AMBASSADOR'S RECOMMENDATIONS FOR WAY AHEAD ON

C O N F I D E N T I A L SECTION 01 OF 03 YEREVAN 000137

SIPDIS

FOR MILLENNIUM CHALLENGE BOARD FROM AMBASSADOR
STATE FOR S, F, E, EEB, EUR
WHITE HOUSE FOR USTR AND NSC
TREASURY FOR SECRETARY/MCC POLICY STAFF
USAID FOR ADMINISTRATOR
MCC FOR A/CEO BENT

E.O. 12958: DECL: 02/24/2019
TAGS: EAID PREL PHUM KDEM AM
SUBJECT: AMBASSADOR'S RECOMMENDATIONS FOR WAY AHEAD ON
ARMENIA'S MCC PROGRAM

REF: A. 08 YEREVAN 967

B. 08 YEREVAN 734

C. 08 YEREVAN 426

D. 08 YEREVAN 429

E. YEREVAN 26

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Classified By: AMB. Marie L. Yovanonvitch, reasons 1.4 (b,d)


1. (C) SUMMARY: For nearly a year, this embassy has urged a
tough, measured line on Armenia's Millennium Challenge
Compact, seeking to maximize the incentive value of MCC to
galvanize Armenian action to correct it's Ruling Justly
performance. We sense that some in Washington have lost
patience with Armenia's tepid actions in this area. We have
too. However, Ambassador strongly believes that it would be
highly counter-productive for all of our policy goals,
including progres on Ruling Justly indicators, to announce a
punitive reduction in Armenia's Compact program at the March
MCC Board meeting. A March decision to cancel the roads
project would be a major shock to the Armenian President --
given mixed messages Armenia has understood regarding funding
-- and one that would be taken deeply personally by the
president, provoking a backlash against the complete specturm
of U.S. priorities.


2. (C) Rather, the March Board meeting should approve a
strong, clear, unified, and specific USG message to Armenia
that the Board will make its final decision at the June Board
meeting on how to evaluate Armenia's 2008 Ruling Justly
reversals, and this upcoming quarter will be Armenia's last
chance to show tangible improvement. A serious Board
warning would give President Sargsian unambiguous fair
warning. It might succeed in winning positive steps from
Armenia. Even if it did not, with the clear message of
warning, combined with three more months to work, Sargsian
would not feel sandbagged. END SUMMARY


A VERY DISAPPOINTING REPORT CARD
--------------


3. (C) Reftels and post's body of political reporting over
the past year show that Armenia's Ruling Justly performance
has continued to lag badly since the flawed February 2008
election, March 2008 political violence and state of
emergency, and ongoing political tension. There have been
small steps forward, and small steps back. The parliamentary
commission of inquiry into the political violence of March
1-2, as well as the multi-partisan expert fact-finding group
which was established to support the parliamentary
commission, have each been bright spots.


4. (C) The number of politically-motivated detentions has
fallen to roughly 60 (numbers and definitions differ, of who
counts as a politcal detainee),from more than 125 nearly a
year ago. Twenty-eight defendants have been pardoned by the
president, though this positive step is dimmed by opposition
allegations that their activists were coerced to make false
admissions of guilt in exchange for their freedom. The "Trial
of the Seven" high-profile detainees continues and there is
some hope that a mechanism orchestrated by the Parliamentary
Assembly of the Council of Europe (PACE) could lead to a
political solution and release of these prisoners. Freedom
of assembly and media freedom remain badly circumscribed. In
short, Armenia still earns a failing grade on its Ruling
Justly performance in 2008.

PRESSURE BRINGS PROGRESS
--------------


5. (C) The pattern of Armenia's performance indicates that
political pressure can play a constructive role. In
September (ref B),there was a positive feeling that real
improvements were being made, even if in early stages, and
there was a tone of optimisim in Yerevan that the new
Armenian Administration might prove better and more visionary
than most people had expected. This came in the wake of
unified international community advocacy and pressure on
Armenian authorities. At the end of September, Armenian

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Prime Minister Tigran Sargsian visited Washington, and
returned with the clear (mis)impression that Washington was
ready to "move on" from the problems of Armenia's lacking
democratic legitimacy. Armenian leaders began to feel that
the post-election international push on Armenia's democratic
deficiencies had ended; short attention spans in the West had
moved on. The promised October/November wave of new reforms,
which had been so broadly foreshadowed to us in
August/September by Armenian leaders never materialized. The
GOAM became complacent. Only in December -- well after the
Russia-Georgia crisis subsided -- when PACE showed a renewed
strong interest in Armenia's democracy and human rights
problems was there another burst of GOAM effort to improve
(Ref E).


