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ARMENIA SIGNS UP FOR RUSSIA'S CUSTOMS UNION
Zawya, Middle East
Jan 20 204
Armenia's decision to hastily join the Russia-sponsored Eurasian
Customs Union project is one of the most significant developments in
the country's short independent history and could have major impact
on its ties with the Western world.
The move serves to undermine the European Union, which had nearly
finalized
an agreement with Yerevan (Armenian capital). The EU initiative
is part of a larger effort to lure a number of Central Asian and
Caucasus states to join its Eastern Partnership project and move away
from Russia.
The EU is looking for greater cooperation with its eastern partners,
primarily Armenia, Azerbaijan, Belarus, Georgia, the Republic of
Moldova and Ukraine.
The EU was expected to sign off on the Armenian deal at a summit
in Vilnius, Lithuania in November, but all it did was laid bare the
weaknesses of the European strategy to attract its eastern counterparts
and their inability to prise them away from Russia's influence.
Instead, Armenia signed an agreement with Russia in late December to
join the ECU which already includes Belarus, Kazakhstan and Russia.
Kyrgyzstan has also agreed in principle to join the union but is
still negotiating on a few thorny issues.
"We have approved the roadmap that will allow Armenia to join the union
and the common economic area, and a similar document for Kyrgyzstan
is virtually ready," Russian president Vladimir Putin told the media.
EU COURTS CAUCASUS
The EU had, broadly speaking, made identical offers to Armenia and
Azerbaijan, respectively, wrote Vladimir Socor, analyst at Jamestown
Foundation. "It proposed to each of them the usual Eastern Partnership
package of an Association Agreement, a Deep and Comprehensive Free
Trade Area (DCFTA) agreement, and simplification or facilitation of
travel visa procedures."
Armenia declined the EU's offer, preferring Russia's instead; while
the Western-oriented Azerbaijan deemed the EU's offer inadequate to
the modernization agenda at this stage of Azerbaijan's development.
Meanwhile, Russia is on a tailor-made charm offensive with Armenia,
which helped it clinch the deal and pull the country into its circle
of influence. In December, Russia arranged a presidential meeting
with Armenia, launched a customs union's trilateral summit and held
another meeting on the Eurasian Economic Commission.
However, there is a catch to the Russian overture, as Moscow is keen
to develop a bilateral relationship with each member of the customs
union -- and be the first among equals in the economic bloc.
The bilateral discussions reflect Russia's privileged status among
the customs union's member states.
"It seems to presage a system of relationships within the customs
union whereby Russia would operate 'vertical' relations with each
member state, while these would not (or not to a comparable extent)
engage in 'horizontal' relations with each other," Socor said.
"Such a model would replicate that of the defunct Comecon and Warsaw
Pact, as well as that of the existing Collective Security Treaty
Organization."
RUSSIAN CREEP Russian influence over Armenia is also manifesting
itself in other areas. An estimated 2.5 million Armenian workers in
Russia remit USD 1.7 billion, or 80% of Armenia's non-commercial cash
transfers, each year.
Russia is already Armenia's largest trading partner with trade flows
of USD 1.2 billion in 2013, 22% higher than the year before. That
figure could rise much higher as Russia Inc. raises its profile in
the Armenian economy.
On January 17, Armenia sold its 20% stake in monopoly gas operator
ArmRosGazprom to Russian natural gas giant Gazprom, which already
owned the remaining 80% of the company.
In return, Russia offered a steep discount of USD 189 per one thousand
cubic meters (Europeans pays around USD 450 per one thousand cubic
meters), and will raise supply from 1.7 billion cubic meters to 2.5
bcm to the country.
Russia will also eliminate 30-35% tax on petroleum products to Armenia
as a goodwill gesture to join the customs union.
Russia's Rostam is also revamping Armenia's unsafe Metsamor Nuclear
Power Plant, while Gazprom has also upgraded the electricity grid at
the Hrazdon Power Plant at a cost of USD 300 million.
Meanwhile, state-owned Russian Railways is raising the standard of
Armenia's railroads, after securing a 30-year agreement to run the
country's rail network.
"Armenia's economic dependency on Russia (aggravated by dependency
on labor remittances from Russia) proved an insuperable obstacle to
the European Union's overtures to Armenia," said Socor.
"This dependency is a cumulative result of former president Robert
Kocharian's (1998-2008) and current president [Serzh] Sargsyan's
(since 2008) presidencies, which practically farmed out Armenia's
main economic assets to Russia. Their policies also discouraged large
Western investments in Armenia."
