PROSPECTS OF ARMENIA IN THE LIGHT OF “ZONAL” ASPECT OF WORLD FINANCIAL CRISIS

07.05.2009

PROSPECTS OF ARMENIA IN THE LIGHT OF “ZONAL” ASPECT OF WORLD FINANCIAL CRISIS

Mikhail Aghajanyan

World financial crisis brings its colouring to the ongoing developments in the international relations. The recent debates round the supply and the transition of energy resources incrust with the financial-borrowed elements and fluently takes the form of credit and energetic interdependences.

The states, which used to enjoy the benefits from the additional stream of receipts in the period when the prices on energy resources were high, on current stage, aspire to redirect to their profit those resources to the zones of their actual and potential influence, forming up more complex and profound shape.

Whatever it is said from the high international tribune about the destructiveness of the state’s zones of influence, all those conversations, of course, are burdened with the weight of double or even triple standards. Generally speaking the establishment of the zones of influence cannot be separated from the current specificity of international relations and it is important to estimate not the very establishment of those zones, but the efficiency and the reciprocity of the processes in the areal of their activity. Does not, for example, the European Union have its zone of influence? Of course it has, but the processes, which are formed within that zone, are of constructive character and are based on the healthy and transparent principals of political association and economic integration of European space.

Russia creates its own area of influence and makes it not only in several directions of “zonal influence”, but it combines in such a spatial influence several resources. At current moment the mentioned combination manifests in the symbiosis of energy and credit and financial elements. Russia tends to expand its presence in the places where it is traditionally and significantly represented and tries to make that presence stable through offering the tightest resource on international arena under the financial crisis, i.e. money.

Russia’s (which has been receiving dividends from the boom on the energy market in recent years) argumentation and the policy, which are built on its basis, are rather simple: there is an overstock of energy resources and the deficit of financial resources. Thus, those who need that financial resource have to be geared to the interests of Russia or, at least, respect its interests.

At the same time, the previous years show that Russia has not learnt to spend effectively its excess financial resources yet. From this point of view we find that the observations of famous Russian economist A.Aganbekyan are rather significant.

“It is unacceptable to face the crisis with huge debts to foreigners. At current moment the debt of the banks, companies and organizations to the foreign investors is more than $500 billion, and more than a half of that debt belonged to “Gazprom”, “Rosneft” and other state structures. The most interesting is that we had $600 billion foreign-currency and gold reserves, which were on the shelf. Placing securities we received 3% per annum, while our banks took credits at 7-8%. Would not it be better if we gave them those reserve money at 6-7%?

We have not diversified economy. We were on the “oil and gas needle” and had benefits while the prices were rising. We had developed and shown off for 10 years. Since 2000 we had received $2 trillion only from export. For such money one could have built a new country. But we neither established new petro-chemistry nor contemporary timber processing, where we had the best conditions in the world, we did not develop electric machine industry, which could have become our big sector; in house building and infrastructure construction we did not reach the level of 1989, and, at last, we did not renew the technical basis, out-of-date capacities in the most of the sectors and now we have the equipment with the average life of about 18 years, instead of 7-8 years, which is normal. I do not speak about the development of innovative sectors, which we have started in the recent 2-3 years and not 10 years ago as it had to be done.

In 2008 the capital outflow from Russia was $129.9 billion, in January and February 2009 it exceeded $33 billion”¹.

Credit and economic zonal influence managed to approve it in such different directions of foreign policy course of Russia as Central Asia, Eastern Europe and South Caucuses. It is interesting that Russia, as usual, set about real approbation of new methods firstly on the post-Soviet territory, at the points of its incontestable geopolitical influence. Very appropriate political terminology, which corresponded with the current realities, was chosen – stabilizing crediting.

Let us remind that the Russian proposal about the stabilizing credit extension for the struggle with the financial crisis among the first was turned to Iceland, which was on the edge of economic default in the autumn of 2008. Russia offered to Iceland, which is NATO member country (initial, by the way) with the population of 320 thousand people $4 billion to get over the “financial spin”. At that time its Scandinavian congeners represented by Sweden and Denmark offered their help to Iceland (it is interesting, that Norway “modestly stand aside”, though, amid the aforementioned countries, it has incomparably bigger foreign-currency and gold reserve, taking into the account its oil producer position on global scale).

As authoritative and at the same time exclusive European periodical “Russian Intelligence” says Russia’s offer to Iceland caused vigilance among the Americans, who decided that Russia wanted to strengthen its stance in the Arctic line of its far too ambitious foreign policy course in that direction².

Later, Russia realistically sized its possibilities and winded up the process of stabilizing credit extension to Iceland. It became clear that Belarus and Kirgizia were much closer and, besides, the domestic economic problems emerged in a crisis shape.

In Central Asia Russia made financial offer to Kirgizia ($2 billion), which it could not merely refuse but it could not simply afford to refuse. The result is that the issue of the US military basing on the territory of Kirgizia is in limbo (“Manas” base) and the new president administration is now perplexed searching new transit routs to Kabul³.

