Levon Ter-Petrosian makes a gloomy forecast

The newly released transcript of Ter-Petrosian's speech at a pivotal meeting of the former Armenian leadership's top decision-making body provides insight into the former president's belief that Armenia's economic development is impossible without a settlement of the Nagorno Karabakh conflict.

Ter-Petrosian's opponents in 1998, including incumbent President Robert Kocharian, took a diametrically opposite view. And they now say that time has proved Ter-Petrosian wrong, pointing to robust economic growth registered by Armenia in the past eight-plus years.

The Armenian economy is on track to expand at a double-digit rate for a sixth consecutive year despite the unresolved conflict, a performance that has repeatedly drawn praise from Western lending institutions. Ter-Petrosian allies insist, however, that only a small share of Armenians have benefited from the economic improvements. And they maintain that growth is not sustainable without a normalization of relations with neighboring Azerbaijan and Turkey.

The power struggle that toppled Ter-Petrosian was sparked in the summer 1997 by an international peace plan calling for a gradual settlement of the Karabakh dispute. The plan, accepted by Azerbaijan, would indefinitely delay agreement on Karabakh's status until after the return of Armenian-occupied Azerbaijani territories surrounding Karabakh, and the reopening of the Armenian-Azerbaijani border. American, French and Russian mediators co-heading the OSCE Minsk Group argued that these confidence-building measures would facilitate a future deal on the territory's status.

Ter-Petrosian fully accepted this approach, laying out his vision for Karabakh peace during a September 1997 news conference and a subsequent newspaper article. Armenians, he wrote, should settle for the proposed compromise because they "did not win a war, but a battle" and because "the international community will not tolerate the status quo for long." But other key policymakers, led by then-prime minister Kocharian and then-Defense Minister Vazgen Sarkisian, insisted on a single "package" accord that would settle all sticking points at once. Their main argument was that it would be too risky for the Armenian side to pull out of the occupied Azerbaijani lands, which constituted Yerevan’s main bargaining chip, without securing international recognition of Karabakh’s secession from Azerbaijan.

The crisis reached its peak on January 7-8, 1998 at a confidential meeting of Armenia's National Security Council attended by two dozen top officials, among them Karabakh's ethnic Armenian leaders allied with the Kocharian-Sarkisian duo. The two sides reportedly stuck to their guns during the two days of heated discussion, with Ter-Petrosian and his top loyalists, including then parliament speaker Babken Ararktsian and Foreign Minister Aleksandr Arzumanian, finding themselves in minority. About a month later Ter-Petrosian went on state television to announce his resignation and the defeat of his "party of peace."

Details of that meeting remained sketchy until the 61-year-old ex-president, who has rarely been seen in public since losing power, published his concluding speech in the Yerevan newspaper Haykakan Zhamanak in late July. Most of it elaborates on what Ter-Petrosian described as the "physical limits" imposed by the Karabakh factor on Armenia’s post-Soviet economic prospects. "As long as these factors remain in place, whoever governs Armenia, no matter how [smart] they are, will fail to not only ensure a normal course of the country's economic development but also to solve existing socioeconomic problems," he told his rivals. He argued that disproportionately high transportation costs resulting from the closed borders with Azerbaijan and Turkey, and a lack of rail communication with the outside world would continue to stifle Armenian exports and scare away foreign investors.

Ter-Petrosian went on to describe arch-rival Azerbaijan and Turkey as Armenia's "most natural and beneficial economic partners" and lament the untapped "huge potential" of Turkish-Armenian commercial ties. He also warned of Armenia's exclusion from regional economic projects such as the Baku-Tbilisi-Ceyhan oil pipeline.

The Armenian economy had shrunk by half in 1992-1993 following the outbreak of wars in the South Caucasus. It began to slowly recover after a Russian-mediated truce stopped fighting in Karabakh in May 1994. Ter-Petrosian claimed in his 1998 speech that the recovery would slow down and perhaps stall altogether if the Karabakh dispute remained unresolved for several more years.

But economic growth only accelerated after his resignation, moving into the double digits in 2001. As a result, Armenia has more than doubled its GDP and state budget since 1998. Government statistics also show that the proportion of Armenians living below the official poverty line fell from 56 percent to 34.6 percent between 1999 and 2005. "Armenia's economic performance has been impressive in recent years," Rodrigo de Rato, managing director of the International Monetary Fund, said during a June visit to Yerevan.

Kocharian and his allies now feel that history has born out their view that peace with Azerbaijan is not a necessary condition for economic development. "Ter-Petrosian wrongly calculated Armenia's potential for socioeconomic development," said Spartak Seyranian, a senior member of the Armenian Revolutionary Federation, a nationalist party that was controversially banned by Ter-Petrosian in 1994, and that has been represented in Kocharian's government since 1998. "The past eight years have shown that the rejection of the 1997 peace proposals has not prevented Armenia’s development," said Seyranian.

Ter-Petrosian supporters, however, play down the official macroeconomic data, saying that Armenian growth would have been faster and more broad-based had Yerevan agreed to the 1997 deal. In the coming years, the economic and political risks to Yerevan posed by the Karabakh status quo will grow, as Azerbaijan reaps the benefits of its vast reserves of natural resources. "In essence, his [Ter-Petrosian's] views remain valid," Levon Zurabian, the ex-president’s former spokesman who was also present at the Security Council meeting, told EurasiaNet. "We remain depressed in the economic sense."

In his disclosed speech, Ter-Petrosian accused his opponents in 1997 of being irreconcilable enemies of compromise with Azerbaijan. His opponents counter that international mediators have put forward three different peace plans since Ter-Petrosian's resignation and all of them were essentially accepted by the Kocharian administration. The most recent of these proposals envisages a gradual solution to the Armenian-Azerbaijani conflict that would begin with the liberation of Armenian-occupied districts in Azerbaijan proper and end in a referendum on Karabakh's status.

Ter-Petrosian loyalists claim that the current government in Yerevan has embraced a peace formula that is similar to that which mediators placed on the table back in 1997. The Kocharian camp strongly disagrees, saying that the referendum envisioned in the existing plan would almost certainly formalize Armenian control over Karabakh. In the words of current Defense Minister Serge Sarkisian, this is what makes the existing Minsk Group "much more favorable" for the Armenian side. "The 1997 plan said nothing about the [predominantly Armenian] Karabakh people's right to self-determination," Sarkisian said.

But as the Minsk Group co-chairs admitted recently, the existing plan could still collapse amid lack of agreement on the method and scope of a Karabakh referendum. Azerbaijani President Ilham Aliyev has repeatedly said in recent months that his administration will never recognize Karabakh's independence or unification with Armenia, calling into question the implementation of the peace deal currently on the table.

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