Democracy and Governance in Armenia
The Development Challenge: In the 1990s, USAID shifted increasingly from providing humanitarian assistance to development assistance in response to the Government of Armenia's reform initiatives. USAID now concentrates its efforts on helping Armenians achieve a stable, open democracy and a law-based market economy.
Despite steady macroeconomic progress reflected in consistently high growth and low inflation rates, Armenia's poverty rate remains very high. At the end of 2003, 42.9% of Armenians lived below the poverty line, spending less than $24 a month. Government data show an increase of 10.3% percent in gross domestic product (GDP) for the first nine months of 2004. Much of the growth rate in 2004 was due to high donor financing, while growing exports and deepening import substitution account for the remainder. The exchange rate has seen a steep increase in the value of the dram versus the dollar, partly due to a high level of remittances. Exports grew by 1.5% in the first nine months of the year, while imports rose by 3.9% in the same period. Nevertheless, export levels remain very low, at $332 million in 2003 excluding diamond exports, which contribute little to the total economy. Imports are twice the value of exports and are made possible by remittances, which according to a USAID study amounted to about $900 million in 2003, or nearly one-third of GDP. This extremely high level of remittances as a percentage of GDP also indicates a high number of Armenians working abroad, likely due to the lack of well-paying domestic jobs. A low level of exports and dependence on outside financing suggests that the Armenian economy is not yet sustainable.
Armenia remains politically and economically isolated due to the ongoing the Nagorno-Karabakh (NK) conflict. Borders with neighboring Turkey and Azerbaijan remain closed. Closed borders have a negative impact on Armenia's economy and its prospects for growth, even though highway and rail traffic continues across the border with Georgia to the north and lighter highway traffic continues with Iran to the south. Some trade continues with Turkey through Georgia. Successful resolution of the NK dispute would allow the reopening of trade routes, making Armenia more attractive to potential investors.
The Government of Armenia's achievements toward strengthening democracy have been overshadowed recently by a number of incidents of violence against journalists and by the harsh crackdown on demonstrators in April 2004, when peaceful demonstrations held throughout the country and in Yerevan culminated in the forcible dispersal of demonstrators in front of the Parliament. Executive dominance of the political system continued to pose a significant challenge to Armenia's transition to democracy, resulting in reduced political and economic competition and providing little recourse for citizens to challenge the use of public office for personal gain. Various international organizations, including the OSCE, criticized the actions of authorities against the demonstrators in April 2004 and the overly lenient handling of the perpetrators of the attacks on journalists.
An overall lack of transparency and accountability, along with the country's relatively weak economy, has created an environment in which corruption can flourish. Entrenched state and business interests have little will or incentive to change the status quo. Corruption in Armenia includes bribery, illegitimate acquisition of assets, clientelism, as well as political corruption and conflicts of interest in the judicial and law enforcement sectors. The dominance of the Executive branch of government has reduced competition in Armenia's political and economic spheres. As a result, rule of law is problematic, political parties are weak and the media are not truly independent. Combating corruption is key to advancing Armenia's economic, political, and social reform process.
(Excerpted from the 2006 Congressional Budget Justification for Armenia)
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