President Levon Ter-Petrosyan's speech in the extended meeting of the Security Council

08 / 01 / 1998

Before turning to the statement itself, I do not think it would be out of place to summarize some views expressed here over the last two days in the interest of fully clarifying the issue under consideration. I ask for your forgiveness in advance if in some cases, the summaries are not word-for-word reproductions of the views, but they are accurate in substance. Thus:
"The blockades do not affect Armenia's economic development. What matters is the government doing its job and mobilizing its resources properly"(R. Kocharyan, V. Sargsyan);
"The Karabakh conflict is not an obstacle for foreign investments. Attracting investors depends on the active and large-scale marketing campaign, in particular, on making maximum use of potential of the Internet"(R. Kocharyan);
"It would be possible to increase Armenia’s budget two or three times over by fighting the shadow economy and toughening the process of tax collection"(R. Kocharyan, V. Sargsyan);
"If diaspora-Armenia relations are more improved, it will be possible to bring in $ 400-500 million in assistance annually" (R. Kocharyan, V. Sargsyan);
"Emigration no longer represents a threat to Armenia and, on the contrary, we can see trends toward immigration into Armenia. Evidence of this is the fact that where last year there were three or four first grade classes in schools, this year six or seven first grade classes were filled" (Robert Kocharyan);
"It would be impossible to completely isolate Armenia. Russia and Iran will help us. And if for some reason Russia stops supplying weapons, we can get weapons from Iran" (V. Sargsyan);
"The example of Israel shows that it is possible to develop even under conditions of isolation" (R. Kocharyan);
"In the process of the Karabakh settlement, we should pursue a strategy of actively freezing the situation" (V. Sargsyan, S. Sargsyan);
"We do not need to compromise on the Karabakh issue at this point. We will compromise if and when are compelled to"(V. Sargsyan);
"The preservation of the status quo in Karabakh does not represent a danger to us" (A. Ghukasyan);
"It would be impossible to ensure the lifting of the blockade-Azerbaijan might renege on the agreement with any pretext" (A. Ghukasyan);
"The step-by-step approach might increase the risk of war. It will be difficult to fortify the new defensive positions"(S. Sargsyan);
"The people of Karabakh will misunderstand the step-by-step approach; an exodus will ensue" (O. Yesayan).
"We are convinced that we can be independent; it is unacceptable for us to remain within Azerbaijan" (L. Petrosyan).
I have already remarked upon some of these views, so I do not think it is necessary to repeat my objections. I will try to address the others in my statement.
Let us turn now to the main subject. As I said in my opening remarks, there are three possibilities for the Karabakh settlement:
1. The package deal;
2. The step-by-step (phased) option;
3. The preservation of the status quo.

I am not planning to talk today about the advantages and disadvantages of the first two options, because first, you are familiar with them, and second, our observations and reservations regarding these options are expressed in our formal replies presented to the cochairmanship of the OSCE Minsk Group (we have distributed these documents among you). Besides, it will be meaningful to discuss said variants only after we have clarified whether we are prepared or convinced that the Karabakh issue ought to be resolved today, or whether it is necessary to wait, in other words, to preserve the status quo for the time being in the hope that time will work in our favor and the Karabakh issue will be solved by itself, the world will sooner or later reconcile to the fait accompli. Since it appears to me that many of you are leaning toward the third option, I will focus on it exclusively.
Theoretically, I do not deny that the preservation of the status quo, perhaps, could have been the best way out, because in contrast to the first two options, which are based on the idea of a compromise, it presumes an exclusively victorious solution. But this is true only in theory. In practice, before choosing this path, we are obliged to answer the question of whether Armenia, which is the only guarantor of the continued existence of Karabakh, will be able to preserve the status quo for a long period of time, while maintaining its own viability, economic prosperity, and military power, and at the same time, overcoming the hardships imposed by the blockades and withstanding growing international pressure. You might consider me a pessimist but I do not believe in such miracles. And here is why.
