To #Maidan or not to #Maidan

To #Maidan or not to #Maidan: This is the question that the #ElectricYerevan activists are being unwillingly forced to answer.

Over the last 2 weeks, public discontent over a shady decision to yet-again raise the price of electricity, this time by a whopping 20% upon the request of the Kremlin-owned company, Inter RAO, has culminated into 6 days of round-the-clock popular protests attracting as many as 20 000 people, including a sit in on Baghramyan St, one of the city’s main arteries.

The protesters, identified by the trending Twitter hasthag #ElectricYerevan, were angry over the increasingly obvious lack of sovereignty over the country’s energy distribution networks, the majority of which have overwhelmingly been sold to state-run companies in Russia. The claim that the price increase was to cover a $50million deficit supposedly caused by the depreciated Dram further raised eyebrows, as people asked how it was possible for an energy distribution monopoly to run a deficit.

Though this protest is largely understood in Armenia to be the result of a deep-rooted anger at the State for failing to produce the right socio-economic circumstances for growth, while doing little to tackle corruption, the fact that the protesters have accused both their own government as well as Russian involvement by association (electricity distribution being in the hands of a Russian state-owned firm) has lead to a swift condemnation of the movement by the Russian Duma, which wasted no time in branding it an “Armenian Maidan” which needed to be suppressed at all costs.

Putin_Armenia_fascism

“How to make Armenia look Fascist”

This call was further echoed by Russian state-owned media that was present on the scene, who stipulated that US, or western NGOs are responsible for the unrest; implying that the protesters formed a sort of 5th column in a new front of a revived cold-war existing only in the minds of Kremlin strategists. The association with Ukraine’s Maidan Revolution was also debated by Ukrainian and Western news outlets.

As the protesters woke up to hear Russian media accusing them of “orchestrating another Maidan”, they were naturally incensed, producing an even greater backlash against Russian news outlets for portraying their struggle against corruption in the energy sector as part of a western-sponsored anti-Russian conspiracy. This anger, of course, was seen as a validation by the same Russian Press which had made the initial accusation.

In this video; a protester explains to the Russian Journalist why they are truly protesting, and why their coverage is misleading. She was reportedly fired after this video aired.

Over the past 3 days, as the protest’s growing momentum has continued to attract international media attention, the Armenian people’s struggle is increasingly being debated far way from the country’s borders. The protesters themselves are finding their struggle for accountability in energy distribution unwillingly dragged into a wider geopolitical conflict; which many of them care little about. Already, #ElectricYerevan has been joined by hashtags such as #ArmenianMaidan and #ElectroMaidan on social media sites; despite the fact that neither of the two are ever used by the activists themselves.

Russian Journalist being schooled on journalism ethics

Russian Journalist being schooled on journalism ethics

This fear of being swallowed into a larger conflict is understandable. With the recent events in Ukraine still looming over everyone’s heads, the protesters have gone through great lengths to convince the Kremlin that this isn’t a Maidan, that this is protest’s goals are unique.

Obvious similarities:

One point voiced by the protesters on Baghramyan Street was that, unlike the Ukrainian Maidan Revolution, which was fought over the country’s geopolitical direction, and resulted in hundreds of deaths; this protest, by contrast, was apolitical, non-violent, aimed at fighting rampant corruption and the lack of accountability in the country; but with one demand: to stop the electricity price hike.

Incidentally, most of the protesters interviewed on Kyiv’s Maidan Square, stated the exact same reasons for their own struggle: a dissatisfaction with the rampant corruption of the Yanukovych regime, Illegitimacy, and the lack of rule of law. Just like in Yerevan, the Maidan protesters had initially peacefully assembled, and, just like #electricyerevan, had only 1 demand: resume economic talks with the EU. It’s only when the world woke up in the morning to the shocking news that the government had sent in the Berkut to violently clear out the protestors, that people of all political convictions, regardless of views on the West or Russia joined in to protest government repression. Successive violent attempts against the protestors and well documented Kremlin  involvement helped turn public opinion against the government, and Russia’s foreign policy, and only then, were the first calls for revolution being made.

President Sargsyan was well aware of this the morning when public outcry over his brutal dispersion of the Baghramyan protestors reached his ears, and is hopefully doing everything in his power to ensure that, like in Ukraine, government overreaction doesn’t lead to a Maidan repeat. The Maidan protesters, and the #ElectricYerevan protesters have both created unique countercultures which should be observed in their own right. The common denominator, however, has been the Kremlin’s reaction. Thus, one could argue that Armenia’s and Ukraine’s struggles are similar insofar as any nation’s struggle against corruption would invariably develop along similar lines.

Not exactly the same though:

This isn’t to say, however, that #ElectricYerevan doesn’t genuinely have its differences. To begin with, the very idea of lumping all forms of public discontent together (be it as a CIA conspiracy, or as a seemingly trending call for liberal-democracy), is very dangerous because it tends to gloss over the very real domestic tensions and concerns that motivate the protesters in favor of citing regional trends which may or may not be there, as well removing from the unique character of both protests. #ElectricYerevan, unlike the Maidan, hasn’t seen a rise in leadership of any particular individual, or political party; extremist parties have been denied centre stage, and unlike in Kyiv, the protest lacks a clear geopolitical direction (with some EU-flag weaving members of the “Honourable Fatherland” faction having been shoved out) 

Armenians’ desire to distance themselves from the Maidan movement brings to mind an important question: should the Armenian protesters really reject the Maidan association?  By going too far in distancing themselves from the Maidan protests, the #ElectricYerevan activists risk banalising their own movement for 4 reasons:

1- Implicitly endorsing the Kremlin view on the events of 2014-15 in Ukraine as a violent, Russophobic coup-d’etat:

The only reason why #ElectricMaidan activists feel the necessity for distancing themselves from any association with the #Maidan Revolution of 2014 is because of a decade-long Kremlin-supported witch hunt for “Colour Revolutions”. In the wake of the Ukrainian Revolution, the Kremlin’s propagandists have done such a thorough job of of permeating the notion of the Maidan as a bloody fascist coup to its television audience, that even one of the older protesters on Baghramyan street was suspicious about a rumoured Prague-based “Maidan exporting cell”, which she claimed was planning to hijack the #ElectricYerevan movement. By negating any association, protesters essentially accept the Kremlin-towed line that this view is a correct one. 

