law 6, independent 2. (CIA, 2013)
The judicial branch courts are Court of Cassation (consists of the court chairman and organized into a criminal chamber and a civil and administrative chamber, each with a court chairman and 2 judges); Constitutional Court (consists of 9 judges). Court of Cassation judges nominated by the Judicial Council, a 9-member body of selected judges and legal scholars; judges appointed by the president; Constitutional Court judges – 4 appointed by the president, and 5 elected by National Assembly; judges of both courts can serve until retirement at age 65. Subordinate courts consist of two Courts of Appeal (for civil cases and for criminal and military cases); district courts; Administrative Court. (CIA, 2013)
Corruption in Presidential Politics
There was much turmoil among the political parties in Armenia. The first president Levon Ter-Petrosyan, served from 1991 to 1998. He led the country through the Nagorno-Karabakh War with neighboring Azerbaijan in which Armenia took control of the region. He was forced to resign on February 3, 1998 for a) his authoritarian rule over the Armenian Revolutionary Federation which he banned and jailed it’s leadership on the grounds that the party had foreign-based leadership, b) allegations of rigging the 1996 election caused massive protests that were suppressed by military force, and c) for advocating a compromised settlement of the conflict over Nagorno-Karabakh in September 1997 which would have returned most Armenian-controlled Azerbaijani territories around Karabakh and lifted the Azerbaijani and Turkish blockades of Armenia. Ter-Petrosyan founded the Armenian National Congress which includes a dozen of the political parties and NGOs.
Robert Kocharyan was elected president on March 30, 1998. The election’s main rival Karen Demirchyan, parliament speaker, was gunned down in Parliament along with Vezgen Sargsyan, then Prime Minister on October 27, 1999. (CNN, 1999). In 2003, Kocharyan defected Stepan Demirchayan (son of Karen Demirchayan) after two elections. In both rounds, electoral observers from Organization for Security and Co-operation in Europe (OSCE) reported significant amounts of electoral fraud.
The February 19, 2008 election of Serge Sargsyan (backed by Kocharyan) against Levon Ter-Petrosyan and Artur Baghdassaryan, was considers valid by OSCE and other organizations. Campaign rhetoric centered around theft, corruption and monopolies. After the election, Ter-Petrosyan organized demonstrations in Yeravan’s Freedom Square. The demonstration lasted until March 1st when Armenian Special Forces used excessive force to disband an estimated 150,000 person spontaneous demonstration at the French Embassy. Protesters were arrested and convicted, 8 protesters and 2 police were killed, and Kocharyan ordered a 20 day state of emergency and enacted laws banning freedom of assembly. (Human Rights Watch, 2009)
Armenia accession to the World Trade Organization was approved on 10 December 2002 and was finalized on February 5, 2003. Negotiations has started in 1993. “Starting from 1997 and thereafter frequent changes in the government and consequent changes of concerned officials caused disruptions in the negotiation process as well as in domestic activities. In some cases, additional requirements were demanded by the members due to the delays.” (WTO, 2010)
The 2010 Trade Policy Review by the WTO has the following findings in the Summary Observations (WTO, 2010):
(1) Armenia has a liberal trade policy with average applied tariff at 2.7%, among the lowest of WTO members. It grants MFN and national treatment to foreign investors.
(2) Economic stability along with foreign remittances and investment from the large Armenian Diaspora lead to high levels of economic growth up until the global financial crises hit Armenia in 2009. There are problems noted in the implementation of institutional and regulatory reforms.
(5) Between 2003 and 2008, the Armenian economy almost doubled in real terms with the main driver being domestic consumption fuelled by remittances from aboard and improved productivity. GDP reached nearly US$12 billion and GDP per capita US$3,684 in 2008.
(6) Since 2003, agriculture grew less rapidly and fell from 28% of the economy in 2003 to 18% in 2003, still employing almost half of the workforce. Manufacturing declined in relative importance as services grew strongly to reach nearly three quarter of GDP in 2008. Within the services sector, construction grew most rapidly reaching 30% of GDP in 2008.
(7) An economic downturn occurred in 2009. The global financial crisis of the world economy reduced remittances and foreign investments. This caused a drop in property prices and investment in the construction industry. Overall economic growth went from 7% in 2008 to about -15% in 2009.
(8) The Armenian Central Bank is independent and kept inflation in check at 4% during 2003 to 2009. The Armenian dram was allowed to float. Fiscal deficit was kept reasonably low and public debt decreased significantly as a percentage of GDP although both indicators worsened in 2009.
(9) Overall trade is about 43% of GDP and Armenia has a large deficit in trade in both goods and services (at 25% of GDP). The trade deficit increased due to strong domestic demand and the loss of competitiveness of Armenian exports as large foreign exchange inflows caused the dram to appreciate.
Signs of Corruption in Trade
The 2010 Trade Policy Review by the WTO shows signs of corruption within Armenia’s import and export industry. For example, “customs clearance is perceived by users as relatively slow and subject to a certain amount of corruption.” (WTO, 2010) Under-declaration of import values is a persistent problem that explains why transaction value is often not accepted for customs valuation. Importer have the right to appeal decisions of the customs authority and to use bank guarantees to cover duties in cases where documentation is incomplete. Certain imports are affected by a business licensing system applied to a list of economic activities, such as pharmacies and pharmaceuticals. Some of these licenses are non-automatic and only granted with the approval of a licensing commission. Exporters are hindered by having to provide certification of origin which are costly and complicated.
