Passive diplomacy sometimes works. Whatever unilateral or bilateral efforts one makes, external events can suddenly play in your favour or against it. Armenia may currently be in such a situation, and it has nothing to do with Obama becoming president, which may well turn out to be the disappointment of the century (and not just for the Armenian Cause).
Once again, the past few days have seen a flurry of "helpful" conversations, which we have seen regularly, both bilaterally and multilaterally, since the original ceasefire of the Karabagh war in 1994. The foreign ministers of Armenia and Turkey met in early February (2009), to discuss bilateral matters, and this week, Armenia's president Serge Sargsyan is taking part in the Munich Security Conference. Nothing seemingly very original in all this, so what is really new?
THE END OF THE TURKISH-ISRAELI COMPACT?
One of the most negative factors affecting the Armenian cause in recent years has been the unholy strategic alliance between Turkey and Israel, which included de facto (and probably de jure) active cooperation in Genocide denial. This situation not only concerned activities by the two countries, but the active help of a vast network of Zionist organizations throughout the world, and particularly in the USA.
The dirtiest of campaigns were used in pursuing this aim, though not always with total impunity. The tribulations of the Jewish Anti Defamation League in the USA have been well documented, as have planted anti Armenian articles in various publications. Total inventions were taken out of a hat, such as the massacre of "300 Jewish inhabitants" of a Turkish village by "Armenian militia" sometime between 1910 and 1922. You can imagine that if such an event had really taken place, we would have heard about it at nauseam every year since, with commemorations, articles, broadcasts and ceremonies in the presence of non-Jewish politicians in many countries. These are the same media and politicians who deny the Armenian Genocide. Another thing I picked out was attempts to depict French-Armenian politician Patrick Devedjian, now a minister in President Sarkozy's cabinet, as a former Nazi sympathizer.
Even after the arrival to power in Turkey of a (supposedly) "light" Islamic government, it took some time for relations with Israel to deteriorate. The increasingly unpopular invasion of Iraq played a major role in the distancing, but things reached their paroxysm recently with the cruel Israeli operation against Gaza. In one of the most undiplomatic languages of recent years, senior Turkish officials called Israel by all sorts of names, walked out on their president in Davos, etc..One has to be cynical in terms of Turks accusing others to be "baby killers" (the classical case of the pot calling the kettle black), but if it helps our own cause, let them go ahead and fight each other..
With the rise in Islamism in Turkey, and the shift in public opinion, no Turkish government is going to risk its own future by continued flirting with an unpopular partner. The Israeli reaction was understandably angry, and through some Zionist organizations in the USA, hints were made that they would now promote US recognition of the Armenian Genocide in order to "punish" Turkey.
Before getting too excited about this situation, a word of caution. The Israeli attitude to the Armenian Genocide, ranging from ambiguity to hostility, predates the initial rapprochement with Turkey. Over several decades, their politicians have tried whenever possible to lower the profile of the Armenians' suffering, lest it takes away the sympathy factor from their own Holocaust. From German reparations to favourable international diplomatic attitudes (admittedly becoming harder and harder to justify), Israel has transformed the Holocaust into a "rente de situation", for which they do not welcome competitors. Whereas politicians, Church figures, writers and journalists get sanctioned if they utter the slightest doubt about the Holocaust, the same people happily walk the streets calling for "balanced reporting" on the Armenian "massacres" or "events", without the pieces of silver in their pockets apparently burning a big hole in their conscience.
A POORER AZERBAIJAN
Visitors as well as analysts, trying to make the best out of often poor and unreliable statistics, constantly reported that despite its massive energy wealth, and the existence of luxury skyscrapers and stores in its capital, Baku, Azerbaijan appeared to be much poorer than its neighbours Armenia and Georgia.
The reason for that situation is of course corruption. Though the latter is not absent in the two other countries, in the case of Azerbaijan, it is a concentrated family business in the hands of the Aliyevs. First the father, Heydar, and since 2003, the son, Ilham, have ruled with the help of a loyal bunch of courtiers whose support they have bought through monetary patronage, whilst the majority of the people were left to rot.
If that was the situation with an oil price at U$ 140 per barrel, one can imagine that it does not get better at U$ 40. Not only will there be less to steal and distribute to friends, but it will hopefully also rule out any military adventurism. There might be more domestic unrest, not least with the large number of refugees from the portion of territory of Azerbaijan proper still held by Armenia. Foreign countries, particularly the USA and Britain, so eager to back diplomatically the countries where their energy companies operated in a situation of scarce and increasingly expensive energy supplies, might now be less enthusiastic to do so.
The pessimists could argue that such a combination is the very example of a situation encouraging military adventurism, in order to "unite" the country. Though it cannot be entirely ruled out, it is very unlikely as one cannot imagine big brothers Turkey and Russia allowing it to happen.
CONCRETE SIGNS OF RUSSIAN SUPPORT
In an earlier paper on the South Ossetia conflict, I did emphasize that it underlined Russian readiness to take action whenever it saw its own interests or those of its allies being threatened. Not only are there signs that Russia's military presence in Armenia would be further strengthened, but it was not least thanks to Russian pressure that an attempt to ban Armenia's voting capacity at a recent council of Europe meeting was overturned.
The situation arose as a result of criticism of Armenian authorities in their handling of the post-election protests in 2008.
Armenia has to accept a motus vivendi with its other neighbour Georgia, despite the latter's blatant effort to harass the majority Armenian population of its Javakh region. Much of Armenia's trade goes through Georgian ports, and since November 2008, there is even a defence agreement between the two countries, under which Russian-made Armenian tanks can be serviced in Georgian workshops, and military equipment destined for Armenian forces can transit unhindered through Georgian territory. This has become a topical issue, as OSCE sources, prompted by Azerbaijan, have accused Russia of supplying U$ 800 million of new weaponry to Armenia, though Moscow has refused to confirm the news. The matter is due to be discussed as the next OSCE meeting in Vienna in the second half of February. If correct, it is interpreted by regional specialists as a logical attempt to prevent an armed conflict by maintaining the military balance between Armenia and Azerbaijan, by helping the weakest of the two (Armenia), which does not have the same fiscal resources as its hydrocarbon-rich neighbour.
THE HOME FRONT
Though this paper's purpose was not that of economic analysis, it has to be said that Armenia will not be immune to the world crisis. Despite the rock-bottom solidity of its currency vs. the US$, a number of negative international factors are bound to affect the country's economy.
The external sector is bound to suffer most, with a multiplier effect on unemployment and tax revenue. Cut diamonds and an increasing contribution in mining exports, are bound to be hit by, respectively, lower international demand for luxury goods and the fall in metal prices. Incoming tourism is to be hit by the general drop in international travel, combined with the above average cost of air fares to Armenia and the continued strength of the DRAM. Remittances, both from Diaspora organisations and individuals, and emigrant workers from Russia to Spain and from the USA to Argentina will be another victim, further exacerbated by the likely return home of short-term and/or illegal emigrants, which may only lengthen unemployment queues in Armenia itself.
The banking system appears prima facie to be little exposed to systemic risk, though the Russian (and in one case, Argentine) parentage of leading institutions is to keep in mind. The sector ended 2008 with equity of US$ 777 millions and net earnings 27 % up at US$ 91.6 million. An end-January agreement with the World Bank, covering the period 2009-12, increases by two and a half times the amount of credits for on-lending granted by the multilateral institution, to a 4-year total of US$ 525 millions.
External reserves stood at around US$ 1.4 bn at the end of January 2009, down from US$ 1.66 bn at the close of 2007, marking a 15.6 % fall in 13 months.