2- Implying that the protesters somehow have to justify themselves to the Kremlin:

In trying to convince the Kremlin’s media apparatus that what is happening on the streets of Armenia’s major cities is not another Maidan, the protesters are essentially trying to appease potentially vengeful Russian authorities. Seeing as how these protests are happening in the sovereign, and independent Republic of Armenia; it is idiotic to have to give any explanation to the leaders of a foreign country, for what is essentially a domestic struggle.

3- the more they deny resemblance, the more it is forced upon them:

Ukrainian Maidan participants found themselves assaulted with accusations, speculations and insinuations by the Kremlin’s propaganda machine that they are, or at the very least were motivated by fascist ideals. This in turn helped shift the focus from the real issues on the ground, to debates nebulous fascist influences. Similarly, the more Armenian protesters try to deny any resemblance with the Maidan revolution; the attention is drawn to this view. Furthermore, depending on how local authorities, or the Kremlin react, any counter reaction by the demonstrators will inevitably resonate with Maidan-watchers. 

4- It sets a predetermined path and fate for this movement

Accepting or rejecting similarities with the Maidan essentially sets the 2014 Maidan revolution as the standard for any form of civil unrest in any post-soviet country. Protesters now have to choose between two camps pre-determined camps; which limits the creativity, and demands of their respective movements. Protests, revolutions, or any other sort of civil-society movements need to be analyzed individually.

The short answer to the question “Is #ElectricYerevan another #Maidan?” is NO: #ElectricYerevan is a completely homegrown Armenian popular movement, born out of a real feeling of disenfranchisement, and with a specific set of demands unique to Armenia’s situation. This, however, doesn’t mean that there aren’t any similarities between the two movements (and indeed most movements). The long answer, however, depends on how the Armenian authorities, and how the Kremlin react to these protesters. Ultimately, the real answer is: It doesn’t matter.  Armenians do not, and should not, owe any explanation for their protest movement to the Kremlin, or any outside parties.

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Pension Wars

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Armenia has been experiencing a rise in political activity in the last few years. The most recent of which has been the wide scale public outcry over the government’s new pension reform plan, embodied by the ‘dem em’ (we oppose) movement. Over the past several months, thousands of Armenians, mostly young professionals, some of whom are from the IT sector, have been staging routine mass protests against the USAID-backed reforms which went into effect on the 1st of January 2014 as part of legislation enacted in 2010. Under this new pension reform law, all employed persons born after 1973 would be required to pay an extra five to ten percent of their salaries to a government-approved selection of private fund management firms. The government argues that this is a necessary measure due to the need to reduce government expenditures as the country struggles with the impending budgetary burden of population aging amongst other constraints. With the impending economic slowdown over the next two years, the government has understood the necessity of being careful with budgetary funds and the previous entirely public pension system would be too costly.  The opposition to this reform may seem perplexing to outside observers, as pension privatisation has been hailed as a successful policy for dealing with similar budgetary problems that governments have in the developed world. The blog, “the Armenian Economist” notes that countries with similar pension packages include Australia, Chile, Denmark, Estonia, Finland, Hungary, Iceland, Israel, Mexico, Netherlands, Norway, Poland, Slovakia, Sweden, and Switzerland.

Despite enjoying the backing for the reform of a number of economists, and the overt support of the US ambassador John Heffern, opponents, discontent over the mandatory element of the reform, have been suspicious of the package. They argue that the unconstitutional measure would be seen as an extra form of taxation on a labour force which is already underpaid, and over taxed, and would ultimately lead to an increase in emigration particularly within the IT sector, which is dominated by highly paid (by armenian standards), highly skilled young professionals who would be tempted to pursue careers elsewhere.

Since the reforms have been hailed as both necessary and competent, why have they generated so much controversy? There are a few things that are worth noting:

It’s about being overtaxed:

Currently, roughly 26% of an Armenian worker’s salary goes to paying various taxes, including their public pension funds. In a country where the average income is less than 250 EUR a month, this means that workers are left with just over 180 EUR to cover monthly expenses. Removing another 5 to 10% of their salaries would leave them with just 170 EUR per month. This in a city where the recommended minimum monthly expenses for one person is roughly 400 EUR.

Its about freedom of choice:

One of the biggest issues of contention here is that the new pension plans are mandatory, and citizens are unable to choose how it is managed. The government has responded to concerns by pointing out that they cannot expect the population to manage their own pensions as they would be left with nothing after retirement, and tried to comfort opponents by mentioning that the  private pension funds will be managed by French “Amundi” and German “Talanx” companies. The Constitutional Court, however, has sided with the protesters on the matter.  It should be noted, however, that even in pension systems which are said to not be mandatory, the actual amount of choice is quite trivial anyway.

It’s about mistrust for the State:

Many Armenians can still recall how much of the life savings which they had collected over many years vanished overnight with the collapse of the USSR, and again a few years later, when the government illegally dipped into the nation’s pension funds to finance new projects. Furthermore, armenians have grown increasingly cynical of incessant government promesses with seemingly more sinister intentions, such as the recent speeding cameras, bus fare increases, city centre parking system, etc. The government, in response has done very little to show genuine will to help foster better dialogue with civil society over such issues, conducting closed-door meetings, and so on.