An analysis of the macroeconomic indices of the last years has led me to the conclusion that in its economic development Armenia is, one might say, already in collision with physical limits that are not dependent on the effectiveness of government action or other subjective factors. I will talk more about these limits later on; for the time being let us study the macroeconomic indices.
1994 1995 1996 1997*
GDP growth compared with previous year 5.4% 6.9% 5.8% 3%
Industry growth compared with previous year 5.3% 1.5% 1.4% 1%
Export growth compared with previous year 38% 25% 7.2% -20%
Import growth compared with previous year 54.9% 71.1% 27% 4%
*1997 data is preliminary
The table clearly shows that although there is continuing growth according to almost all indices, the rate of growth is slowing down visibly. And the trouble is, not only will this trend continue, but in one or two years, a trend toward economic recession will also manifest itself.
What is the reason for this? Is it that we have not done our work well? Is it the failure or slowing down of economic reforms? I do not deny that there is room for improvement here, and by working more effectively and speeding up the reforms, we might achieve some positive shift. But this will not substantially impact the economic development of Armenia, a phenomenon which, in my opinion, is dependent upon more fundamental and deep-seated factors.
These are the factors that I term the physical limits of the economic development of Armenia: the deepening political isolation of Armenia caused by the Karabakh conflict; the blockades; and the absence of foreign investment. Unless these factors are removed, whatever government comes to power in Armenia, whatever geniuses are at the helm of the government, not only will they not succeed in ensuring the natural course of the country’s economic development, but they will find it impossible to solve the present social problems.
Salaries, pensions and allowances will remain at the same pitiful levels, earthquake zone reconstruction will drag on for years to come and unemployment will increase. The salary of state employees today is about $20 per month. Even if we succeed in providing for a 30-40 percent annual increase in this field, just imagine what salaries we will be paying in five years. Will they be $40-50? Taking into consideration depreciation of the dram and the inevitable inflation it is not hard to imagine that in five years this $40-50 will have the same value as $20 does today; in other words, there will be no improvement of living standards, that is, of course, if God saves us from their deterioration. If I am not mistaken, someone here has expressed the view that our people will keep enduring for the sake of Karabakh, and that there is no danger of social revolt in Armenia. I too believe that our people will not endanger the existence of Karabakh for the sake of improving their living conditions. But people’s social discontent will manifest itself in another way-through the resumption of emigration.
I wonder what it is we are pinning our hopes on, when we boycott or, to put it mildly, postpone the settlement of the Karabakh conflict. On the conviction that the blockades do not hinder Armenia’s economic development, that foreign investment can be secured with the right marketing campaign, that the budget can be tangibly increased through tighter discipline on taxation, that the diaspora will be able to provide hundreds of millions of assistance, that Russia and Iran will help us and will lead us out of isolation, that we will succeed in what Israel has succeeded in, that we should compromise only when we are compelled to? These assertions seem so convincing that I think it is necessary to address them one by one.
In my opinion, the unsettled state of the Karabakh conflict has a negative impact on Armenia’s economic development in many respects.
First, the blockades cause an approximate 30 percent rise in the cost of cargo transportation to and from Armenia which, by itself, is a huge burden for both our manufacturers and businessmen. This figure is neither far-fetched, nor is it a guess; it is the result of serious economic calculation. You can read the lengthy inquiry presented by the ministry of transportation and the study by the World Bank, which have been prepared at my request for our session, if you want to make sure. And if you do not trust these documents, you can visit any factory, construction site, or store, and ask them to what extent the blockade impacts their work.
The blockade hinders the export of large-sized products in particular. Strange as it may sound, at this moment, we have goods worth about $1 billion that we are unable to export because of their large physical dimensions. These are molybdenum ore, building materials, bentonite, perlite, and wine (air transportation of molybdenum concentrate and cognac still makes some economic sense). Not to mention the Nairit plant, 16 which, to operate profitably would require one train a day to and from the plant.
