ARMENIA AND THE JUNE 10 MCC BOARD MEETING

C O N F I D E N T I A L YEREVAN 000378 SIPDIS FOR MILLENNIUM CHALLENGE BOARD FROM THE AMBASSADOR STATE FOR S, F, D, P, E, EUR/FO WHITE HOUSE FOR USTR MCC FOR RODNEY BENT NSC FOR MARIA GERMANO TREASURY FOR SECRETARY E.O. 12958: DECL: 06/01/2019 TAGS: PREL EAID PHUM KDEM PGOV AM SUBJECT: ARMENIA AND THE JUNE 10 MCC BOARD MEETING REF: YEREVAN 372 Classified By: Ambassador Marie L. Yovanovitch, reasons 1.4(b,d) -------------- SUMMARY -------------- ¶1. (C) Despite modest progress in several areas mentioned by the Secretary in her letter to President Sargsian concerning Armenia's continued MCC eligibility, Armenia continues to fall short of what is required to merit restarting the rural roads portion of Armenia's MCC program. Although there is still time for a democratic breakthrough -- the President has said he will issue a full amnesty for March 1 detainees if there are proposals to do so, and we understand those proposals are being discussed today -- we do not anticipate any dramatic action before June 10. While there was notable improvement on freedom of assembly and media diversity during the recent campaign for the Yerevan city council, election day was marred by fraud, intimidation, and harassment of opposition supporters and observers. The authorities have undertaken recounts in some precincts, and several alleged perpetrators of fraud have been arrested. More arrests are expected. On the key issue of political detainees, there has been virtually no concrete movement. ¶2. (C) Summary cont'd: Of the remaining options on the roads program for the MCC Board -- suspension, termination, or retaining the current operational hold -- post recommends the latter. As a practical matter, there is little if any difference among the three -- each would effectively end Armenia's hopes that MCC would fund additional roads. Politically, however, a decision to terminate or suspend the roads program would complicate our engagement with senior GOAM officals at a time when U.S. engagement is critical to advance key U.S. regional objectives such as Turkey-Armenia rapprochement and the Nagorno-Karabakh settlement process. A termination or suspension -- especially at a time of economic crisis and great hardship for rural Armenians -- would also be seen as the United States punishing the Armenian people in their time of need. A quiet continuation of the current hold would, in our view, minimize these negative consequences while sending the appropriate signal to the Armenian Government, which is very much hoping for a resumption of the roads program funding. End summary. -------------- GOAM PERFORMANCE FALLS SHORT ON KEY ISSUES -------------- ¶3. (C) In her recent letter to President Sargsian regarding Armenia's performance on MCC eligibility critieria, the Secretary identified four key areas in which Armenia needed to improve in order to merit renewed funding for the MCC rural roads program: freedom of assembly, freedom of the media, free exercise of political rights, and detainees. The Secretary also specifically noted the importance of the May 31 election of Yerevan's city council and mayor as an opportunity for Armenia to demonstrate its commitment to democracy. The GOAM record in these area is mixed, but in our view falls well short of what would be required to justify renewed funding for MCC roads: -- freedom of assembly: There has been improvement, as the authorities have authorized an increasing number of opposition rallies and permitted virtually unfettered campaigning by all political parties during the recent election campaign. Despite continued restrictions on opposition marches through downtown Yerevan -- restrictions that are ignored in practice -- and a continued prohibition on opposition rallies on Northern Avenue, GOAM performance on freedom of assembly has clearly improved. -- freedom of media: As noted in reports by the Yerevan Press Club, a USAID grantee that has long criticized the Government for heavy-handed control of the electronic media, the media environment during the recent Yerevan election campaign was significantly improved compared with the Presidential campaign in February 2008. Although opposition parties received somewhat less coverage than their pro-Government rivals, the quality of the coverage was generally neutral. Opposition candidates and their supporters appeared numerous times in extended interviews to make their case to voters, including on public television. -- free exercise of political rights: The May 31 Yerevan municipal election was marred by extensive fraud, an atmosphere of intimidation, and widespread harassment of opposition proxies and election observers (reftel). Despite assurances at the highest levels that the vote would be fair, the Yerevan election was no better than the problematic presidential election of February 2008. Although senior officials have promised swift action against the perpetrators of fraud and recounts in some