| U.S. Government Assistance to and Cooperative Activities with Eurasia -FY 2004 Released by the Bureau of European and Eurasian Affairs January 2005 II. Country Assessments and Performance Measures - Armenia U.S. STRATEGIC INTERESTS In FY 2004, the USG provided an estimated $109.38 million in assistance to Armenia (including $2.60 million in FY 2003 FREEDOM Support Act funds): In FY 2004, some 282 Armenians traveled to the United States on USG-funded training and exchange programs implemented by the U.S. Departments of State, Agriculture, Commerce and USAID, bringing the cumulative number of Armenian participants in such programs to date to over 4,300.
U.S. ASSISTANCE PRIORITIES Democratic Reform Programs: In FY 2004, USG democratic reform assistance focused on anti-corruption, legislative strengthening, local governance, rule of law, media, and civic participation. Programs enhanced the ability of the National Assembly to perform economic and legal analysis, conduct constituent outreach, and expand its accessibility to the media and citizens. A full program of USG assistance to the judiciary focused on enhancing judicial independence was restarted in 2004, following a hiatus resulting from the judicial branch’s unwillingness to reform. Civic participation programs emphasized women's participation and leadership. Academic exchange programs, professional exchange programs, support for educational reform (especially in the areas of civic education, curriculum development and teacher training) and small grants to non-governmental organizations (NGOs) continued to strengthen Armenian civil society. Economic and Social-Sector Reform Programs: USG assistance programs emphasized job creation, an improved legal and regulatory environment, poverty reduction, and income generation. Specific activities served to stimulate growth and competition in the private sector and increase public and private investment, and included public-private partnerships, projects benefiting micro-, small- and medium-sized enterprises (SMEs) and strengthening of employment centers. Other programs emphasized business opportunities in information technology, tourism, and agribusiness, as well as agricultural development. At the policy level, significant assistance was focused on improved tax administration, bank supervision, and the development of investment friendly commercial laws and economic regulation. USG social-sector reform programs sought to improve the country’s social safety net and primary healthcare services by strengthening key systems, while at the same time providing urgently needed services to the most vulnerable sectors of the population. Security, Regional Stability and Law Enforcement Programs: In FY 2004, USG security-related assistance strengthened Armenia's capacity to control its borders, prevent proliferation of weapons of mass destruction, train its law enforcement personnel, and combat trafficking in persons. Military-to-military assistance sought to improve the interoperability of Armenian forces in international peacekeeping operations, and to enhance communications and training capabilities. USG assistance improved the Armenian Government’s ability to detect, deter and react to acts of terrorism, as well as encouraged the adoption of legislation to track, freeze, and seize terrorist assets. USG assistance targeted at former weapons scientists enabled them to conduct peaceful research with potential commercial, public health, or other social benefits. Specialized law enforcement assistance was provided at both the national and local levels. The U.S. Energy Department’s (DOE) National Nuclear Safety Administration (NNSA) implemented joint projects with the Armenian Ministry of Energy to improve near-term safety at the Armenian Nuclear Power Plant (ANPP), and to provide support in emergency management. DOE/NNSA also provided technical and operational training to improve the capability of training plant operators, as well as equipment and a training program in radioactive source control and management. SECTORAL ASSESSMENTS Democratic Reform During FY 2004, the USG supported democratic change in Armenia through a broad program of assistance to the NGO sector, independent media, local and municipal governments, the legislature, and the legal sector. Armenia’s transition toward democracy had mixed results in FY 2004. Progress was made in the NGO sector, local government, and the legislature. The National Assembly’s Control Chamber exercised its oversight responsibilities, issuing a high-profile annual report that was critical of government actions in various sectors. These achievements were overshadowed, however, by a number of incidents of violence against journalists and by a harsh crackdown on demonstrators in April 2004. Peaceful demonstrations that had been held throughout the country and in Yerevan culminated in the use of force to disperse 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 Organization for Security and Cooperation in Europe (OSCE), criticized the actions of authorities against the demonstrators in April and the overly lenient handling of the perpetrators of the attacks on journalists. Lack of transparency and accountability, along with the country’s relatively weak economy, have 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, clientism, as well as political corruption and conflicts of interest in the judicial and law enforcement sectors. Unequal enforcement of the law remained one of the most detrimental forms of corruption in FY 2004. Irregularities in the rule of law seriously constrained the business and investment climate. For example, laws related to fair business competition were unevenly applied, contracts were not consistently enforced, and