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Strategic Affairs Analyst



The Republic of Armenia has been faced with a rather difficult period of political tension and internal discord over the past two years. Although the most serious crisis, an open confrontation between the Armenian government and the opposition, has dissipated, it has raised several concerns over the future course of the country. While the political tension has revealed a number of deficiencies in both democracy and the rule of law, this recent period of discord has also confirmed the fundamental necessity for forging stability and fostering security in Armenia.

To date, there has been a fair amount of analysis looking at the various challenges facing Armenia from a geopolitical perspective. But the strategic challenges to Armenia today are no longer limited to the more traditional threats posed by an external aggressor or rooted in military vulnerability. The current nature of the threat is inherently internal and stems in large part from three fundamental weaknesses: an incomplete democracy, an inequitable economy, and an inconsistent rule of law. Yet all three of these deficiencies must be addressed if Armenia is to achieve its paramount needs for stability and security.

The Geopolitical Challenge

Since the traditional geopolitical challenges to Armenian security are largely anchored in its geography, there is no easy path to overcoming the inherent vulnerability of location. Armenia shares this vulnerability with its neighbors in the South Caucasus, as this region has long served as a key arena for the competing interests of the dominant regional Russian, Turkish, and Iranian powers. This historical legacy of external influence and intervention has also been compounded by the region’s position as a bridge to much larger regions, in terms of both East-West and North-South axes. But while this legacy has generally tended to keep each state in the region weak and insecure, the real source of instability and insecurity now stems more from the internal vulnerabilities of each state.

The pronounced weakness of the region has been further exacerbated by several low-intensity conflicts and the emergence of new security threats, all stemming from a serious deficit of stability and security. But the region’s instability and insecurity is actually rooted in more fundamental internal challenges, ranging from incomplete democracy and the related predominance of “strongmen over statesmen,” to economic mismanagement and widespread corruption. These factors have significantly impeded the reform efforts in each of these states in transition and have further contributed to a significant erosion of legitimacy. It is this very set of internal factors, however, which mandates a new focus in the case of Armenia, as the process of state building can never be fully attained without a corresponding process of institution building.

A Sweeping Regional Transition

Each of the three states of the South Caucasus has been engaged in a sweeping period of political change and transition since early 2003, with presidential and parliamentary elections taking place in each country. Despite new governments in both Azerbaijan and Georgia, and an Armenian government returned to power, this process of regional transition is still underway, and remains far from complete and less than secure. Moreover, despite the promise of change inherent in this election cycle, a number of shared deficiencies have fostered a mounting degree of disappointment and discord in each of the three states.

For more than a dozen years, the three states of the region—Armenia, Azerbaijan, and Georgia—have each been pursuing a difficult course of economic and political reform, systemic transition and state building, with a wide variance in success and consistency. The region also shares the struggle to overcome the legacy of constraints and challenges, both economic and political, inherited from seven decades of Soviet rule.

But it is Armenia, and its two-term president, that has emerged as the region’s “senior statesman.” This newly acquired seniority came almost by default, following the regional elections that saw the ascension of a new generation of new, post-Soviet leaders in neighboring Azerbaijan and Georgia. In the first stage of this regional transition, Armenian President Robert Kocharian was reelected in a two-round election in February and March 2003, followed by the election of a new parliament in May 2003.

The Armenian elections of 2003 were a missed opportunity for consolidating the country’s infant democracy. Plagued by electoral chicanery and at times outright intimidation, the two-round presidential contest in February and March was widely held to be neither free nor fair. Armenia’s structural imbalance was at the core of this missed opportunity, impeding a deepening of democracy and imposing an obstacle toward a truly open and fair electoral system.