districts are underway, the election was -- by any measure -- a disappointment. -- political detainees: Although President Sargsian announced on May 28 that he is prepared to use his authority to propose an amnesty for many if not all of the March 1 detainees, and presidential advisors have assured us privately that comprehensive action on the detainee issue is imminent, the reality is that over fifty opposition supporters remain jailed, many on dubious, politically motivated charges. There is a meeting today at the Presidency to discuss amnesty proposals, but we do not expect action before June 10 (a late June time frame seems more likely). One high-profile detainee in the "trial of seven" was released on humanitarian grounds due to deteriorating health, but there has been no progress on the others. The Government has not exercised its authority to release 21 of the detainees now eligible for parole by virtue of having served one-third of their sentences. -------------- THE DECISION ON MCC ROADS -------------- ¶4. (C) Despite the real but limited progress noted above and promises of more dramatic action in coming weeks, post cannot, on the merits, recommend that MCC restore funding for the roads portion of the Armenia Compact. A decision to turn the roads funding back on would undercut those who are working to improve democracy in Armenia and sharply reduce our leverage with the GOAM on issues of democracy and human rights. Coming on the heels of a badly flawed election, a renewal of roads funding now would cause many to question the U.S. commitment to Armenia's democratic development. ¶5. (C) If the roads funding is not renewed, the MCC Board would have three other options -- termination, a formal suspension, or a continuation of the current operational hold. All three would have the same practical effect -- the GOAM would understand that there would be no more MCC funding for roads. The Government, which is counting on the road funding to create jobs in a time of economic downturn, would be unhappy with any of these choices, but the political effects of termination or, to a lesser extent, a suspension would be more severe. A continuation of the current hold would send an unmistakable signal to the Government that it will continue to pay a price for its shortcomings on democracy issues. It would be unlikely, however, to generate a public backlash against the GOAM, provide fuel for opposition attacks, or complicate our interactions with senior officials on critical issues. ¶6. (C) A decision to terminate or suspend the roads program, while not substantially different in its practical effect, would present another political problem for a Government that is already under attack from all sides for its courageous support for rapprochement with Turkey and constructive approach to talks on N-K. Those issues are of such strategic importance to the Government -- and especially to President Sargsian -- that we do not believe an MCC decision -- no matter what it is -- will cause a fundamental shift in policy. However, we would expect that an announcement of a suspension or termination of the MCC roads program would complicate our interaction with senior officials for the foreseeable future, just at a time when U.S. engagement on these issues is of critical importance. President Sargsian has gone out on a political limb with his approach to Turkey, and he has made it clear to us that he is looking for U.S. support. A public rebuke from the MCC Board could, at least in the short term, make it more difficult for Sargsian to move forward on issues -- like Turkey/Armenia -- that are important to U.S. interests. -------------- THE ECONOMIC FACTOR -------------- ¶7. (C) The worldwide financial crisis has hit Armenia hard, especially in the rural communities that are the primary beneficiaries of the MCC Compact. Migrant workers are returning unemployed from Russia, mines have closed due to plummeting metal prices, and farmers are planting less in anticipation of shrinking markets. Against that backdrop, a formal suspension or termination of the rural roads program would almost certainly be seen as the United States "punishing" poor Armenians even as Russia has provided a 500 million loan to support the Armenian economy. The GOAM would undoubtedly spin the decision that way to protect its political flank. This would heighten negative perceptions of the U.S. at a time when we are trying, with some success, to support elements of Armenian society that want to see Armenia pursue a more westward orientation. -------------- THE RIGHT BALANCE -------------- ¶8. (C) Post believes that continuation of the status quo on the MCC roads program strikes a balance that would enable us to maintain our credibility on democracy (and the credibility of MCC as a merit-based program) and at the same time engage in the most effective way possible with the GOAM on issues of strategic importance to the United States and to the region. YOVANOVITCH