MCC ELIGIBILITY UPDATE -- NEW ARMENIAN

C O N F I D E N T I A L SECTION 01 OF 05 YEREVAN 000426

SIPDIS
AIDAC

FOR MILLENNIUM CHALLENGE BOARD FROM CHIEF OF MISSION
STATE FOR S, F, D, P, E, EUR/FO, EUR/CARC, EUR/ACE, EEB, DRL
USAID FOR ADMINISTRATOR
WHITE HOUSE FOR USTR
MCC FOR CEO DANILOVICH
NSC FOR MARIA GERMANO
TREASURY FOR SECRETARY AND MCC-RELATED POLICY STAFF

E.O. 12958: DECL: 05/25/2018
TAGS: PREL EAID PGOV PHUM KDEM AM
SUBJECT: MCC ELIGIBILITY UPDATE -- NEW ARMENIAN
GOVERNMENT'S STALLED PROGRESS ON "RULING JUSTLY"

REF: A. YEREVAN 274

B. STATE 33062 (NOTAL)

C. YEREVAN 411

YEREVAN 00000426 001.2 OF 005


Classified By: CDA Joseph Pennington, reasons 1.4 (b,d)

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


1. (C) Armenia's new president has done little to correct the
grave failings of the February election and post-election
crisis. His public and private messages have become
increasingly hardline (see Ref C example). He acknowledges
no government fault for widespread election fraud, police
brutality, or politically-motivated arrests and prosecutions.
Authorities have yet to lift a de facto ban on public
assembly. Ongoing trials against political opposition
figures are imposing multi-year prison sentences for highly
dubious charges. The government's proposal for political
dialogue is a highly suspect, Russian-model "public chamber"
that is unlikely to be taken seriously by opposition or civil
society. In the good news column, the media environment has
improved slightly, Ter-Petrossian's house arrest has ended,
and the notoriously corrupt Customs head has been fired.


2. (C) Our judgment is that Armenia has by now earned a
clearly failing grade on the democracy and human rights
performance which the "Ruling Justly" indicators are intended
to measure. Rather than working overtime to repair the
damage, Armenia still seems very much on a downward path. On
those few items where the government has suggested it will
take positive steps, progress remains rhetorical. U.S.
advice (Ref B) on urgent democratic reform has been ignored.
Public calls from the Parliamentary Assembly of the Council
of Europe (PACE) and various European Union entities along
similar lines have been likewise ignored. We reluctantly
conclude that Armenia is on course to merit suspension of its
Millennium Challenge Compact this year. Septel will outline
our recommendations for the way forward; this cable is a
status update on Armenian progress, especially on Ref B
points. END SUMMARY

ARMENIA'S RESPONSE TO OUR PRESCRIPTION
--------------


3. (C) In assessing Armenian authorities' response to their
crisis of legitimacy, we start by going down the list of
suggested actions that we conveyed to the Armenian government
in late March (Ref B). (NOTE: Based on e-mail instructions,
we had conveyed reftel non-paper to Deputy Foreign Minister
Kirakossian and Americas Director Armen Yeganian March 27
after the Department (EUR/CARC) had conveyed it to Armenian
Ambassador Tatoul Markarian March 26. CDA conveyed the same
non-paper to then-Prime Minister Serzh Sargsian's senior aide
Mikhael Minasyan April 1; Minasyan had by then already
received a copy from MFA and was fully familiar with its
contents. It was therefore surprising to us when Sargsian
claimed in an April 4 meeting with EUR DAS Bryza not to know
anything about the non-paper. END NOTE)


4. (C) Following is a point-by-point summation of Armenia's
progress against our non-paper recommendations. The
non-paper was divided into short and longer-term actions.