Structurally, Armenia is a constitutional parliamentary democracy. In practice, however, the executive branch of government is overly dominant, marked by a president over-endowed with extensive powers of decree and appointment that are not sufficiently offset by an effective legislature or an independent judiciary. Thus, Armenia is crippled by a “disabled democracy” that suffers from two vital conditions: a lack of legitimacy and a weakened rule of law. The lack of well-founded legitimacy is conditioned by the absence of a foundation of democratic elections, thereby depriving it of garnering the consent of the governed. The weakness of the rule of law further undercuts its claims of legitimate rule and threatens “good governance,” or responsible rule, over the longer term.

Seen from a proper perspective, however, Armenia still holds an advantage over its neighbors. The transition in Azerbaijan, the second stage of this regional transition, featured an even more troubling process as power was literally delegated from father to son, confirmed only later by a dubious presidential election. And with a pattern of widespread pre- and post-election violence and coercion, the state of democracy in Azerbaijan continues to be subject to the whims of a new family dynasty founded more on genetics than on merit.

The third stage of this regional transition was the most interesting, and perhaps the most promising, as the long-time Georgian leader, President Eduard Shevardnadze, was unceremoniously forced to resign in late November 2003 by a small group of former Shevardnadze proteges led by former Justice Minister Mikhail Saakashvili. The rapid and peaceful departure of President Shevardnadze heralded a new, or even a last, opportunity for rescuing Georgia as a state. The demise of Shevardnadze was also matched by an end to the reservoir of good will and gratitude felt by the West to this former Soviet foreign minister, and revealed the shortcomings of relying too heavily on external support rather than domestic legitimacy for regime stability.

Throughout much of the Shevardnadze era, Georgia was beset by the nearly fatal affliction of a “failed” or “failing” state. Regime legitimacy had long since dissipated, central state authority and even its power had steadily atrophied since the mid-1990s. Even a last-minute injection of direct U.S. military support and economic backing did little to slow the devolution of power from the center to the regions.

Against this backdrop of collapsing state authority, the Saakashvili government has also inherited a mantle of “great expectations,” with the long suffering Georgian people now expecting great things very quickly from their “Rose Revolution.” And the very same problems that served so well as public indictments of the Shevardnadze government remain as challenges to these new leaders. These fundamental challenges, ranging from entrenched corruption to a pronounced loss of territorial control over several key areas of the country, threaten the authority and legitimacy of the Georgian state no matter who is in charge.1

A “Rose Revolution” for Armenia?

A comparative analysis of the political dynamics of regional transition offers a degree of optimism for the future of Armenian democracy, stemming from the basic difference between Armenia and Georgia. This contrast is especially important in the wake of the general expectations by some, including the Armenian opposition, that a Georgian-style “Rose Revolution” could be replicated in Armenia in order to implement a “regime change” of its own. Such an assumption is not grounded in the reality of the two countries, however.

Although both Georgia and Armenia had weathered a period of political confrontation and internal discord, the key difference was that the Georgian crisis stemmed from the vacuum of a seriously weakened state, while the Armenian crisis featured a well-entrenched, potent state. This major distinction between the Georgian and Armenian political crises also suggests a very different trajectory for each country, for two reasons.

First, there is a fundamental difference in the nature of the threat faced by each state. For the Georgian government, the true challenge lies with the devolution of state power from the center to the regions, magnified by the loss of territorial control over both Abkhazia and South Ossetia. The successful restoration of Georgian legitimacy and authority over Ajaria, therefore, is the first step in meeting this core challenge and is key to restoring Georgian statehood. The situation in neighboring Armenia, in contrast, is marked by a confrontation between a political opposition seeking to dislodge a powerful Armenian presidency. Unlike the threat to the Georgian state, the Armenian crisis is more a competition of elites and less a threat to state authority, although the reaction of the Armenian state undoubtedly questions the durability of its legitimacy.