It’s a vote of non-confidence in the Government:

One aspect of this movement which could puzzle outside observers is the lack of actual criticism of the reform itself. A recent study conducted by masters students at the American University of Armenia’s School of Humanities revealed that many of those frustrated were ready to accept the reform’s implementation if it had been proposed by any government other than the present one. In this sense, the current protests are part of a wider wave of protest against the Republican government by an increasingly vocal, and competent opposition movement.

As Initial discontent has since grown into a fully fledged movement, it has noticably attracted and united all four non-governmental parties: the opposition the Heritage party, Armenian National Congress, ARF- Dashnaksutyun and the non-ruling Prosperous Armenia Party towards the cause. Initially unorganised and chaotic discontent eventually transformed into a clear list of demands. The protesters claimed that they would not back down until the reform package was submitted to the constitutional court for evaluation, repeal said laws, and for the prime minister, Tigran Sargsyan to resign.

Amid the backdrop of almost daily protests (which include a rap song)  the Constitutional Court declared, on April 2nd, that certain elements of the reform package were indeed anti-constitutional, and ordered the parliament to reconsider it. Despite this, mandatory inputs into the new pension plans, which had automatically started on January 1st continued, prompting a continuation of public protests.

Since then, the Prime Minister Tigran Sargsyan has resigned, replaced by notorious oligarch Hovik Abrahamyan (known colloquially as ‘mook’), who has declared his intention to work with the professionals to reform the package. At the time of writing, the National Assembly has approved a new bill on pension reform, after the Court gave them until the end of september to bring it into conformity with the constitution. The new prime minister, Hovik Abrahamyan, has publicly stated that the changes to the reform will make it optional to subscribers. In the meantime, employers are still asked to continue taking 5% of worker’s salaries. Meanwhile, the protests are growing in size and frequency…

The Cost of the Diaspora’s aid: Why the Diaspora should push for free-markets, not Charity as a generator of development in Armenia

This article was originally presented to the first annual convention for “Armenian Students for Liberty” September 2013

With independence, Armenia found itself inheriting a vast amount of socio-economic problems stemming from the collapse of the Soviet collectivist economy. These problems were further exasperated by the 1988 Spitak Earthquake, the war with neighbouring Azerbaijan over the Karabakh enclave as well hyperinflation of the newly introduced Dram. These alarming conditions lead a concerned Armenian Diaspora to pool its collective economic strength together in order to  set up a series of badly-needed emergency funds. This was the birth of the Diaspora-sponsored charity campaign; exemplified by organisations like the “Hayastan” All-Armenia Fund.

The purpose of this paper is to demonstrate how the now wide-spread practice of fundraising and donation-based foreign aid by the Armenian Diaspora, though initially helpful in the early years of Armenian independence, is harming healthy development more than it is helping. Furthermore, It should be argued that a much better approach at promoting financial prosperity and development by the Diaspora would be to invest politically and financially into the institutions of free-markets, and rule of law.

Since Independence, the “Hayastan” All-Armenia Fund alone has collected over a quarter of a billion dollars in direct aid to Armenian infrastructure reconstruction projects.    Added to that are the billions of dollars collected by a myriad of charitable organisations, including roughly two billion USD in aid and development assistance by the American Government.

Diaspora generously gives back to to the Fatherland

Economists agree that this sort of “development” aid has been largely wasteful and ineffective in achieving the desired effect. Christopher Coyne, professor of economics at George Mason University argues that: “Those Involved in humanitarian efforts are unable to promote societal economic progress because they suffer from the “planner’s problem,” meaning they are unable to access the relevant knowledge to best allocate resources in the face of a variety of competing, feasible alternative uses.”

Negative socio-economic impact of Aid

The negative consequences of development aid include a deligitmisation of the National Government, perpetuates the sense of learned-helplessness amongst the population, and abets corruption by officials. Since the primary role of Government in Armenia is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free, yet as the same time the government budget sets aside funds for the construction and rehabilitation of state infrastructure; Diaspora-funded project only serve to remove the responsibility that  elected government officials should have vis-à-vis their electorate in regards to the spending of their tax money. This, in turns, allows for irresponsible spending by both the Diaspora organizations, and the government.

The politics of Foreign Aid also has a direct negative impact on the communities they are trying to help by disrupting the organic development of civil society when dealing with issues. Thus, instead of communities forming committees to deal with problems that affect them all on a grass-roots level, they are instead encouraged to simply wait for help from the diaspora.

Foreign aid encourages corruption in Armenia. Diaspora donors act in a very peculiar way when donating to such charities. They essentially allow themselves to contribute to the tax revenues of a country of which they are not a citizen of, and with no say on how the money should be spent; which is ironically the exact same confrontation on which the United States of America was founded (“No taxation without representation”). They do not, in anyway demand accountability, or transparency from the local contractors when funding projects. This has lead to widely publicised scandals where Armenian government officials used a system of kick-backs, bribery and fraud in order to augment their income. Because most development projects usually require cooperation with the local government. This increased exposure amplifies the opportunities for fraud and corruption.

Causations of Diaspora Behaviour

The Diaspora’s Foreign Aid mentality has been shaped by the image of a far-away, desperate Armenia of the 1988 earthquake, as well as five decades of post-colonialist, and structuralist views towards the benefits of Marshal-era Aid policies. The sense of duty towards a homeland, the naiveté of donors towards the on-site partners, as well as the self-gratification when doing good generally has the effect of obscuring the real needs of the target beneficiaries. In many cases, projects can fall pray to corruption, mismanagement  and failure to achieve longterm sustainability.

