Identifier | Created | Classification | Origin |
---|---|---|---|
04YEREVAN2579 | 2004-12-01 07:45:00 | CONFIDENTIAL | Embassy Yerevan |
This record is a partial extract of the original cable. The full text of the original cable is not available. |
C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 002579 |
1. (C) Lack of transparency in recent GOAM financial actions is an increasing concern for the representatives of the IMF and World Bank in Yerevan. Because Armenia continues to record steady economic growth and will likely continue to meet criteria set by both the Fund and the Bank, these concerns will probably not have an immediate effect on their programs. The World Bank raised concerns about transparency just prior to a November 18 board meeting, but nevertheless approved a Poverty Reduction Support Credit (PRSC). The IMF -- in advance of its board meeting on December 1 -- wrote to Armenia's Prime Minister to flag its concerns about: -- The award of a second mobile contract to K-Telecom without an open tender process; -- The transfer of profits from a large copper mine to a defense oriented foundation; -- The Central Bank's failure to liquidate an insolvent commercial bank and opaque dealings with that bank's single asset, the Nairit Chemical Factory; -- The failure of the government to pass a draft anti-money laundering law without amendments easing reporting requirements on international money transfers; and -- The failure of the government to pass a law requiring the use of cash registers in order to tackle tax evasion. While the GOAM has moved forward with the two legislative requirements (perhaps prompted by the IMF's query), we share the concerns of the IFI's about the GOAM's opaque dealings. End Summary. -------------------------- DODGY TELECOM TENDER... -------------------------- 2. (C) The GOAM recently ended a prolonged dispute with its monopoly telephone service provider Armentel in a deal that gave little to consumers or the Armenian government (ref A). While Armenia did restrict Armentel's monopoly to allow a second mobile service provider, it gave the second license away in a closed, six-hour nighttime tender to Karabakh-Telecom for only USD 7 million, USD 2 million of which went not to the government budget but to a private non-profit organization that sponsors infrastructure reconstruction in Nagorno-Karabakh. As part of the deal the GOAM expanded Armentel's remaining monopoly to include Voice over Internet Protocol (VoIP), closing many existing firms and maintaining Armentel's ability to charge high rates on international phone calls. While we have been told that the GOAM had political reasons to support Karabakh-Telecom, the lack of transparency in the tender process and the fact that the GOAM paid a potentially high price to Armentel in exchange for the mobile monopoly has raised concerns among IFI's and in the press about the propriety of the deal. Several newspapers have accused the Minister of Justice, the deal's broker, of having a corrupt interest in the deal. -------------------------- ...DODGY PROFIT TRANSFERS -------------------------- 3. (C) In August 2004, the GOAM issued a decree that transferred the earnings from the profitable state-owned Zangezour Copper Molybdenum plant to a foundation that had been created two days earlier (ref B). Although the foundation's board members are unknown, it is registered at the address of another foundation controlled by Armenia's top military brass. These assets (USD 20 million per year) could be used for off-budget military spending on Karabakh as well as for the personal use of those who control the foundation. -------------------------- ...DODGY BANK DEAL -------------------------- 4. (C) The Central Bank has decided to rehabilitate rather than liquidate ArmCommunications Bank, whose main asset, the dilapidated and obsolete Nairit Chemical Plant, must be worth more than fourteen million dollars for the bank to be solvent. Central Bank board Member Vache Gabrielyan told us that one of Armenia's oligarch oil importers acquired ArmCommunications Bank from the Central Bank in order to strike a deal on the chemical plant. The Central Bank has given the bank's new owner six months to sell Nairit or the Central Bank will reassert supervision over the bank. The IMF's concern is that the Central Bank has not followed its procedures for evaluating the solvency of this bank but has been pressured to keep an insolvent bank alive to benefit a few businessmen who are the bank's depositors. COMMENT -------------------------- 5. (C) We share the concerns of the IMF and the World Bank about the transparency of the three deals outlined above. We believe that the GOAM has also paid short shrift to its international obligations: the sudden Karabakh-Telecom deal seems to violate Armenia's WTO telecommunications commitments in its General Agreement on Trade in Services (GATS) schedule. 6. (C) The Minister of Justice has requested a meeting with our USAID director to request technical assistance related to the telecommunications sector. We plan to echo the concerns of our colleagues in the IFIs about transparency and the appearance of impropriety in the recent telecommunications deals and the apparent violation of Armenia's WTO obligations. We plan to inform the Ministry that the GOAM will have to clean up its act before it can expect USG assistance in this sector. EVANS |