bureaucratic requirements were used selectively to harass disfavored businesses. Despite the adoption of an anti-corruption strategy and action plan, the international community continues to call for the Armenian Government to demonstrate a genuine commitment to implementing the strategy and combating corruption effectively. In FY 2004, USG-funded democratic reform assistance helped improve democratic governance by expanding civic participation and strengthening institutions of governance. With the help of USG assistance, more than 13,000 people participated in 240 town hall meetings to discuss citizens’ concerns with community leaders. In more than 660 dialogue groups held around the country, citizens discussed the law on the legal status of property, community schools, privatization, community development, and apartment building administration among numerous other issues. The impact of these programs was reflected by the concrete actions taken by initiative groups that formed as a result of the dialogue groups. Successful efforts included renovation of a local state college and establishment of a library fund for the college, city clean-up days, legalization of supplementary constructions by building residents, and improvements in the sanitary situation in communities. Additionally, 112,000 community members, government officials, NGOs and businesses participated in volunteer activities as part of more than 1,200 events nationwide. USG programs helped targeted government institutions, especially local governments, to improve internal management systems, implement transition reforms, strengthen oversight and fiscal responsibilities and increase public accessibility and accountability. A USG-funded program improved the capacity of local government to implement capital improvement plans and local budgets, and assisted local governments with general planning and management. Local government budget revenues increased due to improved asset planning and tax collection and administration. The USG coordinates its local government assistance with that of the European Union. The USG helped the National Assembly’s Control Chamber to improve legislative oversight of the national budget, and, for the first time, helped the government improve its published budget. Among other steps taken, the National Assembly expanded and improved its openness and public relations by holding committee hearings, publishing draft laws in newspaper inserts, and developing a tracking system for citizen inquiries and communications. USG technical assistance helped independent (non-state-owned) media outlets improve their business acumen, address marketing concerns, and improve the objectivity of their reporting. As a result, local newspapers are now utilizing free classified advertisements, thereby increasing demand and circulation and attracting more paid advertisements. Commercial revenues of six television stations receiving USG technical assistance increased by thirty-seven percent, and independent news quantity increased by twenty-four percent. The USG will continue to provide assistance aimed at improving the business skills of, and working environment for the media. In FY 2004, USG-funded educational reform programs, exchange programs, and activities for exchange program alumni extended opportunities for Armenia’s next generation of leaders. Teaching and school leadership programs concentrated on enhanced civic education programs for early and mid-level education, resulting in the nationwide implementation of new curricula and teaching methodologies and expanded into high school curricula and teacher training. The Armenia School Connectivity network has expanded to over 280 schools that have been provided with computer classrooms and Internet connectivity, giving students, educators and community members free access to outside information and computer training. Exchange programs continued to expose Armenians to American democracy and civil society, and gave almost 300 Armenians a first-hand look at civil society in the United States. The alumni of USG exchange programs have formed highly effective NGOs for promoting democratic development in Armenia, such as Youth for Achievement, which focuses on citizen participation in education, and the first Armenian branch of Transparency International and the Armenia Model United Nations Association. In FY 2005, USG democracy programs will continue to focus on strengthening the capacity of local governments, combating corruption, and strengthening grassroots citizen participation. Support for effective advocacy NGOs and independent media will be the central focus of USG democracy assistance in FY 2005. Economic and Social-Sector Reform Armenia continued to boast notable achievements in this area in FY 2004. Real GDP growth reached 10.2 percent in the first nine months of 2004. According to official government statistics, virtually all Armenians are literate, with approximately eighty percent having completed high school. School attendance and completion rates among primary to middle school-aged children are high in both urban and rural areas, and there are no significant differences by gender. Approximately 26 percent of urban women and 29 percent of urban men have a university education. Despite these successes, economic growth is not yet broadly based. Basic poverty indicators have begun to demonstrate progress during the past two years, although jobs are being created too slowly to absorb the many unemployed and severely underemployed. In 2004, the Government of Armenia reported that 42.9 percent of the total population lived in poverty, with the extremely poor constituting 7.4 percent of the population. Small and medium-sized towns continue to