The second key difference between the two crises lies in the nature of each regime. Despite a superficial similarity, the political situation in Armenia today is significantly distinct from that of Georgia. The Georgian transition was unique and holds no real lessons for Armenia. Regime change in Georgia resulted from a complicated combination of factors, very few of which are seen in Armenia. Most importantly, the end of the Shevardnadze regime owed as much to the weakness of the state as to the strength of civil society.2

Thus, it was the well-timed exploitation of a combination of a vacuum of power and a weakened state that resulted in the peaceful ascension of the Saakashvili government. In Armenia, however, the reverse is true. A strong and assertive state is exercising, often without restraint, its powers of control and intimidation against the country’s traditionally marginalized opposition. The real lesson from Georgia lies not in the replication of regime change for Armenia, but in the need to restore balance to the Armenian state. This can best be done by developing the institutions needed to effectively check the powers of Armenian’s dominant executive.

The Need for Institutional Development

One of the most daunting obstacles to forging stability in Armenia centers on the fragility and impotence of its institutions. Much of the focus on this need for institution-building has been limited to the political “checks and balances” role of a strong parliament and an independent judiciary. But there is an additional component to institution-building that is just as crucial: the rule of law. In order for institutions to be leveraged as building blocks for stability, they must be backed by a strengthened rule of law. And the rule of law must go beyond the political to incorporate social and economic justice in Armenia.

The Rise of the Oligarchs

The absence of such effective institutions and the resulting weak regulatory framework have allowed a pattern of flagrant abuse and excess to emerge relatively unchallenged by the authorities. This lack of institutionalization is especially evident in terms of economic regulation and enforcement, and has permitted the emergence of a new class of economic elite in Armenia. This new elite, the so-called “oligarchs,” has steadily acquired economic power at the expense of both society and state authority, depriving the state of both tax revenue and defoliating the country of national assets.

The emergence of “oligarchs” as a new elite wielding excessive power is neither a new phenomenon nor limited geographically. The challenge of containing such oligarchs has been prevalent in many countries, including 20th-century America. In the American case, the oligarchs, or “robber barons,” of early industrial capitalism included such well-known patriarchs as Carnegie, Rockefeller, and Vanderbilt.

As these oligarchs extended their informal networks of control throughout the booming American economy, they also created informal cartel-based, semi-monopolies. But the mounting outrage over such monopolistic abuses led to the creation of a most effective weapon: anti-trust legislation. Success against the oligarchs was achieved by more than just the weapon of anti-trust laws; it was the political will to use this legislative tool and the hardy rule of law to enforce it that were the keys to victory. And it took an American leader, President Theodore Roosevelt, courageous enough to confront the power of the oligarchs to restore the natural equilibrium of the U.S. economy.

In the case of the Russian and other former Soviet economies, this new class of oligarchs has tended to exploit the privatization process to gain economic power first, but with an appetite for political power that inherently threatens the course of democratization and political reform. In the Russian case, the threat is also to the regime itself. Such a perception is at the heart of the ongoing drama between Russian President Vladimir Putin and the small group of super-oligarchs. Having enjoyed years of political power in a tradeoff for their financial support of the former Russian President Boris Yeltsin, they have faced a much different fate in Putin’s pursuit of a strong Russian state. In many ways, the clash between the state and the oligarchs was inevitable. Some of the Russian oligarchs chose exile while others opted for acquiescence. Fewer still were bold or arrogant enough to cross the line and confront Putin’s political will.

And in the case of Latin America, much of the economic growth over the past century was spurred by a form of state-sponsored capitalism, with local oligarchs in alliance with the military and the state bureaucracy exercising inordinate control over key sectors and industries of the economy. This system led to policies of distorted trade, with high tariffs and arbitrary regulations that only exacerbated widening divides of economic inequality and social disparity. This further impeded Latin America’s overall political development in favor of authoritarian regimes only interrupted by an occasional military intervention. This Latin American pattern was finally broken by the one country in the region that was able to replace the oligarchic economic structure with free markets. As this country, Chile, was the first to end the economic domination of the oligarchs, it also became the first to achieve lasting stability and a prosperous economy in the region.