SHORT-TERM ACTIONS:

-- Lift all elements of State of Emergency (SOE) ad
associated restrictions on freedom of assembly: The State of
Emergency ended as scheduled March 20, but the ban on public
assembly was extended in a law that sailed through the
National Assembly (both necessary "readings" on the
parliament floor, an emergency provision to put the law into
immediate effect, and presidential signature, all acomplished
in one day -- March 19). The new law gives the government
carte blanche to deny public demonstrations at will. In
response to U.S. and European criticism, the GOAM promised
quick action to lift the more draconian aspects of the law,

YEREVAN 00000426 002.2 OF 005


but then postponed action during the May session of
parliament, making June now the first opportunity to lift
this de facto ban on freedom of assembly. Press accounts
report that there will be no legislative changes until at
least September, but this is unconfirmed. In practice, the
government has officially allowed only one public rally, to a
pro-opposition NGO called "Women for Peace." After the NGO
allowed pro-Levon Ter-Petrossian (LTP) politicians to speak,
all future requests were denied, and police told the
organizers that allowing the opposition speakers at the
previous rally was the reason for the denials. Pro-LTP
forces also had great difficulty renting a public meeting
hall for an indoor convention due to a de facto ban imposed
on both public and private sector venue owners (including the
Marriott Hotel in Yerevan). Authorities finally made a
government hall available to LTP on May 2, after the LTP team
made plans to hold its conference in Tbilisi, Georgia. The
media black-out imposed during the SOE has ended, enabling
the opposition print media to resume normal publication.

-- Allow peaceful public demonstrations: As noted above,
this has not been done.

-- End political arrests and prosecutions:
Politically-motivated arrests and prosecutions of opposition
politicians and activists are continuing. Courts have begun
sentencing these activist to prision terms of several years
each. Embassy officers have observed many of these trials
and have found them strongly politically biased: defense
attorneys have demolished sham prosecution cases point by
point, while numerous defense witnesses disavowed under oath
testimony police had falsely attributed to them, yet judges
ignore all this contrary evidence to side with the
prosecution. The most prominent political figures remain in
indefinite pre-trial detention. (Septel will provide a more
detailed update on political detainee trials).

-- End LTP's de facto house arrest: This has been done. The
former president now has freedom of movement, after
authorities gradually lowered the police presence around his
home over a period of weeks. For several weeks LTP's home
was surrounded by an imposing police perimeter, with major
encampments guarding both front and back doors, and police
were stopping and searching vehicles on the way in and out.
For a time, access to the home was denied to all but family
members. All of that has now been eliminated.

-- Release those detained for non-violent offenses, and
ensure fair trials for remainder. Prosecute security forces'
personnel for improper use of force: This has not been done,
as noted above. Not one single member of the police or
security forces has been investigated, or even questioned,
for excessive use of force. So far as we can tell, there has
been no official inquiry into the circumstances of the 10
persons (eight civilians, two police) known to have been
killed during the March 1-2 events.

-- Media freedom: Normal Internet access has been restored,
after being blocked during the State of Emergency. While the
government still heavily dominates electronic media, there
have been modest gestures toward improving opposition
figures' access to television. LTP lieutenant Levon Zurabian
was invited to an interview on the state-run Public
Television (H1),which was a positive step, despite the
interviewer's overtly hostile, badgering style of
questioning, and constant interruptions of Zurabian. A
pro-LTP youth representative received a more respectful
hearing on the pro-governmental Kentron TV channel that same
day. Opposition-related news items have begun to be covered
by television outlets -- apparently following an instruction
to do so from the president's office -- but this footage is
routinely aired with sharply negative editorial voice-over.
Moreover, there has been no effort toward structural reform
to change the partisan, pro-government make-up of the
Television and Radio regulatory commission and of the
state-run television and radio networks. The President has
said publicly he sees no reason to modify those structures.

YEREVAN 00000426 003.2 OF 005


Thus, the government continues to exert dominance over
television and radio editorial policy. The only exceptions
are U.S.-funded Radio Liberty (about which the president and
his proxies continue to complain bitterly and speciously at
every opportunity for alleged anti-government bias),and some
small, regional television stations in Armenia's provinces
whose distance from the capital and small audiences bring
lighter government intervention. The multi-agency government
witch hunt against the Gyumri-based Gala regional television
station appears to have lessened. Tax authorities continue to
demand heavy additional "back tax" payments from Gala and
private businesses remain afraid to advertise on the
opposition station.