Of course, our burden would have lightened if at least the Abkhazian railroad—whose closure is not related to the Karabakh conflict—had resumed operation. Armenia and Russia have exerted considerable efforts in this direction, but the Georgian government has not been receptive. Therefore, taking into consideration this bitter experience as well as the continuing conflict between Georgia and Abkhazia, I am confident that the railroad will not operate for at least another five years. Thus, we cannot rest our hopes upon it, and we are forced for the time being to be satisfied with the existing expensive transportation routes. Not only do we have no outlet to the sea, but also we are at present, for all intents and purposes, without access to railroads. And without railroads it is hard to imagine a reasonably viable economy.
Second, as regards the allegation that the influx of foreign investments is not dependent on the Karabakh conflict, and that we can reassure potential investors if the government of Armenia pursues a more active and wideranging marketing campaign, I believe that its outcome will be insignificant even if I do not deny the need for carrying out such a campaign. No one can deny that the possibility of the resumption of military operations in Karabakh makes Armenia a zone of risk from the standpoint of foreign investment. Foreign capital cannot but take into consideration this situation, a fact that has been repeatedly expressed by experts from international financial organizations. In addition, I have already noted that the blockades cause a roughly 30 percent rise in the price of cargo transportation to and from Armenia which also inevitably influences the intentions of foreign investors; how can businesses that are vulnerable to fluctuations of one cent remain indifferent in the case of a 30 percent rise in cost? And finally, we must be rational and realize that even irrespective of these circumstances, Armenia as a three-and-a-half-a-million person market is not in itself attractive to foreign investors. In the event of the settlement of the conflicts, a 15-million strong market can take shape in the South Caucasus, which, undoubtedly, would become a fertile field for foreign investment. A factory would be built in Armenia, another one in Georgia, a third in Azerbaijan, all of which could equally service this common market. Besides, under these conditions, it would be possible to implement large-scale regional projects that are much more attractive to foreign capital than investments made in one specific country—not least because such projects, which indirectly promote regional security and stability, are politically significant as well as economically expedient.
Third, the existence of the conflict deprives Armenia of its most natural and favorable economic partners—Azerbaijan, Turkey, and, to an extent, Iran. Natural and favorable, first of all for the simple reason that they are our immediate neighbors. It is no secret that in all normal states, immediate neighbors account for at least a 50 percent of foreign economic relations. But in the case of Armenia, this share is practically zero. I have had opportunities to evaluate the potential and prospects of Armenian-Azerbaijani economic cooperation; I will refrain from reiterating. I do not think anyone can deny the tremendous potential of Armenian-Turkish economic relations; it might perhaps play a secondary role in the process of Turkey’s economic development, but for Armenia, it is undoubtedly of vital importance. According to calculations made by our Union of Industrialists, in the event of reopening communication routes between Armenia and Turkey, the commodity circulation between the two countries might reach about $600 million within a year. In other words, in the course of one year, the foreign trade turnover of Armenia might grow by 50 percent (today it amounts to $1.125 billion). This means major opportunities for the development of industry, additional jobs, and prospects for solving social problems. It should also not be forgotten that besides being natural economic partners—which is a value in itself—Turkey and Azerbaijan have also special importance for Armenia as the shortest transit routes toward, in the first case, Europe and the Arab states, and, in the second case, Iran, Russia, and Central Asia.
Fourth and finally, Armenia is being left out of regional organizations and is being condemned to ever deepening isolation, which in my view is the most unfortunate and dangerous problem. Currently, Armenia is a member of only two regional organizations, the Commonwealth of Independent States (CIS) and the Black Sea Economic Cooperation (BSEC). The CIS, with all its importance in political and security matters, in fact plays no role in Armenia’s economic development. And BSEC has not yet moved beyond its status as a club for expressing good intentions. As for the Armenia-Iran-Turkmenistan and Armenia-Iran-Greece trilateral cooperation projects, they are still in the formation stage, but even in the event that they are fully implemented they cannot have a substantial impact on our economic development. I believe it is clear to all of us that from an economic standpoint much more practical and important are GUUAM, TRASECA, ECO and the international oil consortiums, whose doors, unfortunately, are so far closed to us.
