DAS BRYZA MEETS ARMENIAN PM AND DEFENSE MINISTER

C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 000953

SIPDIS

E.O. 12958: DECL: 11/25/2018
TAGS: PGOV PHUM PREL EAID KDEM KJUS MARR MOPS
SUBJECT: DAS BRYZA MEETS ARMENIAN PM AND DEFENSE MINISTER

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

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SUMMARY
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1. (C) On November 17 EUR DAS Matt Bryza met separately with
Prime Minister Tigran Sargsian and Defense Minister Seyran
Ohanian. Acknowledging Armenia's failing MCC indicators and
the upcoming MCC board meeting, the PM asked for time and
understanding from Washington, warning that a program
suspension could have a debilitating impact on Armenia's
budget. He also predicted an economic crisis in the first
quarter of 2009, and that the GOAM would request technical
assistance programs to weather the storm. Bryza pressed for
release of political detainees as a strong signal Armenia was
moving in the right direction on MCC's "ruling justly"
criterion. Stressing his support for more robust defense
relations with the United States, Defense Minister Ohanian
appealed to Bryza for more military training for his officer
corps. In a preliminary account of a reported November 16
raid by Azerbaijani forces on the line of contact, Ohanian
assured Bryza that "Armenian" forces would never initiate
such skirmishes, but that they would respond. Ohanian
commented that Azerbaijan's Defense Minister has repeatedly
rebuffed his attempts to establish a Baku-Yerevan military
hot line. Ohanian welcomed the prospect of pulling back
Azerbaijani and Armenian snipers from the line of contact.
He also urged that Nagorno-Karabakh's leaders be brought into
the ongoing Minsk Group negotiations. END SUMMARY.

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PM ASKS FOR TIME, UNDERSTANDING ON MCC
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2. (C) In noting the upcoming MCC Board meeting in December,
and the fact that Armenia was still failing on its
indicators, PM Sargsian asked Washington for more time and
understanding, and not to suspend Armenia's program.
Sargsian referred positively to his recent visit to
Washington, and conversations with MCC CEO Danilovich and
Secretary Rice on MCC, saying they had remarked that the
program was a partnership, and not a test for Armenia.


3. (C) The PM said that Armenia and the United States agreed
on the failing indicators, namely Armenia's problems with
corruption, political rights, civil liberties, and the rule
of law. But he pointed out that Armenia was working with MCC
to address the indicators, and claimed that reforms are
underway. The PM said Armenia realistically needed three
years to turn the situation around, a goal that could be
achieved provided the United States stuck with Armenia right
now. The PM stressed that "Armenia wants to go through this
passage together" with the United States.


4. (C) Sargsian said time and patience was needed because of
the resistance to reforms that the GOAM was encountering. He
cited tax and customs administration reforms, in particular,
as taking on entrenched interests. The PM warned that a
suspension of the MCC could be a debilitating blow on
Armenia's 2009 budget, where an impending economic crisis,
coupled with the non-reimbursement of the USD 60 million that
the GOAM was advancing to cover the MCC road construction
project, could be devastating.


5. (C) Bryza agreed with the PM that the MCC was a
partnership, but said Armenia could take dramatic steps in
the short run to help its case at the next MCC Board meeting.
While Bryza commended the GOAM for its Policy Improvement
Plan to address the falling indicators, he suggested the GOAM
focus on a few key priorities to produce concrete results
that would improve the indicators, as it is the indicators,
not plans in progress, that determine a program's fate.
Bryza specifically suggested freeing the 70-odd opposition
supporters who have been detained and/or convicted, seemingly
for pro-opposition political activities while ensuring they
enjoy due process. The PM dismissed the idea of an amnesty,
saying it would be "merely a show" that won't solve any of
Armenia's real problems. He declared that democratic reforms
could only take off in Armenia once economic reforms in the
tax and customs spheres had taken root, which he estimated
would take three years. Sargsian again appealed to Bryza for
understanding, and asked Washington not to ignore the
positive reforms underway. Bryza pressed again for the GOAM
to free the political detainees.