fare the worst in this regard. While Armenia’s literacy rates are impressive, the quality of education received and its relevance to Armenia's current economic and political development is a serious concern. Armenian schools have undertaken some reforms, but the overall approach to education has not changed substantially since the Soviet era. As such, too many individuals receive an education in areas that were more relevant to a Soviet economy rather to a modern, market-based economy. Armenia’s private sector grew significantly in FY 2004, and some progress was made in formalizing the informal economy, where significant income is earned. The number of active, legally registered entrepreneurs continued to rise throughout 2004, at a rate of just over three percent per year. The private sector share of GDP rose slightly from eighty percent in 2003. While it only takes 10 days to start a business, which compares favorably with similar countries, the amount of time required to enforce a contract increased from 65 days in 2003 to 195 days in 2004. Tax revenues as a percentage of GDP fell from 15.2 percent in 2003 to fourteen percent in mid-2004. This can be explained by the high level of tax minimization, especially among powerful and well-connected businesses. In its work in macroeconomic reform, the USG coordinates closely with the World Bank and the International Monetary Fund (IMF). Armenia has a small internal market; exports therefore play a crucial role in the country’s economic development. As a result of the Nagorno-Karabakh conflict, Armenia’s borders with Azerbaijan and Turkey remain closed, and Armenia’s imports and exports flow largely through Georgia. High transportation costs increase the cost of both imports and exports and thus bias Armenian exports towards high-value, low-volume products, such as cut diamonds and information technology. Since 1991, a small pipeline through Georgia has been the only source of natural gas for electricity generation and heating, which occasionally results in disruptions in supply. This situation led to the reopening of the Armenian Nuclear Power Plant in November 1995. Meanwhile, uncertain energy supplies continue to place barriers on industrial output. In FY 2004, USG-funded economic reform assistance focused on three areas: developing micro-, small- and medium-sized enterprises (SMEs), improving the regulatory and institutional framework (including fiscal and customs reform, banking supervision, and accounting reform), and developing banking and capital markets. In the area of SME development, the USG coordinates with the European Union’s TACIS Program and the United Nations Development Program (UNDP), and is working with the European Bank for Reconstruction and Development (EBRD) to design a new joint effort. The positive influence of USG economic assistance was most evident in SME development: full-time-equivalent SME employees increased from 2,000 in 2003 to 3,485 in 2004. The total value of exports by USG-assisted SMEs rose from $8.15 million in 2003, to $9.3 million in 2004. USG assistance also had an impact on the post-privatization performance of the electricity sector, where collections rose to virtually one hundred percent in 2004 (from seventy percent in 2001) as a result of the installation of USG-provided electricity meters and data acquisition systems. Financial losses in this sector fell from $42 million in 2002 to none in 2004. The U.S. Agriculture Department’s (USDA) Marketing Assistance Project (MAP) continued to provide technical, financial and marketing assistance to Armenian small and medium-sized agribusinesses in FY 2004, including wineries, fruit and vegetable processors, cheese makers, water bottlers, meat processors, seed and feed producers, and food packaging enterprises. In FY 2004, American land-grant university faculty provided technical assistance with irrigation training and water management; integrated pest management, dairy herd health, nutrition, and breeding; increasing food health and safety through improved cleaning and sanitation procedures and in-house labs; new product development, often for import substitution; agricultural sector seminars and knowledge and technology transfers to local agribusinesses, etc. In addition, MAP facilitated agro-leasing agreements for agricultural field equipment, production equipment, and transportation vehicles through Agro Leasing LLC. In FY 2004, U.S. Treasury Department advisors continued to work directly with the Armenian Ministry of Finance and Economy to strengthen financial accountability and transparency through decentralization of the internal audit function, the design of a new financial management system in compliance with international public sector accounting standards, and support of a training center to provide education in the areas of public financial management. With USG support, Armenia made great strides in social insurance systems management in FY 2004. USG social sector assistance concentrated on establishing the legal and institutional foundation for sustainable social insurance and assistance systems, improving the efficiency and effectiveness with which the Armenian Government provides social assistance and primary healthcare, developing NGO and private-sector capacity to provide urgent primary healthcare and social services (with a particular focus on children and the elderly), and increasing citizens’ capacity to meet their own needs through small-scale community infrastructure projects. USG assistance helped Armenia adopt critical legislation, such as the Law on Social Security Cards, the draft Law on Non-State Pensions, and the draft Law on Social Assistance, and supported efforts to improve existing social security