The key to defeating the power of the oligarchs is to attack their main vulnerability: the source of their money. This is related to the broader campaign against corruption, with the rule of law again playing a crucial role, and involves tackling the economic monopolies and cartels that fuel and finance the oligarchs. Generally, such cartels and monopolies flourish within “closed” economies, averting the transparency and competition that dominate the more open marketplace. These cartels and monopolies also become entrenched by bargaining with elements of the state.

In Armenia, given the small size of the national economy, transparency and competition are rather easy to avoid. And despite the most well-intended anti-trust legislation and bodies empowered to limit or break up monopolies, without the rule of law, and political will, very little can reasonably be expected. In larger economies, such as in the East Asian region, this “cronyism” has resulted in state policies aimed at restricting foreign and domestic competition in return for providing an avenue for lucrative shares to the state elite.

In both cases, however, there is a high “transaction cost” to such arrangements. It fosters and promotes widespread corruption, even to the point of actually weakening the state by depriving it of much needed tax revenue. It also limits economic growth in the short run, and constrains competition in the long run, which in turn leads to higher prices and slower innovation. Thus, the cumulative effects are devastating on the national economy overall and on society in particular. And for Armenia, with its small, infant economy and continued engagement in a difficult transition, such a situation only threatens further to destabilize and isolate the country.

“Energy Oligarchs” and “Trust-Fund States”

A second problem associated with the rise of a powerful oligarchic elite is seen in economies endowed with natural resources. Ironically, natural resource wealth has tended significantly to hinder political modernization and economic development in far-reaching ways.

Although the reality of Armenia’s energy insecurity negates this danger, neighboring Azerbaijan is afflicted by an over-reliance on energy, distorting economic development and growth and exacerbating the polarization between a small wealthy elite and an impoverished majority marginalized from Azerbaijani society. This was confirmed in a groundbreaking study by two leading economists who examined a set of 97 developing countries over a two-decade period and demonstrated that endowments of natural resources were strongly linked with patterns of fundamental economic failure and distorted development.3

Although followed by an extensive number of related studies, this 1995 study was one of the first to show that, on average, the more states are endowed with abundant wealth in natural resources (in terms of minerals and precious metals, energy, or even agricultural commodities), the slower the rate of their economic growth. The study further noted that states with little or no such resources enjoyed the highest rates of economic growth. And for states with moderate amounts of resources, economic growth rates stood at levels between the two.

The study went on to trace the correlation between resource wealth and slow economic growth, contending that such “unearned riches” hinder the development of political institutions and weaken the rule of law. Such resource-rich states, in the words of Fareed Zakaria in his book The Future of Freedom, merit the designation of ”trust-fund” states, relying on the attractively easy revenue derived from energy or other resources rather than facing the challenging task of forging institutions and economic structures capable of garnering national wealth of their own.4 Examples of such “trust-fund states” abound among the oil producing nations, but also include a geographically diverse number of countries, including Saudi Arabia, Nigeria, Venezuela and, of course, Azerbaijan.

Forging Stability in Armenia

A. The Importance of Culture

There is another interesting element in the construction of a stable state. The relevance of culture is an often underestimated element in the course of state-building. As Fareed Zakaria notes in The Future of Freedom, culture “represents the historical experience of a people, is embedded in their institutions and shapes their attitudes and expectations about the world.”5 He also finds that culture is dynamic and subject to sweeping change, citing the dramatic twenty-year shift in German culture from the “hyper-nationalism” of 1939 to a modern, post-nationalist phase in 1959. The ability of culture to exert deep influence over the course of nation-building is generally well established. But culture’s potential for dynamic change is just as important, as it holds the power to sway entrenched policies and move nations to war or peace, to revolution or reform.

Culture may also exert an impressive staying power, and can serve as both incentive and impediment to change in society. For the future of Armenia, it is this aspect of culture that must be recognized. Despite the varied characteristics of national pride and cultural wealth, the long, violent history of the Armenians, and that of the entire Caucasus region for that matter, has seen cycles of brutality, deportation, massacre, and even genocide. Well before the Western use of the term “ethnic cleansing,” and even prior to the introduction of the Russian term “pogrom,” culture in the Caucasus was deeply ingrained with a historical narrative of suffering and conflict. It is this recognition of an integral historical narrative that must be accepted in order to define Armenia’s relations with its neighbors.

