"We know that from time to time Russia is maintaining its presence in Gyumri. When new pieces are brought in, what happens to the old ones?" he said. "Things are coming in, and nothing is coming out."
Both Moscow and Yerevan have vehemently denied that Russia is supplying a military build-up in Armenia. Russia says it moved some troops and equipment to Gyumri after they pulled out of bases in neighbouring Georgia under an arms control pact. Some analysts suggested last year's war between Russia and Georgia, also over an unresolved ethnic and territorial dispute, might revitalise efforts to resolve Nagorno-Karabakh, but diplomats say that beyond rhetoric there is little progress. Ethnic Armenian separatists, backed by Armenia, fought a war in the 1990s to throw off Azerbaijan's control over mountainous Nagorno-Karabakh. An estimated 30,000 people were killed. No peace accord has ever been signed, and the ceasefire is frequently tested by fatal exchanges of fire across the frontline. Armenia backs Nagorno-Karabakh's demand for independence, something Azerbaijan says it can never have.
But the balance of power in the region has shifted dramatically since the end of the Soviet Union. Azerbaijan's economic and military growth, based on oil exported westwards, has rapidly outpaced that of Armenia. The mainly Muslim country, led by President Ilham Aliyev since he succeeded his father Heydar in 2003, refuses to rule out taking back Nagorno-Karabakh by force. Azerbaijan votes in a referendum next week on whether to scrap a two-term presidential limit, allowing Aliyev to run again in 2013. Azimov said Azerbaijan, by growing its economy, its military and its image as a stable partner for the West, was trying to convince Armenia of the need to compromise. But he denied Baku was looking for war, saying: "It's good to have a strong army, it's even better not to use it."
"We never said and we never say that we shall go to war with Armenia," he said. But with Armenia insisting on independence for the region, "I have to say that in all circumstances and by all means we will restore territorial integrity." Azimov said he hoped the global economic crisis would force Armenia to give up demands for independence for the region, adding: "The time has come to think realistically for them." Armenia has been hit hard by the crisis. Turkey's decision to close its border with Armenia in 1993 in solidarity with Azerbaijan has also taken its toll and shut Armenia out of lucrative energy transit deals currently enjoyed by Georgia.
Armenia’s currency was devalued by more than 20 percent March 3 as the country’s central bank suspended currency interventions to receive a loan from the International Monetary Fund. The move highlights the dire conditions of the Armenian economy as well as Yerevan’s lack of options. These conditions are quite likely to increase Russian influence in the small country in the Caucasus. Armenia’s currency, the dram, lost 22 percent of its value over the course of a single day March 3. The decline followed a decision by the Armenian central bank to halt its currency interventions in exchange for a $540 million loan from the International Monetary Fund (IMF). The devaluation has generated consumer panic, with many stores in the country closing for the day and others seeing long lines as the prices of certain products, like butter and gasoline, rose more than 30 percent during morning trading alone.
Whenever a country that has maintained a fixed currency for years decides to let its currency float, large crashes in the currency’s value are not uncommon on the first day, as long-ignored distortions are allowed to unwind. And Yerevan has not been spared by the financial crisis sweeping the globe, making the dram’s decline steeper. Armenia’s troubles are compounded by the fact that along with Belarus, it is among the last countries from the former Soviet Union to adjust from a centralized economic system. Much like Belarus, Armenia simply has not made the necessary transitions and reforms required to function as a viable, independent state.
Geographic disadvantages hobble Armenia’s economy from the outset. Armenia is a tiny, landlocked country in the Caucasus Mountains. Even if Armenia did have access to the sea, it has virtually no natural resources of value — and therefore nothing to export to the big powers in its neighborhood, like Russia and Iran. Armenia’s border with Turkey is closed, and its border with Georgia is partially closed. Yerevan also has a nasty longtime rivalry with its neighbor, the richer and more populous Azerbaijan. The two countries have fought numerous wars over the still-disputed territory of Nagorno-Karabakh. To survive, Armenia needs a great power sponsor to sustain it economically and provide military support if push comes to shove.
Russia — and before it, the Soviet Union — traditionally has filled that role. That Armenia still exists as an independent country is no small accomplishment, one attributable largely to Russian aid. Russia provides Armenia with essentials like food and energy, and has recently promised to give Yerevan a “stabilization loan” of $500 million to help it cope with the recession. But this help, of course, does not come without strings attached. Russia has more than 5,000 troops stationed in Armenia and has been discussing deploying even more as part of its Collective Security Treaty Organization rapid-reaction force. Russia uses Armenia to project power in the region and to flank pro-Western Georgia, with which Russia fought a war in August 2008.
This Russian aid has cost Armenia dearly, as Yerevan has had to sacrifice much of its independence in exchange for assistance from Moscow. Russia essentially owns all of the strategic energy, rail and telecommunications assets (among many others) in Armenia. Moscow has consolidated its influence by taking control of any piece of infrastructure that could help Armenia break away from Russia’s grip, including a natural gas pipeline connecting the country to Iran. The only other significant source contributing to Armenia’s economy also comes from abroad, in the form of remittances from Armenians working outside the country. At 800,000 strong, these workers comprise more than 25 percent of the country’s population, and their remittances account for a hefty 20 percent of Armenia’s gross domestic product. Armenia traditionally was the No. 1 recipient of aid per capita from the United States, which is home to a large Armenian diaspora and a powerful Armenian lobby in Congress (deemed by many as even more influential than the Israeli lobby there).
But Washington now provides more support to energy-rich Azerbaijan, while aid to Armenia has slowed. Remittance flows have dropped by almost 25 percent since this time in 2008, according to the IMF, and foreign direct investment — largely dependent on Russia, which is facing its own economic problems — has slowed along with it. The country is clearly seeing its already-meager sources of money dry up. This reality forced Armenia to stop its currency intervention in order to acquire more outside financing, thus causing the drastic single-day currency drop. Ultimately, Armenia at some point may have to abandon its increasingly devaluing currency. Yerevan would then need to use an alternative currency to achieve any semblance of economic stability. Due to its large-scale dependence on Moscow, this alternative currency could well turn out to be the Russian ruble. Though this outcome is hardly certain, Yerevan without a doubt is in a tight spot.
Such a step will be very useful both for the Russian economy, and for CIS countries. In a February 11 interview with the Russian news agencies, Prime Minister Tigran Sargsyan said that there is "a real chance" for such a move "if by ruble zone it is meant countries that use the ruble in their trade with Russia." The prime minister added that "if one means a union similar to the euro zone, so it is too early to speak about this." Today the situation in Armenia appears to be the following: Armenians rushed to buy bread, butter and other staples Tuesday and stores shut down in panic after the government announced it would let the national currency fall and was seeking a bailout from the IMF. Banking authorities said the national currency — the dram — could sink up to 24 percent with the decision. The devaluation was sure to hurt ordinary Armenians, with prices for imported goods expected to rise sharply, the AP reports. The Armenian Central Bank decided to limit currency interventions and return to free float policy "due to the financial and economic crisis, worsening terms of trade and slowing capital inflows," bank chairman Artur Dzhavadian told reporters Tuesday.
Armen Gevorkian, a 33-year-old engineer, was stocking up on food in downtown Yerevan, where staples typically include bread, butter, sugar, salt and vegetable oil. "I'm buying food with all the drams I have because the dollar is going to rise and then the situation will be very difficult," he said. Prices at some grocery stores shot up 20 to 30 percent on Tuesday. One of Yerevan's largest grocery chains, Star, closed all of its stores shortly after the Central Bank's announcement.