systems. In addition, USG assistance promoted better primary healthcare by launching citywide open-enrollment programs; to date, 153,922 people in two urban centers (58 percent of the eligible population in those cities) have selected their own primary care physician. In 2004, the USG helped nine additional pilot healthcare facilities test new financing and training methods to boost consumer utilization of health facilities, and improve the quality and management of services. USG assistance also strengthened healthcare service provision by reaching more people in rural areas, with an eightfold increase in average prenatal care visits in one marz. Over 8,000 outreach visits were provided through mobile medical teams that offer basic health services such as screening for diabetes and breast cancer, maternal and child health services, health information, referrals, and core medicines. Activities in the health sector in FY 2005 will focus on supporting primary healthcare reform and financing, increasing utilization of primary healthcare services, improving reproductive and maternal/child healthcare nationwide, and increasing outreach services in remote areas. In the social sector, vocational training programs will target unemployed adults and out-of-school youth. Assistance efforts will attack poverty from both ends by contributing to the overall reduction of extreme poverty, while increasing the number of Armenians participating in the labor market and receiving urgently needed social and health services. Security, Regional Stability, and Law Enforcement Preventing the spread of WMD, as well as related expertise and delivery systems, remained the highest USG foreign policy and national security priority for Armenia in FY 2004. The USG has been working with the Government of Armenia to develop a strategy to address the need for strong export control laws and regulations, and in 2004 the USG continued to support the Armenian Government’s efforts to implement regulations that bolster its recently passed Export Control Law. The Export Control and Related Border Security (EXBS) Assistance Program facilitated Armenia’s adoption of international regulation norms. EXBS also provided specialized training and equipment for detection of WMD and related materials to the Armenian Customs Committee and Border Guards. In FY 2004, inspection and detection training were areas of particular emphasis. U.S. military assistance focused on increasing the interoperability of Armenian equipment and systems with those of NATO forces, enhancing regional stability, and fostering military cooperation between the United States and Armenia. Armenia supported the Global War on Terrorism by granting overflight rights and offering forces in support of ongoing operations. Armenia has also demonstrated a willingness to participate in selected international peacekeeping activities. The USG provided the Armenian Ministry of Defense with Foreign Military Financing (FMF) grants, which were primarily used to improve the Armenian military’s communications infrastructure. During FY 2004, communication equipment purchased with FMF was delivered to the Armenian Ministry of Defense. The USG also supported Armenia’s increased participation in Partnership for Peace activities. The USG continued to support increased Armenian involvement in the International Military Education and Training (IMET) Program, which funded professional military courses and English language training for Armenian military personnel in the United States. In addition, Armenian officers participated in programs at the George C. Marshall European Center for Strategic Studies focusing on civilian control of the military. The Government of Armenia committed to justice sector reform when it acceded to the Council of Europe (COE) in 2002. After more than five years of work, the Government of Armenia finally adopted a new Criminal Code in April 2003, which entered into effect in August 2003. For the first time, terrorist acts are defined by law, and a number of offenses, such as trafficking in persons, are criminalized. Nevertheless, Armenia still falls short of having a comprehensive legal framework to effectively combat serious crime. Armenia has not yet implemented a comprehensive anti-money laundering regime, and while mechanisms are in place to identify and freeze terrorist assets, laws directly addressing the issue of terrorist financing or fundraising need to be supported by concrete measures with full government support. Armenia is currently a party to only nine of the twelve international counter-terrorism conventions. Assistance efforts in FY 2005 will complement policy initiatives that encourage Armenia’s signing and ratification of these conventions. In the U.S. State Department’s 2004 Global Trafficking in Persons Report, Armenia remained on Tier 2, because it was deemed to be a country of origin, transit or destination for a significant number of trafficking victims and because the Armenian Government did not yet fully comply with the Trafficking Victims Protection Act minimum standards for the elimination of trafficking. In 2004, the USG continued to provide assistance to increase Armenia’s capacity to eliminate trafficking in persons. In addition to continuing assistance to strengthen laws against trafficking, research into the causes and extent of the problem and support for NGO assistance to victims, USG assistance also focused on investigation and prosecution of traffickers and more detailed monitoring of immigration and migration. The year 2004 saw the first prosecutions in Armenia for the crime of trafficking in persons. Other USG law enforcement assistance in 2004 included improvements to law enforcement training through specialized