B. ”Culture of Conflict”

But what is needed for the Caucasus, and for many other scarred regions, is the harnessing of the positive power of culture, while simultaneously maintaining a vigilant check on the cultural excesses of ethnic nationalism. In this case, the aftermath of ethnic-based violence and a revenge-driven cycle of intransigence fed by unresolved conflict has contributed to a “culture of conflict.” The danger, for all sides, is to become too deeply engulfed by this culture of conflict and miss, or refuse, opportunities for advancing beyond territory-based perceptions of security.

A related element of this “culture of conflict” is the reliance on extreme nationalism as an avenue to power. The nationalist mantle is also used to obscure the internal deficiencies and shortcomings within the country and to redirect critical attention to the outside. Yet given the scale of globalization and the relatively marginal role of the Caucasus, the priority is to stabilize and secure the nation from within.

For example, in looking at the case of East Asia, and its explosive period of post-war economic growth, culture has also marked the emergence of the dynamic “Asian Tigers.” While the role of Asian cultural traditions, such as Confucianism, served as a noteworthy foundation for such rapid regional growth, the more important step was “the gradual process of institutionalization,” with the development of political institutions and an autonomous legal system culminating in “a higher level of stability and security of property rights (due to increasing constraints placed on rulers by the power of the market forces and new political norms).”6

Although the expansion of institutions in the post-war Asian states was unable to prevent the later rise of “crony capitalism” seen in Indonesia and South Korea, it was enough to construct the foundation for stability and economic growth. From a broader perspective, however, even the nepotism and oligarchic nature of the Asian economies did not necessarily prevent their progress toward fuller democracy and more open markets. The lesson, therefore, is one of degree: institutions are the key, but must be resilient enough, and powerful enough, to combat political corruption and economic cronyism.

C. The Need for a Middle Class

The foundation for both political stability and an open economy rests on the “middle class” of a society. The middle class is more than the traditional bourgeoisie, however. It is marked by three characteristics: entrepreneurship in economic and commercial activity, activism and participation in politics, and unimpeded mobility in both. But at its core, the most important facet of the middle class is its independence and autonomy from the state.

The development of a middle class is dependent on two important factors, one short-term and another long-term. The first prerequisite for the emergence of a vibrant middle class is one of access and opportunity. The structure of the society as a whole, and its economic and political systems in particular, must not be closed or divided between a small, wealthy, and powerful elite and a much larger, impoverished, and marginalized majority. This precondition is an immediate one, required for a budding middle class to emerge. But this also is a short-term need because once a middle class is allowed to take hold it tends to prosper quickly and become far too entrenched to surrender its position in society.

Once in place, a middle class generally represents the interests of society as a whole, instead of any small ruling elite. It is this advocacy role that buttresses political and economic reform and counters economic oligarchs and political demagogues alike. There also is a “trickle-down” effect, with the middle class both serving and strengthening a civil society, free press, and eventually a responsible political opposition. For Armenia these needs are more than obvious and more than immediate.

The development of middle-class societies in the West has traditionally turned on three elements: employment, with rising wages; education, with expanding access on all levels; and property, through the ownership of homes, businesses, and other properties.7 Each of these three areas reveals the traditional features of a middle class and indicates the state of the middle class. But all are conditional on access to credit, which in turn is dependent on the formation and regulation of a modern banking sector. More specifically, the ability to secure and utilize reasonably priced, long-term credit is essential to home ownership through mortgages, to small business “start-ups” by providing business loans, and for post-secondary education through “student loans.”

Thus, the development of capital markets in Armenia is essential for access to credit. Given the obvious linkage between such access to capital and credit and overall stability, economic growth, and even poverty reduction, the modernization and expansion of capital markets must be a priority for the government.