In the zone, which is “a bit eastern East Europe” Russia directed its eyes to Belarus. The eyes were directed in time and, as it is said, for their edification, so that their Belarus partners did not get stuck on the political signals from Europe in the form of “invitation cards” (though conditioned anyway), to the programme “Eastern partnership”⁴.

The stabilizing credits to Belarus were overgrown with Russian conditions, which were stated by the minister of finance of Russia A.Kudrin on March 20, 2009 in Minsk and referred not only to Belarus but also to all the partners in the CIS. Russia should present the consolidated stance of the CIS on the elaboration of new global finance architecture on G-20 summit in London.

This statement was made on the backdrop of the emphasis of the credit extension to Belarus by Russia, which has been going on since 2007. Since the end of 2007 the credit resources, granted by Russia to Belarus have constituted $3 billion, including $1.5 billion in two tranches in the end of 1008 and March of 2009.

The formation of the so called anti-crisis fund of the Eurasian Economic Community (EurAsEC), which constitutes $10 billion, is also presented by Russia as its contribution to the common financial stabilization on post-Soviet territory (the share of Russia is $7.5 billion).

In South Caucasus the addressee of the stabilizing credits was Armenia, which obtained modest credit (as compared to the aforementioned Russian “generous gifts”) in the amount of $500 million.

Credit and economic influence of Russia in the light of stabilizing credit extension in general is marked with the efforts to re-direct the planned energy flows on the track, which is profitable for Russia. The common stance of the CIS on international forums is more valuable for Russia from energetic than from financial point of view. What is more important for Russia? Is it the common stance of CIS, for example, on such definite projects like “Nabucco”, “Nord Stream” and “South Stream”, or is it the common stance on very abstract speculations about the construction of new financial architecture of the world? The answer is obvious.

Taking into consideration that fact, the biggest Eurasian power turned eyes towards some East European countries, which have traditional discord between their national and cultural inclinations and political aspirations. Bulgaria always wished to be close to Russia, but at the same time tended to enter Euro-Atlantic structures. Today that country preserved close national and cultural, trade and economic ties with Russia, but at the same time it is NATO and EU member⁵.

Such a promising “bridgehead” for the projection of its influence zone cannot but interest Russia. Before turning to the concrete presentation of Russia’s credit and economic projection to Bulgaria, let us mention that this country is, probably, the most sincere well-wisher of Armenia among the East European countries and it has much in common with Armenia. Among this the national sufferings from Turkish factor in the region, the undeserved treatment as to a “junior” partner on behalf of the historical ally, the great support in Euro-Atlantic lobbies and many other factors can be mentioned.

On March 22, 2009, the minister of economy and energy of Bulgaria P.Dimitrov, who conducted negotiations on March 20 in Moscow, stated that Bulgaria had started to discuss with Russia the issue of using Russian $3.8 billion loan for the construction of “Belene” nuclear power plant (in January 2008 Bulgarian party concluded a contract with Russian company “Atomstroyexport” on the construction of two ВВЭР (Pressurized water reactor)-1000 power blocks for “Belene” nuclear power plant).

Up to that moment Bulgaria avoided turning to Russian means to finance the “Belene” nuclear power plant project, considering it as an utmost possibility. Before that all the hopes, regarding external financing sources, Bulgaria pinned on Germany, represented by «Rheinisch-Westfдlisches Elektrizitдtswerk» (RWE) , which is one of the biggest energy corporations of that country. P.Dimitrov stated that the issue would be clarified after the Bulgarian prime-minister S.Stanishev’s visit to Moscow. It will take place after the energy forum, planned on April 25-25, 2009 in Bulgaria. In the light of the current disturbances round the reliability of the Russian gas supply to Europe, the special attention should be paid on the fact that after his visit to Moscow P.Dimitrov offered the “Blue Stream” gas pipeline, which is laid on the bottom of the Black Sea from Russia into Turkey, as the alternative route for the supply of gas to Bulgaria by “Gazprom”. According to P.Dimitrov Moscow realizes that the easiest way to Europe lies through Bulgaria, and the latest would never refuse from “the important role of mediator between two super giants in Europe and Asia, between European Union and Russia” ⁶.

Thus, receiving preliminary assurances from Russia, which regarded very important for Bulgaria energetic project on “Belene” nuclear power plant construction, Bulgaria gave preliminary consent to reformat gas flows from Russia to Europe and offered its territory for transition instead of Ukraine. One point is not clear yet. How will this group with the intentions of Russia concerning “South Stream” gas project (at current stage the Bulgarian Black Sea port Varna is considered as the key point in that project). To all appearances, Russia uses one reserve from its arsenal of argumentations towards the rejection of the Europeans to implement “Nabucco” project. The supply rate to Europe, which cannot be provided by “South Stream”, will be compensated by the branch line of the “Blue Stream”, which is rather reliable option for the Europeans, i.e. it is far from Russia-Ukraine border.