ECONOMIC IMPACT
The IMF believes that the Eurasian Customs Union is expected to help
lower energy prices and enable financing for major infrastructure
projects.
"It may also lead to higher tariffs on imports from outside the ECU.
Risks stem from a further slowdown in China and Russia and a tightening
of global financing conditions," the IMF said.
The country's economic performance is expected to slow to 4% this year,
compared to 7.2% in 2012.
TABLE: Armenia MacroEconomic Indicators
The authorities have launched an Armenia Development Strategy till
2025 that aims to create high-productivity jobs, business reforms,
export and revamp of public sector and infrastructure - sorely needed
as the country suffers from weak private investment and structural
unemployment.
Last year, the IMF completed a USD 404 million arrangement and said
that a possible successor 38-month program "will aim at consolidating
stability and implementing further reforms to support Armenia's
transition to a dynamic emerging market economy."
If Armenia is stuck in Russia's orbit, analysts believe it could lead
to the weakening of democratic programs and push the country further
away from Western economies.
Some analysts believe Armenia's hasty decision to rush into Russia's
arm without securing greater allowances, was driven by a fear of
retaliation by Moscow.
Armenia is in a bitter stalemate with Azerbaijan over the
Nagorno-Karabakh region and is securing Russian military supplies to
keep up pace with Baku's vastly larger resources.
Russia had also been reportedly supplying Azerbaijan with military
equipment worth USD 1 billion that would have raised concerns in
Armenia.
President Serzh Sargsyan may also have been driven by "personal
insecurity" according to a Radio Free Europe report. Sargsyan's
re-election in early 2013 was disputed by his opponents, and as he
looks to consolidate his position, he is looking to have a powerful
external ally on his side.
"The day after announcing his customs-union U-turn, he formed an ad
hoc commission on constitutional reform," said Radio Free Europe in a
report. "The Armenian media has since been rife with speculation, not
denied by presidential allies, that Sargsyan wants to turn the country
into a parliamentary republic and become a powerful prime minister
after completing his second and final presidential term, just as former
Georgian president Mikheil Saakashvili sought unsuccessfully to do."
http://www.zawya.com/story/Armenia_cozies_up_to_Russia-ZAWYA20140120054437/
Zawya, Middle East
Jan 20 204
Armenia's decision to hastily join the Russia-sponsored Eurasian
Customs Union project is one of the most significant developments in
the country's short independent history and could have major impact
on its ties with the Western world.
The move serves to undermine the European Union, which had nearly
finalized
an agreement with Yerevan (Armenian capital). The EU initiative
is part of a larger effort to lure a number of Central Asian and
Caucasus states to join its Eastern Partnership project and move away
from Russia.
The EU is looking for greater cooperation with its eastern partners,
primarily Armenia, Azerbaijan, Belarus, Georgia, the Republic of
Moldova and Ukraine.
The EU was expected to sign off on the Armenian deal at a summit
in Vilnius, Lithuania in November, but all it did was laid bare the
weaknesses of the European strategy to attract its eastern counterparts
and their inability to prise them away from Russia's influence.
Instead, Armenia signed an agreement with Russia in late December to
join the ECU which already includes Belarus, Kazakhstan and Russia.
Kyrgyzstan has also agreed in principle to join the union but is
still negotiating on a few thorny issues.
"We have approved the roadmap that will allow Armenia to join the union
and the common economic area, and a similar document for Kyrgyzstan
is virtually ready," Russian president Vladimir Putin told the media.
EU COURTS CAUCASUS
The EU had, broadly speaking, made identical offers to Armenia and
Azerbaijan, respectively, wrote Vladimir Socor, analyst at Jamestown
Foundation. "It proposed to each of them the usual Eastern Partnership
package of an Association Agreement, a Deep and Comprehensive Free
Trade Area (DCFTA) agreement, and simplification or facilitation of
travel visa procedures."
Armenia declined the EU's offer, preferring Russia's instead; while
the Western-oriented Azerbaijan deemed the EU's offer inadequate to
the modernization agenda at this stage of Azerbaijan's development.
Meanwhile, Russia is on a tailor-made charm offensive with Armenia,
which helped it clinch the deal and pull the country into its circle
of influence. In December, Russia arranged a presidential meeting
with Armenia, launched a customs union's trilateral summit and held
another meeting on the Eurasian Economic Commission.