Solutions:

Aside from small-scale, and pinpointed projects, large-scale aid and development projects are simply obsolete. The only true path to sustainable economic development for Armenia, as well as all nations, is good governance. In their book, “Why Nations Fail” (2013) Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or the lack of it). For Acemoglu and Robinson, nations that progress socially and economically usually have states which: “Secure property rights, the law, public services, and the freedom to contract and exchange all rely on the state, the institution with the coercive capacity to impose order, prevent theft and fraud, and enforce contracts between private parties.”

Thus, the Armenian Diaspora needs to shift its focus from providing relief aid, and large-scale infrastructure development aid, to ensuring the development of healthy, transparent, and inclusive institutions. This would mean pushing for a government which secures basic individual liberties, does not obstruct the free exchange of goods, services and ideas.

 This can be done in the following ways: 

 Diaspora aid organisations could change their focus from donations to venture capital management. They could contribute rationally to sustainable development by promoting good business practices in Armenia, and to finance the Armenian private sector in the country. Such groups could hire on-site risk management professionals who could analyse the business plans for local entrepreneurs, while helping those who’s ideas need to be further cultivated with sound business consulting.

Furthermore, in order to protect the interest of Diaspora, repatriate, as well as foreig ninvestors who could potentially breath fresh air into the the country’s business sector, against government provocation, harassment, nepotism and kickbacks. they can also engage in reverse-lobbying in Armenia. In other words, as Armenian Diaspora organisations revamp themselves as investment groups, they can threaten to withhold funds from the cash-strapped government until it submits to a number of legislative changes which would help create a link between : These would include abolishing the customs agency, reducing personal income and corporate taxes to a 15% flat tax rate, create tax-free zones in the provinces to encourage foreign direct investment, to form an independent judiciary branch, and to severely cut down the size of government.

This would protect the interest of Diaspora or repatriate, as well as foreign investors who could potentially breath fresh air into the the country’s business sector, against government provocation, harassment, nepotism and kickbacks.

Such emphasis on laissez-faire policies would allow the armenian economy to shed its soviet legacy of inefficiency, while kickstarting a vibrant and competitive economic presence on  the world market. With such policies,  Armenia  would become a very attractive place for investors, and could find its competitive advantage, while building a niche for export products and services.

source: https://i1.wp.com/farm3.staticflickr.com/2607/3934658340_35216ae67b_z.jpg

Armenia should be encouraging high-skilled, high-income repatriation

The Armenian Diaspora could also pressure the Armenian government to greatly simplify the repatriation process, especially for investors, by allowing for alternate military service, tax breaks for certain types of professionals, and so on. 

For the Diaspora organisations adamant on preserving the Benevolent/development-oriented nature of their organisations, it is also possible to transform the organisation into a sort of independent (form the RoA government) development foundation, providing grants and real support to social-business start ups and so on; following a structure similar to the US-Government-funded “Enterprise Development & Market Competitiveness Project”

Conclusions

Since funding massive aid projects is an obsolete way of solving Armenia’s problems with economic stagnation, oligarchy, corruption and emigration, the main goal that the Armenian Diaspora should be more invested in implementing the right conditions for long-term, and sustainable socio-economic growth in Armenia, by lobbying for what Coyne describes as “The conditions underpinning economic freedom—protection of property rights, private means of production, and free trade in labor and goods—provide an environment free of coercion in which people can engage in the process of discovery and experimentation necessary for economic development. This process is messy and will often appear misguided to outsiders, but it is the only way to achieve society-wide development.”

Works Cited:

 “”HAYASTAN” ALL ARMENIAN FUND | Www.himnadram.org| Rural and Infrastructure Development Projects in Armenia and Artsakh. Schools, Hospitals, Roads. Charity. Donate Now.” “HAYASTAN” ALL ARMENIAN FUND | Www.himnadram.org| Rural and Infrastructure Development Projects in Armenia and Artsakh. Schools, Hospitals, Roads. Charity. Donate Now. N.p., n.d. Web. 25 Aug. 2013.

2 “From Relief to Development.” USAID / Armenia :. N.p., n.d. Web. 25 Aug. 2013.

3  Coyne, Christopher J. Doing Bad by Doing Good: Why Humanitarian Action Fails. May 2013 Print.

4 “The Role of Government in Education,” by Milton Friedman. From Economics and the Public Interest, ed. Robert A. Solo, copyright 1955 by the Trustees of Rutgers College in New Jersey. Reprinted by permission of Rutgers University Press.

5 Acemoglu, Daron, and James A. Robinson. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown, 2012. Print.

6 “EDMC.” www.EDMC.am Web. 25 Aug. 2013.

7 Coyne, Christopher J. Doing Bad by Doing Good: Why Humanitarian Action Fails. May 2013 Print.

Libertarian analysis on PFA’s “Averting an Economic Catastrophe” Report

This blog post was originally written at the request of the German-Armenian Journal Armenisch-Deutsche Korrespondenz, and is part of a series of previously unpublished blog posts and articles which will be pressed in the coming days…

article below…

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PFA report’s cover

The findings in Policy Forum Armenia’s (FPA) February 2012 report caused quite a stir in Armenia. The document claims that the Armenian authorities have failed to implement a comprehensive policy shift in the wake of the 2008 economic crisis, and also that the country is likely to face a similar crisis in the future if appropriate action is not taken. This caused urgent concern for some, while being dismissed as alarmist by others. However, it is important to properly contextualise this report as well as the implications it puts forward. This being said, regardless of the accuracy of the report’s timeframe, the concerns highlighted by the FPA remain valid, and should immediately be addressed by the Armenian government, or lobbied for by local and international Armenian groups in order to ensure Armenia’s future prosperity and sustainability.

