LUNCH WITH AN OLIGARCH: SARGSIAN ALLY CRITICIZES

C O N F I D E N T I A L SECTION 01 OF 04 YEREVAN 000241

SIPDIS

E.O. 12958: DECL: 04/02/2019
TAGS: PGOV ECON PREL TU AM
SUBJECT: LUNCH WITH AN OLIGARCH: SARGSIAN ALLY CRITICIZES
GOAM APPROACH TO ECONOMIC CRISIS

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

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SUMMARY
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1. (C) In an extended discussion with DCM on March 20,
Armenian oligarch Mikhail Bagdasarov -- a close ally and
personal friend of President Sargsian -- strongly criticized
the GOAM for its handling of the economic crisis, questioned
the Prime Minister's competence, and expressed enthusiastic
support for Armenian-Turkish reconciliation. On domestic
politics, Bagdasarov predicted a "difficult" win for the
ruling Republican Party candidate in the upcoming Yerevan
mayoral race, and said that National Assembly Speaker Hovik
Abrahamian would likely be Armenia's next prime minister and
next president. He lamented Armenia's inability to tackle
its endemic corruption, and dismissed most cabinet ministers
as amateurs who require "on-the-job training." Bagdasarov
expressed contempt for the Armenian diaspora -- particularly
in the United States -- which he accused of "false
nationaism" and undermining Armenia's national interests. He
portrayed President Sargsian as a man with few close friends
who makes decisions on his own. Bagdasarov added that the
President does not take advice on political matters, even
from the few people he trusts. End Summary.

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MIKHAIL BAGDASAROV: A SERZH LOYALIST
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2. (C) In a conversation over lunch on March 20 that lasted
nearly four hours, Armenian oligarch and Presidential friend
Mikhail Bagdasarov spoke candidly about a range of issues
including Armenia's handling of the economic crisis, the
competence of senior officials including the Prime Minister,
Turkish-Armenian relations, the Armenian diaspora and the
genocide issue, and the character and decision-making style
of President Sargsian.


3. (C) Bio Notes: Bagdasarov is a "Baku Armenian" who left
Azerbaijan on the eve of the Karabakh conflict. Like many
Armenians who grew up in Azerbaijan, he speaks fluent Russian
but virtually no Armenian. Since leaving Azerbaijan,
Bagdasarov has accumulated enormous wealth through a variety
of business interests in Armenia and Russia. He is the owner
of Armavia, Armenia's national airline, as well as the S-7
airline in Russia. Bagdasarov is one of several oligarchs
involved in the profitable fuel import business: he owns the
Mika company, both a wholesale and retail seller of gasoline,
oil, and petroleum products, and one of his companies is the
exclusive provider of jet fuel to Yerevan's Zvartnots
airport. He also owns one of Armenia's largest
cement-producing companies, which has turned handsome profits
during the country's recent construction boom. Bagdasarov
and his businesses are believed to have benefited
significantly from his longstanding and close personal ties
to President Serzh Sargsian. He is regarded as one of the
few oligarchs on whom the President can rely for
unconditional support. Unlike many Armenian oligarchs,
Bagdasarov has a relatively benign reputation among ordinary
Armenians. Bagdasarov spends much of his time in Moscow,
where his family lives and his children go to school. He has
preserved the Russified variant of his last name --
Bagdasarov, rather than Bagdasarian -- a legacy of "Baku
Armenian" roots and strong ties to Russia.

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PM A THINKER, NOT A MANAGER
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4. (C) Bagdasarov discussed at length his strong disapproval
of the GOAM approach toward the current economic crisis. He
argued that by pumping resources (from the IMF, the World
Bank, and Russia) into Armenian banks, the Government is
"doing what it knows how to do rather than what needs to be
done." Bagdasarov contended that the GOAM should be pouring
money into badly-needed infrastructure projects to stimulate
the economy, create jobs for citizens returning unemployed
from Russia, and modernize the country's transportation
network. He castigated the GOAM's stubborn defense of the
Armenian dram, which then was allowed to fall steeply (about
20 percent) in a single day on March 3. Bagdasarov claimed
that the devaluation, while inevitable, was mismanaged in a
way that inflicted maximum pain on the Armenian people and
severe political damage on the authorities. (Comment:
Although many in Armenia would agree with Bagdasarov's
criticism on this point, we understand it was the President
-- not the Government or the Central Bank -- who was
primarily responsible for the decision to defend the dram.
End comment.)