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PM PREVIEWS ECONOMIC CRISIS, REQUEST FOR AID
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6. (C) The PM said that while Armenia had escaped the first
wave of the global financial crisis, its economy would likely

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be affected severely by its fallout during the first quarter
of 2009. The PM said that Armenia's economy would be
affected because of both poor fundamentals (a large current
account deficit and weak tax administration) and external
shocks. As external shocks, he cited that Armenia's mining
industry and enterprises were coming to a halt because of a
dramatic decline in world prices, and that foreign
remittances would shrink in the first quarter, especially
from Armenian workers in Russia.


7. (C) The Prime Minister fretted about the risks to
Armenia's 2009 budget. He said on top of the contagion of
the financial crisis, the budget was exposed by the GOAM's 22
billion dram (approximately USD 73 million) outlay to
provisionally finance the MCC roads construction program
which, if Armenia ends up having to permanently shoulder,
would force the government to scale back other anticipated
expenditures. (NOTE: In July, when MCC decided to postpone
funding of the roads construction project absent progress on
political reforms, the GOAM allocated USD 16 million of its
own money to keep the construction going. The overall price
tag for the construction of 273 kilometers of new roads is
approximately USD 60 million; the 73 million that the PM used
likely refers to that amount plus the value-added tax that
the GOAM would have to pay itself for the contractors work.
END NOTE.) He said the budget situation could also be
worsened by Armenia's stable macroeconomic performance, which
could prompt international donors such as the IMF to wait
before intervening to help Armenia in an economic crisis.
The PM said such a stance was essentially punishment of good
performers. He said "it will be too late" if the IMF waits
before intervening. He said that Armenia needs lots of
liquidity, "now and fast," in order to ride out the storm.
He expressed hope the IMF would help if Armenia did indeed
face a serious balance of payments problem in early 2009.


8. (C) The PM said Armenia needed U.S. technical assistance
more than ever as it embarked on these difficult reforms. He
identified assistance in reforming the tax administration,
developing a concept plan for a free trade zone in Gyumri,
and maximizing Armenia's trade benefits under the Generalized
System of Preferences agreement with the United States. The
PM said that U.S. Trade Representative Susan Schwab had
promised to help Armenia during his Washington visit, and the
PM planned on sending Economic Minister Yeritsian and a team
of experts there to work on it.


9. (C) Bryza commended the PM on his economic reform efforts,
said the PM had left a positive impression during his
Washington visit, and that the United States stood poised to
help Armenia in the event of an economic crisis. Bryza
welcomed the PM's requests for technical assistance, and
commented that the idea of a free trade zone in Gyumri showed
geopolitical thinking (given its location near the Turkish
border). Bryza told the PM that in subsequent visits he
hoped to discuss further the topics of regional economic
cooperation and energy.

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DEFENSE MINISTER ASKS FOR MORE TRAINING
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10. (C) Hosting DAS Bryza at Armenia's new Ministry of
Defense headquarters, Ohanian assured Bryza of his commitment
to converting the leadership of Armenia's military from a
military to civilian structure. He said the most important
phase of reforms is the ongoing Strategic Defense Review
(SDR),which is currently conducting an analysis of Armenia's
security and threat environments. While thanking Bryza for
DoD assistance with the SDR, Ohanian appealed to Bryza and
DoD to provide more training opportunities for Armenia's
senior officers, especially slots in U.S. military colleges,
which he claimed Azerbaijan was receiving more of than
Armenia.


11. (C) Ohanian complained about the precipitous fall in
Armenia's IMET training funds, from USD 800,000 in FY 2008 to
USD 330,000 in FY 2009, and hoped that Bryza could help
reverse the trend. Ohanian stressed the benefits of
training, as evidenced by the recent NATO exercise Armenia
hosted in September and October, and hoped that an increase
in training would help increase Armenia's interoperability
with US and NATO militaries. Bryza assured Ohanian that the
Embassy's DATT and Office of Defense Cooperation were working
on requesting new training opportunities with the use of FMF
funding, but warned that this was a general funding issue at
DoD and that nearly all of America's partners sought
additional IMET support. The U.S. welcomed this enthusiasm
for IMET, but was struggling to secure more funding.

