SCENESETTER FOR CODEL SCHIFF, MAY 24-25, 2008

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H PASS TO CODEL SCHIFF

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SUBJECT: SCENESETTER FOR CODEL SCHIFF, MAY 24-25, 2008

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(U) Sensitive but unclassified. Please protect accordingly.


1. (SBU) SUMMARY: Your visit comes during a critical phase in
post-independence Armenia's political development, and democracy is
firmly at the top of the U.S. agenda. After flawed and hotly
disputed presidential elections February 19, violent clashes, a
20-day state of emergency, and the arrest of more than 100 political
prisoners, the new government's democratic legitimacy is badly
damaged. We have urged Armenian officials to take bold action to
repair the damage and rebuild legitimacy. To date, they have not.
Post would warmly welcome the CODEL's assistance in underlining the
seriousness of the U.S. commitment to democracy and human rights,
and in conveying to Armenian officials that there is much work to be
done. Without carrying out significant reform and a restoration of
democratic freedoms, the new President will remain plagued by
questions of legitimacy, and will not be the strong partner we need
to address the Nagorno-Karabakh conflict and other key regional
issues. END SUMMARY

MANY ISSUES, BUT DEMOCRACY IS TOP PRIORITY
--------------


2. (SBU) A FULL BASKET: We have a number of important policy
interests in Armenia, but Armenia's dismal political situation has
captured top billing in our agenda. But let us begin with a quick
overview of our other priorities before outlining the political
history and challenges (starting at paragraph 7).


3. (SBU) PEACE, INDEPENDENCE, AND PROSPERITY: We work to enhance
regional peace and stability through the Nagorno-Karabakh peace
negotiations (the Minsk Group process, of which the U.S. is a
co-chair) and through diplomacy and civil society programs to foster
normalized relations with Turkey. We have had wide-ranging programs
to develop free markets and a diversified economy. We support
Armenia's energy independence and have extensive cooperation to
promote nuclear power safety, including a safe replacement for the
Metsamor nuclear power plant. We have had good case-by-case
cooperation on law enforcement: Armenia has helped us prosecute
cases of Armenians wanted for crimes in the U.S.


4. (SBU) DEFENSE, SECURITY, AND RULE OF LAW: Through U.S.
assistance, we have worked with judges, prosecutors, and defense
attorneys to improve the rule of law, though Armenia has a very long
way to go in this sphere. Military engagement and assistance
(FMF/IMET) is aimed at promoting Western-style reforms, NATO
inter-operability, democratic and human rights values, and
accelerating Armenia's growing peacekeeping capabilities. We have a
new USAID program just getting started to help Armenia combat its
endemic corruption, which is deeply rooted in almost every aspect of
Armenian governance and society. We have a robust and wide-ranging
democracy and governance program that included $7.6 million over the
last three years to help Armenia prepare for the May 2007
parliamentary and February 2008 presidential elections. Other
democracy and governance programs focus on civil society, youth, and
women's empowerment initiatives.


5. (SBU) MILLENNIUM CHALLENGE COMPACT: The $236 million Millennium
Challenge Compact signed in November 2006 is focused on rural
poverty, and is slated to build hundreds of miles of rural roads and
irrigation systems, while also providing training to Armenian
farmers. The Millennium Challenge program may be in jeopardy,
however, because of Armenia's dismal performance in the 2008
elections and post-election crisis, on top of what was already a
weakening scorecard on the standard MCC eligibility indicators. We
have foreshadowed to the Armenian government that we intend to give
the new president sufficient time to correct problems before taking
any irrevocable action, but the September 2008 MCC Board meeting in
Washington will take a hard look at Armenia's continued eligibility
for MCC.

ARMENIA'S FOREIGN POLICY AND GEOPOLITICAL REALITY
-------------- --------------


6. (SBU) Armenia's stated foreign policy is one of
"complementarity," in which Armenia seeks to develop strong
relations with Russia, the U.S., the EU and Iran. As difficult as
it is to balance these often competing interests, Armenia is, for
the most part, succeeding. It continues to rely on Russia as its
"strategic partner" while moving forward in its relationship with
NATO. Armenia is developing its energy relationship with Iran while
staying within the Russian fold. Pressure from Russia is
increasing, however, and Armenia is finding it difficult to maintain
this balance. President Sargsian's desire to continue building ties
with the West may also be diminished in the face of (deserved)
Western pressure over Armenia's poor democratic and human rights

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record in the wake of the 2008 election.

DEMOCRACY AND POLITICAL CRISIS
--------------


7. (SBU) WHERE WE ARE TODAY: Armenia's political situation simmers
with discontent over the flawed presidential election of February
19, 2008, and its violent aftermath. President Sargsian faces a
crisis of legitimacy due to the popular conviction that he stole the
election, and outrage over the government's zeal in cracking down on
opposition protests after the fact. Authorities have arrested
dozens of opposition politicians, activists, and sympathizers on
mostly specious political charges. More than 100 remain in jail.
The State of Emergency decreed by then-President Robert Kocharian on
March 1 -- after a violent clash between protesters and police --
enforced a media black-out on any political opinion other than the
government's point of view, while banning all political rallies.
The ban was enforced by massed troops and riot police posted around
Yerevan. While the worst of the state of emergency has passed, a de
facto ban on public demonstrations remains in effect. Despite
several years of solid economic growth and improved standards of
living, a new wave of Yerevan intelligentsia are actively pursuing
emigration abroad -- shocked and disgusted by the political
situation.