By boycotting or even dragging out the conflict settlement, we will not only be unable to escape our isolation, but we will also deepen it further and further. I am not talking only about economic isolation, since it is clear that economic isolation will also have undesirable political consequences. I do not rule out that even in isolation, Armenia might be able to participate in certain projects of regional organizations, but I have in mind not symbolic participation but full-fledged membership, for only then can we anticipate tangible results.
And now let us consider the other assertions made here.
The fact that it is necessary to fight against the shadow economy and toughen tax enforcement is unlikely to meet with objections. But that it will make it possible to significantly increase the budget seems highly questionable. Through such measures, it is possible at best to achieve temporary results, since it goes without saying that budget growth depends not as much on administrative methods as on general trends in economic development. And such trends, as I have said earlier, cannot exist in a situation of continuing blockades, lack of investment and political and economic isolation. In addition, I believe that getting carried away regarding administrative methods in this area may be extremely dangerous. Certain measures taken by the government lately have already aroused my concern. Bearing in mind certain inclinations on the part of the relevant bureaucracies-the Taxation Administration, the Customs Inspection, the Ministry of Interior and the Prosecutor’s Office-I have no doubt that implementing coercive administrative methods will lead to serious abuses of power and as a consequence we will have job cuts, outflow of capital, decline in commodity and capital turnover and ultimately a decrease in tax proceeds, in other words, we will get the exact opposite of what we hoped for. All this will result in the further deterioration of the already dismal social conditions of the people and in a new wave of emigration.
It is not clear either what the expectation of huge amounts of assistance from the diaspora (estimates of $400-500 million) is based upon. We are told that so far we have not worked with the diaspora efficiently, we have not built our relations with it appropriately and because of this, up to now we have received insignificant assistance. Even if we consider these criticisms to be justified, I do not think that anyone more or less familiar with the diaspora would claim that it is capable of providing Armenia with $400-500 million in assistance annually. The Hayastan All-Armenia Fund has been able so far to secure about $10 million in donations from the diaspora annually. Perhaps if we work better, if we conduct the relationship better, by the most optimistic estimate, it would be possible to raise this amount to $20 million a year. “Why so little”? you will ask. Because, in addition to Armenia, the diaspora has numerous other concerns as well: it is obliged to provide for the expenses of various national institutions, the church, schools, clubs, political parties, media, hospitals and homes for the elderly as well as to financially support the lobbying activity expending from year to year. Accordingly, the expectation of hundreds of millions dollars in aid from the diaspora is not only mythical but also dangerous if it is viewed as one of the important guarantees of the economic development of Armenia. The issue of how much hope we can pin on Russia and Iran vis-à-vis the Karabakh settlement and the economic development of Armenia also remains an open question to me. True, Russia has hitherto provided Armenia with vital help, in particular, in securing the viability of the energy system, in the formation of the army and in furnishing it with ammunition. Since independence, Armenian-Russian relations have developed in a completely favorable atmosphere and are today at their peak. Armenia has succeeded in making optimum use of these relations, which, perhaps, is one of the most important achievements of the independence period. But unfortunately, this situation cannot go on forever. First, I am obliged to repeat that Russia will never recognize the independence of Karabakh, if for no other reason than because it has about 20 Karabakhs within its borders. Further, today Russia has such vital links to the West and to international economic organizations, in particular, that it is unable to stand sharply against OSCE or UN plans for the settlement of the Karabakh conflict. Russia has lately manifested an absolute solidarity with the settlement plans proposed by the United States and France within the framework of the co-chairmanship of the OSCE Minsk Group. Out of the same desire to avoid unnecessary problems with the West, Russia will also one day be forced to stop supplying Armenia with armaments. Moreover, I do not rule out-on the contrary, I consider it quite natural-that taking into consideration the matters of exploiting Caspian oil and constructing oil pipelines, Russia will henceforth exert great efforts toward establishing good relations with Azerbaijan and in that case, Armenia will lose its advantage of being Russia’s only ally or strategic partner in the Caucasus.