By the way, taking into consideration the fact that we touched upon the “Blue Stream”, the Russian-Turkish recent activity in the crediting and energy sphere should be mentioned. Several days before the visit of P.Dimitrov to Moscow, the minister of energy of Russia S.Shmatko had been in Turkey and met there with his Turkish colleague H.Guler. There are some reasons to consider those crossing visits in interrelated context. Russia has two nuclear projects, i.e. the construction of nuclear power plants, both in Bulgaria and in Turkey. Russia pins its hopes on domestic energy market penetration both in Bulgaria and in Turkey, and this may create in perspective the preconditions for reformatting the energy flows from Eurasia to Europe. Both Bulgaria and Turkey suffer tight financial recourses at current stage, and this may bring to the acceptance of the corresponding Russian suggestions.

What prospects are opened before Armenia in the light of the aforementioned new forms of the geopolitical influence of Russia on post-Soviet and East European territory?

It is important to view all these subjects, which affect our interests in the region and outside, from pragmatic point of view. Under the conditions of global financial difficulties the best way to resist and also to get out even stronger from that financial-economic “spin” is to view everything from pragmatic point of view. If Armenia needs extra-financial resources and Russia volunteered to provide them, then there is nothing reprehensible in it. Especially as international structures expressed readiness to provide even more financial means ($540 million). It is obvious that complimentarity in foreign policy of the RA, which could be carried out by Armenia during the whole period of its independency to one extent or another, is the pragmatic background, which embodied in the diversification of the financial means of the stabilization of the economy amid the world financial crisis. Armenia came to the beginning of that crisis with the experience of such a complementary policy and many of its partners on post-Soviet territory do not have such an experience.

Besides, amid the world financial crisis the stance of the country with large and influential Diaspora abroad, which, at the same time, is on a rather high level of passionarity from the point of view of private enterprise, seems to be incomparably advantageous. The flow of the transfers to Armenia from the Diaspora released, but it is still playing the role of a significant resource of financial feeding of the country. Moreover, one may say, that against the backdrop of global financial crisis that flow can change its consuming form, it had had for recent years, into the accumulative-stabilizing form or, may be, even into investment potential. In other words people will spend less and will plan their possibilities for the future.

Among other post-Soviet republics Armenia has its own “zone” particularly of financial and credit influence represented by the Nagorno-Karabakh republic, which exist de-facto. The common financial and credit system, common currency and other attributes of common economic space allow speaking about rather wide Armenian financial and credit areal in South Caucasus, and Diaspora is one of its external supports. In the contemporary Armenian context the zone of financial and credit influence is transformed into the common Armenian market in South Caucasus, where, just like within the common economic space of the European Union, the free movement of four main elements of integration takes place, i.e. the free movement of goods, services, labour force and capitals.

It is safe to say that Armenia and the NKR implemented many of what was planned by the European Union in the line of South Caucasus within, for example, the “Eastern Partnership” programme. It is necessary to keep trying reasonably to convince the EU in the necessity of including the NKR in multilateral thematic platforms of “Eastern Partnership”⁷, so that there are no “grey zones” of partnership left on South Caucasus⁸.

As lean peace is better than a fat victory, thus any influence zone is more preferable than “grey zone”, especially amid the financial crisis.

¹Abel Aganbekyan. For such money one could have built a new country // Новая газета, № 30, 25.03.2009.

²Iceland: Is Alexey Kudrin Going to the Rescue of Russian Oligarchs? // Russia Intelligence. Politics and Business inside Russia, November 2008, № 86-87.

³The experts of one of the most well-known analytical centres in the US, Center for Strategic and International Studies, CSIS, in one of their recent reports characterized the actions of Russia in the line of “Manas” base closure in Kirgizia as the manifestation of “revanchist instinct for the retention of intent political control over its “near abroad”. (Samuel Charap, Andrew C. Kuchins, Economic Wishplash in Russia, February 2009, p. 3).

⁴The assistance of the European Union to the countries in Central and East Europe exceed Russian stabilizing credits by the volume of appropriate resources. Thus, European Commission has already extended to Hungary and Latvia 6.5 and 3.1 euro correspondingly (Katinka Barysch, New Europe and the Economic Crisis, Centre for European Reform, London, February 2009, p. 5)..

⁵As in this respect some Russian authors mention, Russia, Bulgaria and Greece traditionally belong to a common orthodox civilization but the civilizational unity influence narrowly their foreign policy (И. Окунев, Центростремительные и цетробежные силы на политической карте мира // «Космополис» magazine, 2008, № 1(20), p. 176)

⁶България преговаря за руски заем за АЕЦ «Белене», www.mediapool.bg/show/?storyid=150429, 22.03.2009.

⁷Democracy, good governance and stability; Economic integration and the rapprochement to the political courses of the European Union; Energy security; Contacts between people.

⁸According to the “Eastern partnership” programme the conclusion of the association agreements between participant countries of that European initiative is provided for. Those association agreements will be directed to the formation of the profound and universal free trade zone with each of the partner countries. In the Programme it is underlined that association agreements will create real conditions, which will promote to the movement of goods, capital and services (particularly due to the mutual recognition of normative bases and institutional structures in separate spheres, better conditions for promotion of companies and empowerment of the persons, who are transient on the territory of one of the parties, in order to carry out business activities), which are planned to be reached in the longer term.

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