-- Launch national political dialogue: Nothing concrete has
been done. The government has mooted a worrisome proposal
for a Russian-style "Public Chamber" ostensibly to create a
channel of communication between civil society and opposition
political groups, on one hand, and government, on the other.
The Russian model is generally seen to have been a sham, as
the Kremlim packed the "Public Chamber" with friendly
intelligentsia and entertainers, and then used the existence
of the docile entity as a rhetorical weapon to rebut the
voices of legitimate political and civil society activists.
We will reserve judgement, however, on the Armenian version
until it has been established. In fact, we have quietly
shared with a key, well-meaning presidential aide some
USAID-supplied critique of the Russian model, and made a few
suggestions for how to make such a "Public Chamber" a more
constructive tool of political dialogue.

-- Investigate/Prosecute election law violations: The
government has prosecuted several low-level cases, heavily
throwing the book at pro-opposition figures, while
administering suspended sentences to a few sacrifical lamb
pro-government officials. The most egregious cases -- most
notably including a recount invasion by a pro-government goon
squad that brazenly stole packages of marked ballots under
the direct gaze of the U.S. charge d'affaires, an accredited
OSCE long-term observer, and dozens of other witnesses,
including police officers who stood idly by -- have gone
completely uninvestigated.

-- Public/non-partisan or international commission of
inquiry into March 1-2 events: Nothing has been done to
date. The parliament has announced plans to create a
parliamentary inquiry, but details remain unknown. It is
difficult to see how the parliament (with only seven out of
its 131 members representing the opposition) could conduct a
credible, non-partisan inquiry. The speaker has said that
extra-parliamentary opposition will be invited to join, so a
possibility exists that this could be done well. There is no
information about when this panel of inquiry will be named,
much less start to work.

LONGER-TERM ACTIONS:

Nothing has been done on any one of these items, nor have
authorities given even rhetorical attention to any of the
steps we suggested.

OTHER INDICATIONS
--------------


5. (C) CUSTOMS/TAX REFORM: The president has fired the
notoriously corrupt chairman of the State Custom Committee,
and publicly called the agency on the carpet for corruption
and inefficiency. Widespread anecdotal reports from business
representatives and media suggest that customs officers have
sharply reduced bribe-taking under orders from the top.
(This implies, of course, that it has always been within the
government's power to order a halt to customs corruption, but
that it has previously chosen not to do so). Meanwhile, a
new first deputy chairman position has been created at the
State Tax Service, with a mandate for reform. This evidence,
plus repeated statements by senior government officials,
suggests that the government has chosen the revenue agencies

YEREVAN 00000426 004.2 OF 005


as its first priority target of reform. This would be a
tremendously positive step if the government sees it through,
and one which potentially would earn the government
signficant goodwill from the public. In the short term,
however, it has actually made customs processing more
difficult by shining a light on the cumbersome, inefficient,
and costly official Customs regime.


6. (C) POLICE REFORM?: The Prime Minsister also mooted to
EUR Assistance Coordinator Tom Adams that the law enforcement
agencies are in desperate need of reform. This is a welcome
recognition of the serious problems with the police agencies.
If any concrete initiative in this direction comes to pass,
that would also be a welcome, and difficult, reform step.
The obvious time to replace the top leaders of the police and
the National Security Service would have been when the new
cabinet was appointed, but the President did not take that
opportunity to do so. In fact, some insiders have said
privately that the Prosecutor General and the law enforcement
establishment are the ones most determined to jail opposition
figures, and that the president feels unable to oppose them.
True or not, real law enforcement and criminal justice reform
is badly needed, and to this point authorities are continuing
to use these services as a political weapon.