There is a Constitutional ban on foreigners owning land in Armenia. Investors are protected from adverse changes in legislation and from nationalization of property by the State. Foreign Direct Investment comes primarily from Russia and the EU. Armenia has nine trade agreements in force with other members of the Commonwealth of Independent States (CIS, former republics of the USSR).
Signs of Inefficiency in Agriculture
In January 2011, a cost of living crisis emerged amid skyrocketing food prices and a drop in agricultural production. Prices for many basic foodstuffs have outstripped the official 9.7-percent inflation rate. For example, potatoes in Yeravan grocery stores by late 2010 had risen by 150 percent, meat by 30 percent, and cheese by at least 80 percent. (Grigoryan, 2011) The government response was to promote a new agriculture minister, 62-year-old Sergo Karapetian, who has served as chairman of the board and general director of the food processing company Artfood since 1996. Consumers’ Union of Armenia Chairperson Armen Poghasian says the economic policy is damaging. Armenia’s farmers should be granted financial benefits such as lower fees for water usage, prices for land and lower tax rates.
Issues of Migration
Official data reports that 49,660 citizens left Armenia permanently in 2012. From 2005 to 2012, 204,000 people have left for good according to the Armenian National Statistical Service, roughly 10 percent of the 2012 population of 2.97 million people. France is the number one destination of choice, followed by Austria, Germany and Poland. The EU currently spends over 9.71 million Euros on seven migration programs to focus on social problems faced by migrants like the UN Children’s Fund, UNICEF program and the Armenian State Migration Board for strengthening migration management. Gallup poll shows the reason for migration is hopes to improve living conditions, a better future for their children, and a desire for a stronger defense of their civil rights. At a March 18, 2013 meeting with media, President Serzh Sargsyan “blamed the problem of emigration on Armenians alleged refusal to recognize their successes”. He criticized media outlets for “talking about the very worst [things] and only blackening the picture” (Grigoryan, 2013)
Current Trends and Statistics
The Armenian government is moving rapidly toward integration with the European Union (EU), and Yerevan could well be on track to initial an Association Agreement and a Deep and Comprehensive Free Trade Agreement (DCFTA) with the bloc at a summit of Eastern Partnership countries in Vilnius in November 2013. (2013, Coalson).
Armenia’s GDP is $19.97 Billion (2012 est), GDP real growth rate is 7.2% (2012 est) , GDP per capita PPP is $5,900 in (2012 est). The GDP composition by sector in 2012 (estimate) is 21.1% agriculture, 37.7% industry, and 41.2% services. (CIA, 2013) Other indicators are unemployment rate of 15.7%, exports of $US124.51 Million, and imports of $US368.13 Million. (www.tradingeconomics.com/armenia/indicators)
Life in Armenia is pretty difficult with high inflation (8.9%), high unemployment (15.7%), and a large informal economy estimated by the IMF at 35% of GDP (IMF, 2013). During privatization, Armenian democracy and free trade lost ground to monopolies and business cartels who are using the import/export system to launder money out of the country and to create a system of bribery through licensing. There was corruption in the elections and authoritative leadership which arrested dissenters. Russia was able to take advantage of Armenia’s debt and create monopolies for their oil and gas companies, telecommunications, and transportation system. In 2009, the global recession caused a financial crisis and capital flight out of the booming construction sector. The agriculture sector was under-performing causing food inflation. The dram currency had to be converted from being fixed to the US Dollar to floating, allowing it to devaluate. International political challenges with Turkey and Azerbaijan makes it difficult to establish trade and threatens the security of their citizens. There has been large migration out of the country, estimated at 10% of the population.
Anti-corruption policies by the Republic of Armenia government is close to creating trade relations with the European Union. This change in alliance does put them in a riskier situation with Russia and Azerbaijan.
Armenia has come a long way since the break-up of the Soviet Union. They still have a ways to go in receiving the trust of their citizens. Historically, they have been a quarrelsome lot, so it’s not surprising there are tensions in the region. The Armenia Diaspora still provides a safety net and an interest in having a homeland worth cherishing. There is a rich history and a strong Christian faith that has allowed the nation to survive unbelievable odds.
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CNN. (1999, October 17). Armenia’s Prime Minister Killed in Parliament Shooting. Retrieved August 26, 2013 from http://www.cnn.com/WORLD/europe/9910/27/armenia.04/#r
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Grigoryan, M. (2011, January 11). Armenia: Yeravan Grapples with Runaway Food Prices. Eurasianet.org. Retrieved August 26, 2013 from http://www.eurasianet.org/node/62690
Grigoryan, M. (2013, June 21). Armenia: How Welcoming Will Be the EU’s Embrace?. Eurasianet.org. Retrieved August 26, 2013 from http://www.eurasianet.org/node/67158
Human Rights Watch. (2009, February, 25). Armenia: Skewed Prosecution Over 2008 Clashes. Retrieved August 26, 2013 from http://www.hrw.org/news/2009/02/24/armenia-skewed-prosecution-over-2008-clashes
Mahdesian, A. (1917, April). Armenia, Her Culture and Aspirations. The Journal of Race Development, Vol. 7. No. 4. pp. 448-466. Retreived July 16, 2013 from http://www.jstor.org/stable/29738214
Republic of Armenia (RA). (2009). ANTI-CORRUPTION STRATEGY AND ITS IMPLEMENTATION ACTION PLAN FOR 2009-2012. Retrieved September 2, 2013 from http://www.gov.am/files/docs/437.pdf
World Trade Organization (WTO). (2010, March 2). TRADE POLICY REVIEW Report by the Secretariat ARMENIA. Retrieved August 26, 2013 from http://www.wto.org/english/tratop_e/tpr_e/s228-00_e.doc