For Armenia, what is needed is a new focus on middle class-oriented development, with policies to promote access to capital and credit. Such policies have already proven successful in a number of countries like Brazil, Mexico, and several Asian states. One of the most successful of these policies is “micro-lending,” an innovative development designed to give ordinary people access to credit to start a small business. This has contributed both to promoting economic growth and to reducing poverty, as well as helping to expand an emerging middle class. Another promising policy is a “mini-lending” program, a loan program somewhat larger than individual-based “micro-lending” and designed to serve families and communities. Such mini-lending programs offer targeted assistance for community-based business ventures and family-run small businesses. This too holds significant promise for national and regional economic development in Armenia and throughout the South Caucasus.

Fostering Security in Armenia

The Mortgaging of Armenian National Security

The main priority in fostering security for Armenia involves the strategic relationship between Armenia and Russia, a structured marriage that has expanded greatly in recent years. But it also is a relationship that has been faced with little question and even less challenge. Accepted as a security provider, Russia continues to be welcomed as Armenia’s sole guarantor of security. But in terms of security, one must ask whether in looking back at the last dozen years of “independence,” is the Armenian-Russian relationship truly as beneficial as commonly accepted?

As previously argued, the most serious threat to Armenian national security comes not from Azerbaijan or Turkey, but from within. It is posed by the internal threat of corruption and all of its derivatives, from the rise of the powerful oligarchs to a “rule of law” that has degenerated into a “law of the rulers.” But there is another aspect of internal vulnerability that has distorted the evolution of Armenian statehood. It is the current administration’s over-reliance on Russia that has allowed the Russian acquisition of strategic enterprises, with the cumulative effect of a steady mortgaging of Armenian national security with little in return.8

The latest examples of this trend are seen in the recent “assets-for-debt” agreements of 2002 and 2003, a series of questionable deals granting Russia control over key enterprises and consolidating its dominance over the country’s vulnerable economy. Russia has been able to secure, with the assent of an overly compliant Armenian government, control or outright ownership of much of the country’s energy network, including its hydroelectric plants and its sole nuclear power plant.

Complicit in this danger is a blind acceptance that Armenia has no choice. This premise is also short-sighted and mistaken. While many see Armenia as safe only when anchored ever firmly within the Russian orbit, the implications of such a course for Armenian national security appear to be little considered, and certainly little debated, beyond the small circle of Armenia’s ruling elite. It is time for Armenia to look within and to question all assumptions in order to attain true stability and security.


  1. For more on the Georgian case, see Richard Giragosian, “Georgia's Great Expectations,” RFE/RL Newsline, 6 January 2004, and “Opposition Inherits a Collapsing Georgian State,” RFE/RL Newsline, 3 December 2003.
  2. See Richard Giragosian, “Armenia, Georgia Battle Dissimilar Crises,” RFE/RL Newsline, 14 April 2004.
  3. Jeffrey Sachs and Andrew Warner, “Natural Resource Abundance and Economic Growth,” National Bureau of Economic Research (NBER) Working Paper No. W5398 (Cambridge, MA: NBER, December 1995);
  4. Fareed Zakaria, The Future of Freedom: Illiberal Democracy at Home and Abroad (New York: W.W. Norton, 2003), p. 75.
  5. Ibid. p. 54.
  6. Minxin Pei, “Constructing the Political Foundations for Rapid Economic Growth,” in Henry Rowen, ed., Behind East Asia’s Growth: The Political and Social Foundations of an Economic Miracle (London: Routledge, 1997), pp. 39-59.
  7. Nancy Birdsall, “Building a Market-Friendly Middle Class,” speech to the Annual World Bank Conference on Development Economics, 18 April 2000.
  8. For a more thorough analysis of this trend, see Richard Giragosian, “Armenian-Russian Relations: ‘Strategic Partnership’ or Too Close for Comfort?,” RFE/RL Newsline, 31 July 2002.
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