However, there is a catch to the Russian overture, as Moscow is keen
to develop a bilateral relationship with each member of the customs
union -- and be the first among equals in the economic bloc.
The bilateral discussions reflect Russia's privileged status among
the customs union's member states.
"It seems to presage a system of relationships within the customs
union whereby Russia would operate 'vertical' relations with each
member state, while these would not (or not to a comparable extent)
engage in 'horizontal' relations with each other," Socor said.
"Such a model would replicate that of the defunct Comecon and Warsaw
Pact, as well as that of the existing Collective Security Treaty
Organization."
RUSSIAN CREEP Russian influence over Armenia is also manifesting
itself in other areas. An estimated 2.5 million Armenian workers in
Russia remit USD 1.7 billion, or 80% of Armenia's non-commercial cash
transfers, each year.
Russia is already Armenia's largest trading partner with trade flows
of USD 1.2 billion in 2013, 22% higher than the year before. That
figure could rise much higher as Russia Inc. raises its profile in
the Armenian economy.
On January 17, Armenia sold its 20% stake in monopoly gas operator
ArmRosGazprom to Russian natural gas giant Gazprom, which already
owned the remaining 80% of the company.
In return, Russia offered a steep discount of USD 189 per one thousand
cubic meters (Europeans pays around USD 450 per one thousand cubic
meters), and will raise supply from 1.7 billion cubic meters to 2.5
bcm to the country.
Russia will also eliminate 30-35% tax on petroleum products to Armenia
as a goodwill gesture to join the customs union.
Russia's Rostam is also revamping Armenia's unsafe Metsamor Nuclear
Power Plant, while Gazprom has also upgraded the electricity grid at
the Hrazdon Power Plant at a cost of USD 300 million.
Meanwhile, state-owned Russian Railways is raising the standard of
Armenia's railroads, after securing a 30-year agreement to run the
country's rail network.
"Armenia's economic dependency on Russia (aggravated by dependency
on labor remittances from Russia) proved an insuperable obstacle to
the European Union's overtures to Armenia," said Socor.
"This dependency is a cumulative result of former president Robert
Kocharian's (1998-2008) and current president [Serzh] Sargsyan's
(since 2008) presidencies, which practically farmed out Armenia's
main economic assets to Russia. Their policies also discouraged large
Western investments in Armenia."
ECONOMIC IMPACT
The IMF believes that the Eurasian Customs Union is expected to help
lower energy prices and enable financing for major infrastructure
projects.
"It may also lead to higher tariffs on imports from outside the ECU.
Risks stem from a further slowdown in China and Russia and a tightening
of global financing conditions," the IMF said.
The country's economic performance is expected to slow to 4% this year,
compared to 7.2% in 2012.
TABLE: Armenia MacroEconomic Indicators
The authorities have launched an Armenia Development Strategy till
2025 that aims to create high-productivity jobs, business reforms,
export and revamp of public sector and infrastructure - sorely needed
as the country suffers from weak private investment and structural
unemployment.
Last year, the IMF completed a USD 404 million arrangement and said
that a possible successor 38-month program "will aim at consolidating
stability and implementing further reforms to support Armenia's
transition to a dynamic emerging market economy."
If Armenia is stuck in Russia's orbit, analysts believe it could lead
to the weakening of democratic programs and push the country further
away from Western economies.
Some analysts believe Armenia's hasty decision to rush into Russia's
arm without securing greater allowances, was driven by a fear of
retaliation by Moscow.
Armenia is in a bitter stalemate with Azerbaijan over the
Nagorno-Karabakh region and is securing Russian military supplies to
keep up pace with Baku's vastly larger resources.
Russia had also been reportedly supplying Azerbaijan with military
equipment worth USD 1 billion that would have raised concerns in
Armenia.
President Serzh Sargsyan may also have been driven by "personal
insecurity" according to a Radio Free Europe report. Sargsyan's
re-election in early 2013 was disputed by his opponents, and as he
looks to consolidate his position, he is looking to have a powerful
external ally on his side.
"The day after announcing his customs-union U-turn, he formed an ad
hoc commission on constitutional reform," said Radio Free Europe in a
report. "The Armenian media has since been rife with speculation, not
denied by presidential allies, that Sargsyan wants to turn the country
into a parliamentary republic and become a powerful prime minister
after completing his second and final presidential term, just as former
Georgian president Mikheil Saakashvili sought unsuccessfully to do."
http://www.zawya.com/story/Armenia_cozies_up_to_Russia-ZAWYA20140120054437/