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5. (C) While expressing admiration for Prime Minister Tigran
Sargsian's intellect and commitment to badly needed reform,
Bagdasarov was scathing about Sargsian's performance as prime
minister. Describing the PM as "a thinker, but not a
manager," Bagdasarov argued that Sargsian's rightful place
would be as a policy advisor in the President's office. He
claimed that Sargsian had squandered whatever authority he
had as PM by mismanaging his relationships within the
Government and with the National Assembly. Bagdasarov said
the PM has been inept in managing the competing interests and
personalities that can make or break the reforms he is trying
to implement. Bagdasarov also branded the PM as a poor
communicator, saying he "only knows how to speak the language
of bankers." He argued that Sargsian's Central Bank career
was an ivory tower, and that the PM lacks practical
experience in how to get things done in the real world.
Bagadasarov criticized the PM for his repeated public
assertions that the worldwide economic crisis would have
little or no impact on Armenia.


6. (C) When asked who would have been a better choice as PM,
Bagdasarov chose Energy Minister Movsisian, whom he described
as a smart and a capable manager who understood the need to
"keep people happy" by reaching short-term compromises that
defer infighting on important issues. (Comment: We regard
Movsisian, the half-brother of Armenia's Ambassador in
Washington, as a savvy operator who has been a good partner
for USG assistance and a steady reformer on energy issues.
Bagdasarov's observation is not without merit. End comment.)
He added that he had told the President last June that Tigran
Sargsian was the wrong choice as PM, but the President failed
to take his advice. Asked whether the PM still has the full
backing of President Sargsian, Bagdasarov smiled: "I think he
knows now that I was right, but he still can't admit it."

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SPEAKER ABRAHAMIAN ON THE RISE
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7. (C) In Bagdasarov's view, Tigran Sargsian's
ineffectiveness as prime minister has accelerated the
political rise of Hovik Abrahamian, the current Speaker of
the National Assembly. When Armenia's power players --
oligarchs, politicians, ministers -- have disagreements or
want to get something done, he said, they now ignore the PM
and come to Abrahamian. Bagdasarov claimed that Abrahamian
won the loyalty and gratitude of members of parliament
shortly after his appointment as Speaker by allowing all MPs
to hire a paid professional staffer -- a move that had been
proposed to, and rejected by, PM Sargsian. He noted that
Abrhamian now orchestrates the question-and-answer sessions
the PM must hold in the National Assembly in a way that puts
the PM in the most unfavorable light possible, openly
encouraging MPs to criticize -- and even ridicule -- PM
Sargsian.


8. (C) While Bagdasarov would not be drawn out on his own
views of Abrahamian, he warned that the Speaker "should not
be underestimated." He claimed that through his effective
deal-making, behind-the-scenes problem-solving, and image as
an honest broker, Abrahamian had formed a virtual "shadow
government" within parliament, thereby marginalizing the PM
and other ministers. This task was made easier, he
contended, by the fact that most ministers in the GOAM are
"amateurs" who require "on-the-job training." He predicted
that Abrahamian would become Armenia's next prime minister
(though he did not view the current PM's demise as imminent)
and, ultimately, the country's next President. When DCM
noted that the President's position may not be open for
another nine years (assuming President Sargsian is
reelected),Bagdasarov said he did not rule out the
possiblity that Abrahamian could find a way to push the
current President aside and run for President himself in

2013.


9. (C) Bagdasarov argued that Abrahamian -- who has served as
a governor, a minister, and now as speaker -- has
methodically built a national base of support, and has
cleverly balanced his loyalties with former President
Kocharian, his first patron, and current President Sargsian.
He also revealed that through the upcoming marriage of his
son, Abrahamian will become an in-law to Prosperous Armenia
leader and mega-oligarch Gagik Tsarukian, thereby securing
his ties to another major power player on the Armenian
political scene. (Comment: Abrahamian is regarded by outside
observers -- and many Armenians -- as an unpolished, poorly
educated and parochial figure, a crass nouveau riche whose
brand of dirty-money politics, abuse of state "administrative
resources," and cunning opportunism is in the worst tradition
of recent Armenian politics. Nevertheless, we agree with
Bagdasarov that he should not be underestimated. Many of our
contacts laughed when the rumor first surfaced that

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Abrahamian would be named to the Speaker's position. No one
is laughing now. End comment.)