7. (C) THE NEW CABINET: The most closely watched political
signal of the new president was the naming of his new prime
minister and cabinet. In the event, this turned out to be a
tepid gesture. The new prime minister is a decent if
uninspiring choice -- a technocrat who clearly sees his
mandate as economic reform and self-avowedly prefers not to
discuss politically sensitive topics. While some insiders
allege that the new prime minister was, as the Central Bank
chairman, at least a facilitator for high-level corruption
under former President Robert Kocharian and then-PM (abd
before that Defense Minister) Serzh Sarsgian, his public
reputation is more neutral, and he is seen as a competent
manager. Most of the cabinet was reappointed, including some
notoriously corrupt ruling party figures. Where a few new
technocratic ministers were appointed and portfolios
reshuffled, the pattern signals a government intention to
focus reform on economic management. Overall, there was
nothing to suggest that this is a cabinet with a bold reform
mandate.


8. (C) NATIONAL DEMOCRATIC INSTITUTE: One perennial
irritant that would be an easy show of good faith on the part
of the new president, would be to allow long-denied legal
registration of the local National Democratic Institute (NDI)
office. This is something that President Kocharian had
stubbornly refused, and was an explicit Armenian commitment
in the October 2007 U.S.-Armenian Task Force (USATF) Action
Plan. Moreover, President Kocharian personally promised
EUR/ACE Tom Adams in Fall 2006 that NDI would be registered
"after the elections," which at the time we understood to
mean the May 2007 parliamentary elections. When we raised
this issue again with Kocharian after the May 2007 election,
he insisted he had always meant after the February 2008
presidential election. That too has now passed, and we have
renewed our advocacy on NDI's behalf through the Foreign
Ministry and other key government interlocutors. Assistance
Coordinator Adams raised it personally with President
Sargsian, whose response was evasive. We have had no formal
reply, but informally are asked to be patient, though no one
in government offers any legal or political justification for
the delay. NDI programming has continued in the most
unprovocative way. For the last nine months, the chief of
party has been a local Armenian national, which we would
expect would be even more reassuring to the government.


9. (C) USAID ANTI-CORRUPTION IMPLEMENTER: USAID in 2007
launched a multi-million dollar, three-year project,
Mobilizing Action Against Corruption (MAAC). The Canadian
chief of party and Bulgarian deputy chief of party have been
repeatedly refused residence permits without any real
explanation. They have been given a series of visas (mostly
60 days' duration, though this has varied). Our inquiries

YEREVAN 00000426 005.2 OF 005


with then-Prime Minister Sargsian elicited only that the
matter was "difficult" -- without explaining why or how it is
problematic -- but that they would see what could be done
after the election. We have renewed our advocacy on this
point via diplomatic note to the Foreign Ministry, and are
assured informally that the issue is being "processed." Like
the NDI registration, this seems like it should an easy way
for the GOAM to take a cost-free action of good faith on the
democracy and good governance front.

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


10. (C) While not without small positive steps, on balance
the government's performance since Serzh Sargsian's April 9
inauguration has failed to change Armenia's political course.
The most glaring example is the government's continuing
arrest, detention, and prosecution of politicians and
political activists on transparently specious charges. It
has also become clear that authorities have no appetite
whatsoever to hold anyone in government or pro-governmental
political forces accountable for the serious crimes that took
place in connection with the election or the post-election
violence. From ballot-box stuffing to coercion of public
sector employees, voter intimidation to police brutality, and
the uninvestigated deaths of ten Armenians on March 1-2, the
government apparently plans to deny, cover up, and deflect
all inquiries that might reveal culpability on the part of
pro-governmental forces. Neither is the GOAM showing any
serious indication of structural reforms that would at least
tacitly acknowledge these problems and create a more level
political playing field for the future. Fundamentally, this
government remains in denial that it presides over a deeply
polarized electorate, whose anger at the suppression of its
political rights has been left with no legitimate outlet. We
still believe that the only solution to the new government's
crisis of legitimacy is bold action to remediate the damage,
by at least tacitly conceding some fault and opening outlets
to legitimate political expression. This government seems
instead to be investing more heavily in a strategy of
entrenchment.
PENNINGTON