As for the assertion that if Russia stops supplying us with weapons, we will get the weapons from Iran; I think this, too, lacks objective grounds. True, against the background of Iranian-Azerbaijani disputes, the strengthening and economic prosperity of Armenia are in Iran’s national interest. It is also true that during the worst period of the blockades imposed on Armenia, the Meghri road was one of the most important factors for our survival. But at the same time, one should not forget about two circumstances. First, the limited capacity and the extreme costliness of the Meghri road cannot provide for serious cooperation between our countries. Second, in Iran, in addition to national interest there also exists a perception of Muslim solidarity. For this reason, no Iranian government will dare to provide a Christian nation with weapons for use against any Muslim nation, unless, of course, that government is out of its mind. And last, if Iran is able to provide us with weapons, why has it not done so up to now?
I am not sure to what extent the comparison between the situation in Israel and in Armenia is appropriate. True, Israel, while in a state of military confrontation with all its neighbors, managed to secure its economic development and military power, but it has never been subjected to the kind of blockade that Armenia is experiencing. Israel has hundreds of kilometers of maritime borders and several high-capacity military-commercial ports. How can we talk about the isolation of Israel when it also gets about $4 billion in assistance from the Jewish diaspora and approximately as much from the US government annually.
Most stunning, however, is the assertion that we should make compromises on the Karabakh issue only when we are compelled to. Isn’t it clear what forced compromise means? Forced compromise means surrender. But when you surrender, you concede nothing, or if you do concede, you get nothing in exchange, but humbly and obediently accept whatever is thrust upon you. Is our bitter experience of the past not enough. Are the shameful treaties of Batumi and Alexandropol, where earlier there had been a chance to find more favorable solutions but the individuals in charge at the time had squandered those opportunities, not enough? I have to repeat the simple idea of my most recent article: one must make compromises from a position of strength. Tomorrow Armenia will not be stronger than today. Therefore, any solution of tomorrow will be worse than today’s solution.
Hence, all arguments against the necessity of a speedy resolution of the Karabakh problem are, in my opinion, beneath criticism. Moreover, I view a tendency in these arguments to stray from the essence of the matter and stir up a technical debate about the package and the step-by-step settlement options. Although I have promised not to touch upon these options, since a lot has been said on the subject, I have to offer some explanations.
The issue is framed as though Armenia favors the step-by-step approach and Karabakh is for the package deal. The fact that Armenia (true, with certain fundamental reservations) accepted the package proposal and Karabakh itself categorically rejected it is being consigned to oblivion. After the rejection of the package deal we were presented with the step-by-step option and Armenia (again with fundamental reservations) accepted it, whereas Karabakh rejected it again and is now insisting on returning to the package option. A question arises: Why then does Armenia continue to insist on the step-by-step solution? My response is: First, we believe that the Karabakh problem ought to be solved today and today there is no other solution but the step-by-step settlement; and second, we are convinced that an agreement between Karabakh and Azerbaijan over the package solution will not be reached for a long time, perhaps ever. The proposal to return to the package deal, therefore, has its object not solving the problem but buying time. Do you think it is hard to buy time? Do you think I cannot preserve the status quo for three or four years until my term in office is over? But what will happen after that? In what stalemate will the next president find himself?
I will now conclude. The two days of discussion have given me serious grounds to doubt whether the opponents of the step-by-step option have the intention of resolving the Karabakh conflict at all. Many of you do not particularly conceal this fact, which is evident from the views I have summarized at the outset of my statement. The so-called debate about the package, the step-by-step or other options, is, I am confident, just a cover for dragging out the settlement process, for maintaining the present situation, that is, the status quo, for as long as possible. I have a painful premonition about what a terrible danger to the existence of both Armenia and Karabakh this represents. Today, like in Batumi and Alexandropol before, we are in danger of missing, perhaps, the last opportunity for an auspicious resolution of the Karabakh conflict and for the economic development of Armenia. And we will all be held responsible for our people.

01/08.01.98. Original. Type-written.