More recent reports by the World Bank and the International Monetary Fund (IMF) have put forward scenarios that somewhat contradict some of the bleaker predictions advocated by the FPA report. This does not mean, however, that the concerns and proposed recommendations of the report should be ignored. On the contrary, they should be taken all the more seriously, given Armenia’s already precarious geopolitical positionand the lack of space for mistakes in policy making.

Although Armenia may not necessarily be heading for a crisis as described in the FPA’s  3rd drastic currency depreciation scenario, many factors still hamper real and sustained economic growth – factors which in effect would only require willpower on the part of government authorities to solve.  The solution ultimately revolves around a simple formula of a low, comprehensible and flat taxation system coupled with a sustained desire to tackle corruption at all levels, and finally, access to proper continuing education for Armenia’s citizens.

Interestingly, the report also reserves a role for the Armenian Diaspora in the pressure for, and implementation of, new and comprehensive pro-growth policies in the Republic of Armenia (RA).

 Inflation and Debt Management: 

Inflation and debt management are generally considered to be high priority concerns to ensure the macroeconomic stability of the country. The FPA thus rightly points out some of the dangerous flaws in the RA’s debt management policy, stating, for instance, that Armenia’s debt percentage has reached critical levels for a developing economy at 40% (p.4), while pointing out that Armenia is due to repay its foreign loans between 2013-2014 (most of which is owed to the World Bank). Such a process could potentially undermine Armenia’s foreign exchange reserves for a long time to come.

Though this is not entirely incorrect, it is well within the norms of sustainability when compared to other European states, which are running much larger debt margins. Furthermore, a recent agreement between Armenia and the World Bank intends to facilitate the repayment with minimal disturbance to Armenia’s foreign exchange reserves.

It should be noted that sustained external debt does not automatically spell disaster for an economy, but on the contrary, and somewhat paradoxically, could be seen as a sign of healthy economic growth. If creditors continue to approve loans to a country, it displays a certain trust in its economy, thus fostering a better investment climate.  This is further supported by the report released by Fitch Ratings, which gave Armenia a BB- credit rating, while predicting a stable economic outlook for the country. The report states: “The rating affirmation reflects the fact that Armenia is gradually reducing its fiscal and external imbalances. The government narrowed the fiscal deficit to 2.8% of GDP in 2011 from 5% of GDP in 2010, through tax collection improvements, revenue surprises and spending restraint”. (Reuters, August 2012)

Furthermore, a recent IMF report released after a September 2012 working visit to Armenia found that Armenia’s debt and inflation management was quite sound, stating that “the programme is broadly on track, with most quantitative targets met and structural benchmarks implemented. Fiscal consolidation is moving forward, ensuring that public debt remains sustainable.” (IMF country report, Armenia October 2012) Furthermore, it praised the Central Bank of Armenia (CBA) for its close monitoring of the situation.

The IMF report also states that the banking sector remains solid and well-capitalised. However, the findings concur with the FPA report in warning that continued foreign currency lending continues to grow rapidly, exposing banks to indirect credit risks.  These concerns, however, are factored into the Fund’s technical assistance programme to Armenia, which includes plans for supporting strong growth and poverty reduction, reduction of the fiscal deficit by over 6% of GDP (while trying to preserve key social expenditures), implementing reforms to improve the tax system, ensuring greater exchange rate flexibility, strengthening the financial sector, and more importantly, improving the business environment.

To sum, though the FPA does fear that Armenia’s external debt might be quite critical, it remains quite manageable, according to international financial organisations, which are closely monitoring it, and working along side the CBA to reduce it.

Corruption and Economic Growth

The FPA report is evidently correct in highlighting the negative effect of corruption for the state revenue collection system, as well as for economic growth. In recent years, the government has taken a number of steps to greatly reduce petty corruption, but have categorically failed, or proved unwilling to fight it on a large-scale.

This is highly critical because, even with a 20% corporate profit tax, as well as newer systems implemented to impede tax evasion in small and medium enterprises, tax revenue has only slightly risen, and still only constitutes some 16% of Armenia’s GDP (compared to 25% in neighbouring Georgia. This is largely due to an entrenched system of corruption in the higher echelons of power, where big businesses are intrinsically connected to people in government who often receive kickbacks in exchange for large-scale tax evasion by some of Armenia’s largest corporations.  Such practices deprive the government of a large amount of funds which could be used for social or infrastructure programmes, and instead, constrains the government into taking out loans to balance the budget. The problem is further compounded by the fact that many of these government-connected oligarchs enjoy de facto monopolies on commodities imports (often while circumventing the tax system) and go so far as to use the aforementioned connections to threaten foreign investors (and as such, real sources of tax revenue) from establishing themselves in Armenia. Corruption in the government business environments pose a long-term vital threat to the survival of Armenia as a functioning state because it discourages foreign investment and repatriation from the Diaspora. Recent rumours of Republican MP Samvel Aleksanyan’s attempts to fend off french conglomerate “Carrefour”s establishment in Armenia due to fears of competition with his own chain of “City” hypermarkets paint a good picture of how such practices are negative for the country’s development.

In the last couple of years, the government, under pressure from the World Bank, has seemingly taken steps to fight corruption with some success. New regulations make it harder for business transactions to go unregistered, and the tax service has become more transparent. However some would argue that the state’s supposed commitment to fighting corruption is also being used as a way to apply selective justice to enemies of the regime, exemplified by the National Security Services (NSS)’s highly publicised investigation into alleged money laundering by prominent opposition MP Vartan Oskanian.

Role for the Diaspora:

Diaspora investors have had a number of experiences while investing in Armenia. Though many have done well, there are many horror stories now circulating in diaspora circles, causing many to think twice before investing in their home country.

There are two sides to this issue. The first obviously involves government connected personalities taking advantage of a situation where good-hearted yet somewhat naive Diaspora Armenians would often be induced into giving kick-backs and other forms of corruption, or signing legally dubious contracts only to find their assets at the mercy of corrupt judges.