6. (C) The lesson we take from this is that Armenian leaders
are susceptible to some degree to international pressure on
their democracy and human rights performance, but that when
that attention has waned, or the messages grew muddied,
Armenians have convinced themselves that the problems have
passed, and they need no longer address the tough issues.
September through November 2008 were essentially lost months
for democratic progress for this reason.


ARMENIANS BELIEVE FULL MCC RESTORATION IMMINENT
-------------- --


7. (C) We know that Armenian leaders are convinced that MCC
funding is on the verge of being restored. European Union
Special Representative Peter Semneby told the Ambassador
February 25 that President Sargsian had assured him February
24 that funding for the roads program would resume in March
and that this was crucial at part of the GOAM's response to
the economic crisis. Sargsian said the same thing to
MCA-Armenia CEO Ara Hovsepian, as we later learned from
Hovsepian.


...AND WILL LIKELY RETALIATE IF BLINDSIDED
--------------


8. (C) Sargsian can perhaps be forgiven for thinking this
way, given former MCC CEO Danilovich's public remarks
reported December 20, 2008, that the roads funding "should
resume in March." Armenian leaders also read much more
positively than they should have public and private remarks
by Secretary Rice that she was encouraged by "healing
reforms" in Armenia. The GOAM has begun to tune out the
stern letters from MCC and the tough messages from post,
preferring to misinterpret the more nuanced messages as
signalling that the USG will not hold Armenia to rigorous
account. This has lulled Armenia into a false complacency --
which sets the stage for feelings of deep betrayal, and anger
by the president, if we suddenly announce an MCC penalty in
March. This would no doubt have an adverse impact on the
GOAM's performance on the Ruling Justly indicators, as well
as other high priority issues.

OUR RECOMMENDATION
--------------


9. (C) To be most constructive, the Board should explicitly
agree that Armenia's performance has not met the mark, and
that in June the Board will take a final decision evaluating
the 2008/2009 performance and evaluate whether and how much
to penalize Armenia. We should communicate that very clearly
-- albeit privately -- to President Sargsian, being careful
not to nuance the message to the point where he does not take
the seriousness of this last warning on board. This message
should articulate our short term expectations to restore
funding, and also signal that, once these have been met, we
will expect the GOAM to continue positive momentum throughout
the remaining life of the Compact. We need to be specific
about what we expect, and post recommends the following list
as meaningful and achievable:

-- release of the seven high-profile "Trial of Seven"
detainees (or convincing us that some of these are guilty of

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real crimes);

-- full freedom of assembly, especially throughout the
campaign period for the May 31 Yerevan municipal election
(which will be an important bellwether);

-- and taking steps to improve the media climate, and
specifically repealing the two-year moratorium on new
television licenses.



10. (C) If no or inadequate changes are forthcoming, the
June Board meeting -- at that point a full year after
President Sargsian's April 9 inuaguration and the 2008 MCC
decision to halt roads funding -- will be the most
appropriate time to issue a public penalty, such as
cancelling the roads portion of Armenia's Compact for its
poor performance. In proposing the above list, we should be
careful not to handcuff ourselves too tightly. Authorities
could make other major steps forward that we have not here
considered, but which would nonetheless be impressive.
Conversely, authorties could achieve some or all of the above
steps in letter, but not in spirit, leaving us worse off than
before. Nonetheless, we consider a specific list an
important and useful step in communicating clearly to the
GOAM what our level of expectations is for defining success.
Equally important, we need to be prepared to keep our part of
the bargain: if the Armenians do come through and meet our
demands in letter and spirit, we should then restore and
implement the full Compact program.


YOVANOVITCH