RUSSIAN AMBASSADOR SPEAKS ON RUSSIAN INVESTMENT IN

UNCLAS YEREVAN 000637

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN PREL AM RU
SUBJECT: RUSSIAN AMBASSADOR SPEAKS ON RUSSIAN INVESTMENT IN
ARMENIA



1. (U) Sensitive but unclassified. Please protect
accordingly. Not for internet distribution.

--------------
SUMMARY
--------------


2. (SBU) During his last press conference before the end of
his posting, April 8, Russian Ambassador to Armenia Anatoliy
Dryukov cited the large influx of Russian capital to Armenia
during his tenure, saying that Russia had invested more than
USD 300 million in Armenia since independence. Dryukov went
on to say that Russian capital is behind nine of Armenia's
20 banks and makes up one third of Armenia's total
authorized capital stock of Armenia's banking system. He
commented that debt-for-equity swaps, in which the Russian
state acquired former Soviet assets that Armenians complain
now lay idle, were not unsuccessful as the Armenians claim,
but are operating according to plan. End Summary.

--------------
RUSSIANS IN THE FINANCIAL SECTOR
--------------


3. (SBU) Dryukov claimed that Russian capital was behind
nine of Armenia's twenty banks and made up one third of
Armenia's total statutory capital. While there is Russian
capital behind some of Armenia's non-transparent "pocket"
banks, Russian bankers are also behind some of Yerevan's
most active full service banks like Converse Bank,
ArdShinInvestBank, UniBank (owned by Russian UniAstrumBnak),
ArExImBank (owned in part by Russian ImpExBank)and
ArmSavingsBank (seventy percent owned by the Russian state-
owned VneshtorgBank). Russian oligarch Oleg Deripasko also
owns IngoStrakh, a full-service private insurance company
working in Armenia.

--------------
DEBT-FOR-EQUITY SWAPS TWO YEARS ON
--------------


4. (SBU) Confronted by a journalist, Dryukov said that he
could not agree that Russia's debt-for-equity swaps were a
failure. "The four enterprises transferred to the Russian
State in consideration for the state debt of Armenia were
military-industrial enterprises, which provide the defense
needs of Russia," Ambassador Dryukov said. Dryukov added
that the Russian budget had allocated USD 5 million to the
Mars factory, a Soviet era military computer plant, and that
there is ongoing production there. (Note: The Armenian
government has long complained that the four enterprises
transferred to Russia during the debt for equity swap are
operating at very low capacity with a fraction of their
former employees. The Armenian directors of two of these
plants have told us that since their privatization they have
heard nothing from their Russian bosses about planned
investment or new orders. End Note.) Dryukov added, "as a
result of obtaining the four enterprises of military-
industrial complex, Russia's secret technologies are in fact
transferred to Armenia, and citizens of Armenia may
ultimately benefit from them as well." Dryukov also cited
the success of the Armenia's energy assets that were
transferred to partially state-owned RAO-UES in a different
set of debt-for-equity swaps also in 2003.

--------------
COMMENT
--------------


5. (SBU) A significant proportion of the investments that
Dryukov mentioned were made by Russian firms that are
largely state-owned and have Russian government seats on the
board. Still, even excluding these assets, many of which
were the results of the debt-for-equity swaps of 2003,
Russian private investment accounts for an important share
of Armenia's financial sector. Russian foreign investment
tends to be equity investment with little Russian control on
the ground and, also, less transparency in ownership and
corporate governance than we see in other foreign
investments.
EVANS