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NOVEMBER 16 RAID A REMINDER OF THREATS

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12. (C) In response to DAS Bryza, who expressed serious
concern about an Azerbaijani raid near the
Armenian-controlled city of Fizuli (located in Azerbaijan)
the night of November 16-17, Ohanian said he had no problem
granting access to OSCE monitors, and that he had already got
an assurance from "Nagorno-Karabakh's President" to
facilitate OSCE access. Ohanian said that while the details
were still preliminary, it appeared that an Azerbaijani
special forces group of an unknown size had tried to cross
the line of contact through a gap between two NK posts, at
which point it was engaged by NK forces with small arms and
machine guns. In the crossfire, one Azerbaijani was killed
and the rest of the group was forced to retreat. The number
of Azeri service members in the group could not be confirmed,
but Ohanian suspected it was a patrol of four or five.


13. (C) Bryza expressed dismay that such a raid would occur
while the Minsk Group Co-Chairs were visiting the region, and
said the raid underscored how some parties to the conflict
opposed any settlement at all. Bryza thanked Ohanian for the
access for OSCE emergency monitors, and said that he had
spoken with Azerbaijan Foreign Minister Mammadaryov, who had
promised to try to obtain Azerbaijani consent for Ambassador
Kasprzyk, Special Representative of the OSCE Chairman in
Office, to conduct the monitoring immediately. Ohanian
asserted that the raid raises real questions about the lack
of coordination between Azerbaijan's political and military
structures. He also suggested that Azerbaijan's civilian
Defense Minister, if it was he who authorized the raid, did
not fully comprehend the dangers he was risking, and betrayed
his lack of a military background. But, Ohanian did not view
this incident as posing a particularly significant threat to
the cease fire.

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AZERBAIJAN REJECTS ATTEMPTS TO CREATE HOT LINE
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14. (C) Ohanian detailed his previous attempts to establish a
Yerevan-Baku hotline, as well as a mil-mil protocol with
Azerbaijan, which he and Azerbaijan's Defense Minister Abiyev
could use to defuse the escalation of armed confrontations.
Ohanian asserted that his counterpart had repeatedly rebuffed
his initiatives, citing his first attempt to reach out during
the March 4 confrontation on the line of contact. The second
time he tried was after the sniper attacks on Armenian
civilians in the Tavush region in June, which the Azerbaijani
authorities also ignored. Ohanian gravely commented that he
was repulsed by the sniper attack on one farmer, who was
killed with a second shot even as he was trying to get away
from the sniper's first bullet. Ohanian said such behavior
forced Armenia to react.


15. (C) Ohanian also recounted how during the recent CSTO
Defense Ministers meeting in Tajikistan he, as the more
junior minister, had approached Defense Minister Abiyev with
a proposal to prevent the escalation of armed confrontations.
Ohanian said that when he "extended his hand" to Abiyev to
try to set up a military-military protocol to prevent such
incidents, the latter responded that Armenians also shoot
across the borders. Ohanian stated this while this was true,
it was only in response to Azerbaijani fire and to repel
uninvited attacks. Bryza welcomed Ohanian's restraint in
such cases, and that he and the Co-Chairs had raised the
issues during their visits with Presidents Sargsian and
Aliyev. He told Ohanian that both Presidents Aliyev and
Sargsian had committed to pulling back snipers along the line
of contact. Ohanian welcomed this news, and looked forward
to implementing his commander-in-chief's order when issued to
pull back Armenian snipers.

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BRING NK LEADERS INTO NEGOTIATIONS
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16. (C) Ohanian expressed his personal view that the
Nagorno-Karabakh (NK) leadership must be brought into the
negotiations at some point, and that their exclusion must not
be permanent. Bryza agreed that the NK leaders should be
part of the process, and that to a certain extent they
already were. He said the Co-Chairs always tried to consult
with them during their visits. Bryza assured Ohanian that at
a point in the future the NK leaders will be formally brought
into the process, most likely once Yerevan and Baku finalize
the "Basic Principles" and commence negotiations on a
comprehensive settlement based on those principles.


17. (U) DAS BRYZA HAS CLEARED ON THIS CABLE.
PENNINGTON