On the other hand, many Diaspora investors were seemingly unaware that, though Armenia is indeed their homeland, it is still a transitional post-Soviet state, and Rule of Law is a new, and ill-understood concept. Thus, smart investors should put aside the emotional bonds of kinship and apply the same risk calculations as they would in any other developing state.

Either way, this creates a vicious circle where government-connected oligarchs receive positive stimulation from continuing the Soviet legacy leeching off of foreign grants, donations and investments, who inevitably end up biting the hand that feeds them, so to speak.

Armenia has been independent for over two decades now, and both the Armenians in Armenia and those of the Diaspora have now passed the episodes of early culture-shock and should now reevaluate their symbiotic relationship. The Armenian diaspora should still invest in Armenia, but not as naively as before, and should not be afraid to demand real change from authorities.

Furthermore, the State would learn that it is in its benefit to take real steps to facilitate and encourage foreign investments, as it offers the prospects of long term growth and wealth than sheer theft would ever account for.

Conclusions:

Though the PFA report does indeed seem to be alarmist, it does point out some glaring and easily amendable inefficiencies in Armenia’s reform programme. Though Armenia’s economic recovery is still quite fragile, It seems unlikely that Armenia would go bankrupt anytime soon, but fear of financial meltdown should not be the driving force behind comprehensive financial and socioeconomic reform.

The Diaspora does have a great role to play in Armenia’s economic recovery and further development which does not involve charity or Genocide lobbying. It involves a combination of smart investment, collective lobbying for REAL justice system reform to protect said investment, and finally, repatriation.

Repatriation is eventually the most important because it would force the local authorities to face citizens who grew up in societies where rule of law is prevalent, and individuals are taught to demand their rights. Such values which would be transmittable to the local population as well.

The government, on its hand, should learn that, though Armenia’s geopolitical situation is not ideal, facilitating investments by lowering corporate and income taxes, creating a strong banking system, aggressive democratisation and committing to free-trade agreements could only result in stronger and more viable state, which in turn would encourage repatriation of a highly skilled and wealthy workforce to the country, thus securing a future for the Armenian nation.

Why Serzh Cannot fulfill his electoral promises

On April 9th, as tens of thousands of victims of the present regime gathered at Liberty Square to express their discontent, Serj Sargsyan, was controversially sworn in for a second term at Yerevan’s Hamalir. His inauguration speech (which, given the location he had picked, reminded one of a Communist party Congress) was as fascinating as it was absurd. After placing his hand on a 7th century Bible, Sargsyan swore to uphold the constitution, and outlined his strategy for the next 5 years. He went on to reassure the people that their concern for the state of the country is well understood; citing corruption, poverty and emigration as the main focus of his 2nd term ‘plan’.

Before we go on to explain how this is nothing short of ludicrous, and simply impossible; let’s take the time to explore the last 5 years of Sargsyan’s presidency. It should be noted, in fairness, that Sargsyan was handed a country on the brink of recession by a former president, who hid Armenia’s real economic development numbers under a veil of construction-fuelled ”prosperity”. Sargsyan did preside over a period of modest growth, with most indicators showing a moderately positive trend, the 2013 EU progress report noted some promising reforms in the fields of transport, energy, environment, information technology, research and development, people-to-people contacts, education and health.

Armenia has made a notable leap in press freedom, jumping from 102nd, when Sargsyan took office in 2008, to 74th place this year according to reporters without borders. Armenia also ranks 32nd in the world for ease of doing business, according to the World Bank.

Sargsyan did oversee some relatively bold foreign policy firsts, such as the highly controversial protocols and football diplomacy between Armenia and Turkey; he has so far managed to tactfully circumvent Moscow’s pressure to join the Russia-led “Eurasian Union” in favour of further integration into the European geo-political structure; signing the Deep and Comprehensive Free Trade Agreement (DCFTA), and visa facilitation with the EU this year.

Thus, under Sargsyan’s presidency, Armenia did indeed become a better place than it was in 2008; it managed to pull itself out of a World Recession, it restructured its finance apparatus, allowed for a more tolerant political sphere, and has developed a more dynamic business environment; at least on paper. However, several questions remain unanswered; how much of this redressing can be credited to Sargsyan? Did he lead toward socio-economic recovery or merely hinder inevitable progress? If so, who really reaped the fruits of this progress?

Despite the modest improvement of Armenia’s socio-political situation during Sargsyan’s first presidency, the President simply cannot solve the main threats to Armenia’s long-term security; threats which took him 5 years to identify: corruption, poverty and emigration.

In the year leading up to the latest round of elections (parliamentary, presidential, municipal) Sargsyan has begun to denounce malfeasance within the government, but this turned out to be no more than theatrics rather than an honest show of will. Short of making Tigran Sargsyan cry on state television, little has been done to fight corruption. Both Sargsyans have pledged to fight corruption, yet so far, their efforts have only lead to the elimination of some sacrificial lambs, with no concrete results.

He cannot solve the problems which plague Armenia because…He is at the center of the problem. The simple reason as to why he has not been able to make any significant progress in solving those problems so far has nothing to do with the country’s geopolitical, or economic situation, but everything to do with him. His political dinosaur-dominated government has inherited the soviet tradition of making grand, vague, and ultimately groundless promises of self-improvement. As Sargsyan stood on stage denouncing the lack of good governance by the cabinet which (as he apparently forgot) HE appointed, and is most likely planning to reappoint (with almost no changes), one could not help but make comparisons to similar complaints and promises uttered by Soviet president Mikhael Gorbatchev, some 30 years before, in similar circumstances. As history taught us about the USSR, large, bureaucratic and obsolete organisations are simply unable to self-medicate.