8. (SBU) UNREPRESENTATIVE DEMOCRACY: Aside from the Heritage Party
(which holds seven of 131 parliamentary seats) virtually the entire
National Assembly is part of the governing coalition. With
Armenia's electorate now seriously polarized -- we lack hard data,
but opposition sympathizers probably number around 50 percent of
voters -- there is a massive imbalance between the opposition's
popular support and its nearly complete exclusion from meaningful
representation in government.


8. (SBU) HOW WE GOT HERE: Ex-President Levon Ter-Petrossian's
late-summer 2007 re-entry in active politics jolted the Armenian
electorate from its previous lethargy. Despite having himself been
driven from office in 1998 amid charges of corruption and of having
stolen his own reelection, Ter-Petrossian brought stature and
credibility that other opposition leaders lacked, and inspired a
disaffected segment of the population with a new belief in the
possibility that PM Serzh Sargsian's ascension to the presidency was
not a foregone conclusion. Sargsian's partisans responded to that
challenge with heavy reliance on "administrative resources," voter
intimidation, heavily biased media coverage, and vote tabulation
fraud to produce a tainted first-round majority of 52.8 percent of
votes cast. International reaction to the result was initially
driven by an unduly positive preliminary report issued by the joint
international (OSCE, Council of Europe, European Parliament)
observation mission on February 20, before many of the worst abuses
had come fully to light, and by a spurious exit poll attributed to a
little-known British firm that was paid by pro-government forces.
The extent of serious flaws became more clear over time. Our
assessment is that the presidential election was significantly worse
than the May 2007 parliamentary election, which we had viewed as a
modest step forward.


10. (SBU) POST-ELECTION PROTESTS AND CLASHES: Ter-Petrossian and
his allies began daily protest rallies the day after the disputed
election, occupying the downtown Freedom Square (aka Opera Square)
with their peaceful protest continuously from February 20 through
March 1. These daily rallies attracted anywhere from 40,000-70,000
each afternoon, while a hard core of 500-2,000 supporters remained
encamped overnight to hold the square. Early in the morning of
Saturday, March 1, police cleared Freedom Square, employing brutal
force, and placed Ter-Petrossian under house arrest.


11. (SBU) AND AFTERMATH: By mid-afternoon March 1, a new crowd of
Ter-Petrossian supporters had gathered -- more or less spontaneously
-- in the vicinity of the French, Italian, and Russian Embassies,
near City Hall. A core group of thuggish mid-level organizers,
possibly including veterans of the Nagorno Karabakh war, set up
barricades and deployed Molotov cocktails and other improvised
weapons, but the vast bulk of the crowd (which numbered up to
20,000) were ordinary, outraged Armenian citizens. The standoff was
eventually resolved -- after hours of standoff, fierce skirmishes,
scattered looting, and incidents of mob violence -- in the pre-dawn
hours of March 2, but not before at least ten Armenians, including
two police officers, had been killed. President Kocharian declared
a State of Emergency (SOE) late in the day on March 1, and army
units were sent to Yerevan to quell the violence.


12. (SBU) QUIET BUT NOT CALM: This series of dramatic events left
in its wake an Armenian electorate divided between rage and
insecurity. The government fears, not without reason, the risk of

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new, sudden eruptions of political violence and popular outrage,
although things seem to have settled into an uneasy calm for the
time being. Ter-Petrossian and his allies predict that the Sargsian
government will soon collapse. The semi-oppositional Armenian
Revolutionary Federation (Dashnaksutyun) and Rule of Law (Orinats
Yerkir) parties have joined the governing coalition, but neither
commands broad-based popular support or significant legitimacy. The
Orinats Yerkir party, in particular, seems to have lost most of what
popular support it previously had by joining the coalition. Only
the tiny Heritage Party remains as a true oppositional force in
parliament. Heritage endorses a moderate, reformist political
agenda.


13. (SBU) URGENT REFORMS NEEDED: We have urged the government to
focus on bold political reforms that could relieve public anger and
build new political legitimacy by addressing the most egregious
elements that enrage Armenians. Steps we have urged include
investigating and prosecuting pro-governmental as well as opposition
figures for election-related violations, restructuring public
television and radio to eliminate the strongly pro-governmental
bias, restoring the television license (revoked for political
reasons in 2002) of the pro-opposition A1Plus news agency, and
launching a credible public inquiry into the events of March 1-2.
Overhauling the corrupt customs and tax agencies would be another
way to win over skeptical voters, and there have been some early
indications of government steps toward this end. We remain
concerned that the government's strategy appears to rely on
hunkering down and riding out the crisis, relying heavily on its
police and security service tools to quash dissent, and entrench
itself firmly in power at all costs. While the Ter-Petrossian led
opposition is not comprised of angels -- and Ter-Petrossian's own
record as president in the 1990s leaves much to criticize -- it is
fundamentally the government's responsibility to uphold human and
political rights. As of right now, this government has failed to do
so, and shows little sign of willingness to mend its authoritarian
ways.

PENNINGTON