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YEREVAN MAYOR'S RACE TO BE "DIFFICULT"
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10. (C) Bagdasarov also claimed that Abrahamian strongly
supported President Sargsian's decision to oust the mayor of
Yerevan in favor of Gagik Beglarian, the controversial
community head of Yerevan's Kentron district after he was
already tapped by President Sargsian to head the Republican
Party list in the upcoming mayoral election. Assuming
Beglarian wins what Bagdasarov acknowledged will be a
"difficult" campaign against former President Levon
Ter-Petrossian, Beglarian will be indebted to Abrhamian and
likely to use his powerful office to further Abrahamain's own
political ambitions in the future.


11. (C) Asked to predict the outcome of the mayoral race,
Bagdasarov rolled his eyes and laughed: "it will be tough,
but Beglarian will win as long as Tigran (the PM) doesn't do
something else stupid." He asserted that many of the
President's supporters had urged him not to nominate
Beglarian, but that the President had made his decision based
on the expectation that the opposition would be led by LTP.
(Comment: This seems far-fetched, as none of our opposition
contacts expected LTP to run, and LTP associates have told us
privately that it was a last-minute decision. End comment.)
Beglarian, according to Bagdasarov, is the only Republican
who can "stand up" to LTP in what is expected to be a brutal
political struggle.

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THE "FALSE PATRIOTS" OF THE DIASPORA
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12. (C) Bagdasarov was enthusiastic about the potential for
Turkish-Armenian reconciliation and the possible opening of
the border with Turkey. He made clear that President
Sargsian shares this view. As a businessman who relies
heavily on imports, Bagdasarov noted that both the cost of
inputs and transportation expenses would decrease
significantly with a Turkey option. He claimed that most --
but not necessarily all -- of Armenia's oligarchs also
support a border opening.


13. (C) Interestingly, Bagdasarov also expressed contempt for
Armenian Diaspora groups, describing them as "false patriots"
who "only know how to repeat the word genocide." "When it's
time to come here and do something to help Armenia," he said,
"these people are nowhere to be found." He singled out the
Armenian-American Diaspora for special criticism, accusing
U.S.-based Armenian organizations of undermining Armenia's
national interests. Bagdasarov said there are
Armenian-Americans who have Armenia's interests at heart, but
asserted that "they are not represented by these groups."

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SERZH SARGSIAN -- A LONE WOLF
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14. (C) Bagdasarov thought long and hard when asked who among
the President's inner circle had real influence on his major
decisions. When pressed, he said that Sargsian "doesn't want
to hear advice" on political matters. Recounting that he had
himself offered advice concerning the Prime Minister's
fitness for his position, Bagdasarov laughed that "I would
never do that again." He added that when he criticized the
Prime Minister in a newspaper interview, he was immediately
called by the President and asked to "correct" his statement.
Bagdasarov said that while Misha Minasian, the President's
advisor and son-in-law, could at least offer the President
advice, there was no one willing to tell the President when
he was wrong.


15. (C) Bagdasarov described Sargsian as a lone wolf, with
few close friends or attachments. The President has a number
of trusted colleagues from his Karabakh War days, he said,
but even they had only infrequent access to Sargsian. "He
moves from one group of acquaintances to another," Bagdasarov
said, "without spending too much time with any one group."
But when it comes time to make decisions, "the President
decides on his own."

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COMMENT
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16. (C) Bagdasarov has known President Sargsian for decades
and sees him frequently, so his description of the
President's character and leadership style are undoubtedly

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accurate. He is also refreshingly candid about Armenia's
(and the Government's) shortcomings -- saying at one point in
the conversation, for example, that Armenia had much to learn
from Georgia about how to overcome its endemic corruption (a
heretical view in the Armenian establishment). Although he
is careful not to criticize the President directly, there was
plenty of implication in what he said to surmise that all has
not gone according to plan during the President's first year
in office. Bagdasarov's assessment of the domestic political
scene is largely consistent with what we have heard from
other interlocutors, though he provided more and credible
detail on the reasons behind the apparent rise of Abrahamian.


17. (C) As a major businessman with one foot in Russia and
the other in Armenia, Bagdasarov understands better than most
the growing implications of the accelerating economic
downturn in both countries. He is extremely pessimistic
about Armenia's short and medium-term economic prospects.
Bagdasarov's surprising view that President Sargsian may not
make it to a second term suggests he thinks the economic
problems could also spill into the political arena at some
point.
PENNINGTON