How could Sargsyan effectively fight corruption when the head of the country’s main anti-corruption body, the aptly named “Anti-Corruption Council” is headed by a man (not just any man, but Armenia’s supposedly technocratic Prime Minister Tigran Sargisyan) whose central role in a money laundering scheme has recently been revealed? How will he fight against the economic inequalities created by the existence of commodity-based cartels, when the ringleaders sit next to him in the National Assembly? How can he ask the criminal justice system to prosecute the oligarchs, which have been ravaging the country, when the judges themselves are appointed by these same people? How can he make Armenia a more attractive place for international and diaspora investments when he himself has taken kick-backs? How could he preside over rapid economic growth when that would mean giving up his preferential economic status, and breaking up the cartels of his closest backers?

He cannot solve the emigration issue because people leave due to the fact that they cannot find a place in a country where the private businesses of the president’s wife, daughter, or cat get priority over their own prosperity; because they do not have access to infrastructure since funds are diverted to private accounts, and so on.

When PM Sargsyan toured the United States several months ago, begging for renewed Diaspora investments , he was unable to explain how he was to go about restoring investors trust in Armenia. The easy answer would have been to simplify the tax code (impossible when you consider that the head of the Tax authority of Armenia is an Oligarch himself) and strengthen Rule of Law. Thus we see a paradox where the Government claims it wants to safeguard economic growth in Armenia, just not at the cost of losing some of its own privileges..

Corruption, lack of good governance & Rule of Law, as well as widespread poverty, are not problems that can be individually dealt with; they are symptomatic of a bigger cancer; a cancer which has already consumed the present ruling apparatus, and needs to be cleansed.

The Republican Party (which The Economist magazine has described as a “typical post-Soviet ‘party of power’ mainly comprising senior government officials, civil servants, and wealthy business people dependent on government connections”) is more and more aware of the criticisms, but is still too delusional to cope with the reality that they have placed their compatriots in. This is evident by their hilariously oxymoronic campaign slogans such as “հավատանք որ փոխենք” lets believe to change (considering the Republicans were already in power at the time, this is probably the first time one could think of where a party actually ran against itself), or “դեպի ապահով Հայաստան” Towards a Safer Armenia (evident by this awful soviet throw-back campaign video, which clearly shows that the Republicans do not believe the Armenian people are capable of critical thinking) and the mayoral slogan “ավելի լաւ Երեւան” (for a better Yerevan). Does the government think that the populace will believe empty promises forever?

Once more, the reflections of soviet-era propaganda are difficult not to recognise, but are emblematic of the RPA’s inability to deal with the modern realities and challenges with a soviet-era modus operant.

The RPA’s foundations are thoroughly rotten, and can no longer be replaced. The cycle of corruption runs so deeply within the corridors of power that the only way for Sargsyan to truly stop such an infestation would require the dismissal, and imprisonment of such a large part of the government apparatus that the regime would collapse. Even putting aside the genuine lack of effective policy-making, it is the Symbol of a state run by greed, nepotism, profiteering, unscrupulousness and extorsion that has failed the electorate; when rising in the bureaucratic ranks is often accompanied by increased condescendance, more grotesque shows of wealth, and impunity towards the law, instead of increased sense of duty.

Thus, if Sargsyan truly cares for the wellbeing of his people, and the sustainable future of his country, he would understand that the only way for the fight against corruption, poverty and emigration to be undertaken seriously would require him, and his cabinet to resign. Unfortunately, no one expects him to have that kind of political will.

Armavia Reimagined

Ongoing problems with Armavia

The brief time since Armenia’s regaining of independence has been rather turbulent for its small aviation industry. As the USSR fell apart, Armenia, having been a constituent republic received a number of former Aeroflot jets which formed the basis for a new armenian national carrier, Armenian Air (Research), which served a number of routes to Russia and continental Europe. However, environmental restrictions within the European Community meant that the soviet-era fleet would no longer be able to fly its European routes, effectively condemning the new airline to bankruptcy. This failed first attempt was shortly followed by a second, albeit controversially short-lived venture; Air Armenia’s assets were opaquely liquidated to form the new, privately-run, supposedly publicly-traded, Armavia.

Armavia, officially managed by the Russian-based oligarch Baghdasarov (research) was able to lease, and later purchase, a small fleet of second-hand airbuses, allowing it to expand its routes into the EU and Russia, as well as serving some middle-eastern destinations, such as Dubai, Aleppo and  Beirut. despite a few accidents, Armavia essentially flew with a descent record.

Despite apparent successes, it soon became apparent that Armavia was being plagued by financial issues,  incompetent management, and inefficient use of resources; with more flights being cancelled, and others being delayed as a result. The company’s true financial situation began to surface when, being the first recipient of the Russian-italian made Sukhoi Superjet, it soon had to return its purchase, as well as cancel a second order for a second one.

This was followed by a drastic reduction of routes. Armavia further caused controversy, when they cancelled their flight to Aleppo, only to reinstate it with grossly inflated ticket prices, which most of the ethnic-Armenian refugees fleeing the Syrian Civil War could not afford.

A recent dispute between the failing airline and the Corporacion-America-managed Zvartnots Airport over gate fees further raised speculation of imminent bankruptcy; and, as an “ArmeniaNow” article pointed out, fully embodied the stark contrast between  a western-style properly managed corporation (such as the Airport), and a soviet-style oligarch run and operated company which relies on kick-backs and governmet favouritism to survive.

Today, Armavia flights are routinely between 2 and 3 hours late, or some times cancelled, to the great discomfort of travellers, and its future is uncertain.

What are the main problems/challenges?

Other than the obvious factors such as the endemic results of oligarch-style mismanagement, which plagues most other sectors of the Armenian economy, the most glaring problem is that Armavia simply missed its mark. the airline failed to establish its niche. it flies against tough competition in very crowded routes such as Yerevan-Moscow, Yerevan-Sochi, Yerevan-Krasnodar, and so on, which are served extensively by a number of domestic russian airlines, with out offering a competitive edge such as better service, cheaper airfare, customer loyalty points or anything. As far as most labour migrants are concerned, it is a soviet airline like all the others. The Yerevan-Dubai route, for example, is served by both Armavia and Emirates subsidiary: FlyDUBAI. The difference in Ticket-price is almost minimal (usually less than 50 euros), yet FlyDUBAI offers outstanding customer service, friendly staff, both on the phone, and on the plane, as well as online booking. Armavia offers none of that…well worth the extra 50 euros….

Second, Armavia totally fails to make proper use of its logistical hub in terms of boosting number of travellers. There is a gross miscalculation in their mission statement: Yerevan does not have to be a FINAL DESTINATION, as much as it could also serve as a transit station. Granted, Zvarnots airport (which recently won an award for the best-managed airport in Eastern-Europe by the way) DOES have higher-than-average gate fees, which, with some negotiations, could be brought down, but the point is that the aerodrome is equipped to handle almost all aircraft flying in the world today, and the facilities could handle much larger volume than it does today. This, coupled with Armenia’s suitable geographical location as a transit point between east and west would allow the company to compete in a new airline market: that of low-cost alternative.

If people could travel from Western Europe, or North America to South-East asia for several hundred dollars less than one of the major airlines, they would certainly not mind a layover in Armenia; and similarly, Hotel managers, tour companies and various other Armenian businesses wouldn’t mind the extra customer base. Seems like a win-win for all.

It wouldn’t be difficult for Armavia to pull this off. It would be as simple as following the Ryanair, or EasyJet model of avoiding large airports in favour of smaller, regional airports, where gate fees are much lower, serve better quality meals for a small fee, charge for luggage, or extra leg room and so on.

 Brand Recognition:

One of the most irritating parts about Armavia, is the fact that the first 3 letters in the name correspond to the name of the Republic of Armenia. Right now, there is no greater shame than having such an airline serving as Armenia’s national air carrier. I’m also sorry to say that hiring Gerard Depardieu, who has recently lost his marbles, and began prostituting himself to the whims of a number of post-soviet dictators (link to eurasianet.org) does nothing to help raise brand awareness.

Maybe Armavia would do well to hire a public relations firm, rebrand itself as safe, reliable and cheap alternative to Emirates of British Airways, and advertise themselves as such.

Freight development

Being based in a tiny, landlocked country which is being blockaded on two sides, it comes as a total shock that Armavia hasn’t yet developed a cargo division. the solution seems obvious: buy freight aircraft and start flying cargo in and out as a way to make extra cash.

Of course, none of these changes could be implemented until the management problem is solved. the practice of hiring and promoting based on nepotism and kick-backs needs to cease immediately, as such positions which be awarded on the basis of meritocracy. This would allow a competent management team to properly oversee company operations.

To recap: if Armavia one day decides to get its act together, it could very easily rise from the grave through a simple formula of hiring a competent management team, finding its niche, and gaining the competitive edge by rebranding itself as  a safe, reliable, low cost airlines which can connect the world. That way, Armenians will finally regain their pride in their national carrier.

This Article was also posted on hetq.am and can be accessed here

Tail from Crashed ARMAVIA aircraft

Mshak: expressing Armenian Libertarian thought since 1872

In 1872, the prominent Armenian political philosopher and economist, Grigor Artsruni, became the primary founder of the first liberal newspaper for Armenians around the world in Mshak (AImagermenian:Մշակ meaning “The Toiler”). Along with the help of co-founders Aleksandr and Levon Kalantar,Arakel Babekhanian, Hambardzum Arakelian, and Hakob Melik Hakobyan (penname “Raffi”), the newspaper soon grew to become one of the largest and most prominent voices of Armenian people in the Russian and Ottoman empires. It advocated firmly for the respect of individual freedom and for free market-oriented economic reforms in the Russian empire. In addition, it first published the works of many famous authors and intellectuals, most notably the nationalist liberal author Raffi’s famous novella,Khente (Armenian: խենթը meaning “The Fool”). In keeping with such themes, Mshak also called for the creation of a unified Armenian nation-state until it was shut down in 1921 by the Bolshevist occupation of Georgia.

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This modern publication aims to preserve the original spirit of Mshak in a contemporary context. Our goal is to contribute to the maturation of the political and economic discourse in Armenia by analyzing government policies in the country and the Transcaucasus region, and making recommendations from a classical-liberal and paleo-conservative perspective.

Mshak is a non-governmental organisation, and is not affiliated with any political party, whether it be in the Armenian National Assembly or in the Opposition.

This publication advocates the ten fundamental principles:

  • Armenians all across the world form a single nation;
  • Armenians residing within the Republic of Armenia “should be assured an undoubted security of life and an absolutely unmolested opportunity of autonomous development,” as per  President Woodrow Wilson’s Fourteen Points;
  • Society within the Republic should be structured around the respect of the unalienable natural rights of man, bound through social contract and freedom to pursue “life, liberty, and property”;
  • Respect for Rule of Law within the Republic;
  • Universal equality through the justice system of the Republic
  • Increased governmental transparency and accountability within the Republic;
  • A small, transparent, streamlined, and highly efficient government bureaucracy within the Republic;
  • A thorough and complete transition to a free market economy within the Republic;
  • An imposition of a minimal flat tax on business within the Republic;
  • The immediate creation of tax-free zones in the bordering provinces of the Republic;
  • Armenia, as an integral member of the European Continuum, should pursue a more aggressive European integration policy.