training courses and establishment of computer labs for training of police and prosecutors. Criminal law reform assistance continued, concentrating on criminal code reform training for advocates, judges, prosecutors and police and skills training for the defense bar. Police and teachers worked together in Armenian public schools to inform students of their rights and responsibilities under the law and to break down barriers between the public and the police. In the energy sector, DOE/NNSA implemented joint projects with the Armenian Ministry of Energy to improve near-term safety at the Armenian Nuclear Power Plant (ANPP), and to provide support in emergency management. In addition the DOE/NNSA provided technical and operational training to improve the capability of training plant operators. In FY 2005, USG assistance will continue to promote nuclear reactor safety, establish emergency response procedures, and secure nuclear material against misuse. USG assistance to former weapons scientists encourages their transition to sustainable peaceful research activities and their cooperation with partners throughout the Caucasus region. In FY 2005, forensic lab development will begin in earnest, with the lab director now in place and the lab officially chartered. Extensive improvements to the law enforcement training infrastructure and curriculum are also part of FY 2005 programming. Work will also continue on the development of a law enforcement computer network to improve records collection and access and real time communication. A senior U.S. prosecutor will serve as a resident legal advisor to assist in the reform of criminal procedures and to improve the skills of Armenian prosecutors. Humanitarian Assistance While in the last few years the emphasis of USG assistance has shifted towards sustainable development programs, humanitarian support still plays an important role in USG assistance efforts. Many Armenians still lack basic essentials such as adequate food, shelter and access to healthcare services. High unemployment rates exacerbate the lingering impacts of the devastating 1988 earthquake and the economic dislocation that accompanied the collapse of the Soviet Union. A substantial portion of the country's rural population lives in poverty and cannot easily afford food, clothing, pharmaceuticals or hygienic supplies. The most visible USG humanitarian contribution in FY 2004 was assistance provided to northwest Armenia under the Earthquake Zone Recovery (EQZ) Program, which focused on urban planning and redevelopment. The EQZ Program helped the Government of Armenia meet its obligation to compensate families who lost housing in the earthquake and who still live in temporary shelters. By the end of FY 2004, the program had assisted approximately 7,000 families in Lori, Shirak and Aragatsotn Provinces through the issuance of housing certificates and grants for completion or repair of homes in rural and urban areas. The largest city in the region and the site of the most extensive program effort, Gyumri, continued to receive the bulk of this assistance. In urban areas, certificates were issued to beneficiary families on sites selected for their importance to the urban planning and redevelopment process. The EQZ program was completed in FY 2004, as expected. In FY 2004, approximately $6.3 million worth of pharmaceuticals and medical supplies were provided to health care facilities throughout Armenia, benefiting about 200,000 individuals. Non-pharmaceutical medical supplies, medical equipment, clothing, hygiene and school kits donations by the USG totaled $3.8 million, benefiting at least 360,000 Armenians. School furniture and training material were donated to educational institutions serving approximately 24,000 children in rural areas. U.S. Defense Department humanitarian assistance included the completion of the Talin regional hospital renovation, as well as excess property distribution of 240 sleeping bags, 200 wool blankets, and 100 kerosene heaters in the Shirak region. Soup kitchens for the elderly are helping to offset poverty among the aging population and new social insurance payment systems are ensuring that employees and employers are contributing to the social insurance system and that the contributions are properly credited. The USG-funded public works program renovated the Kapan Psychiatric Hospital. As a result of the project, 90 vulnerable people received short-term employment and 2,200 local residents now have access to a safe mental health facility. In 2005, the public works program will be expanded to include skills training as part of the USG commitment to strengthening Armenia’s labor pool. Local communities also received help through the Community Self Help Fund, which administered 10 grants in 2004 for projects such as school rehabilitation and water pipeline repairs. The USG also continued to provide considerable humanitarian assistance funding with an eye toward promoting regional stability, including training and financial support for the Armenian National Humanitarian Demining Center. Ground water wells were drilled in 100 Armenian communities, providing drinking and irrigation water to thousands of Armenians in dozens of villages. The USG will continue to incorporate humanitarian assistance into development assistance programs on an as-needed basis in FY 2005. Direct humanitarian assistance will address the most urgent needs of Armenia’s healthcare system, including the provision of pharmaceutical and medical supplies and hygiene kits for Armenia's school-age population. Economic & Democratic Reforms, 1991-2004 Data are drawn from EBRD, Transition Report (November 2004) & Freedom House, Nations in Transit 2004 & Freedom in the World 2004. Ratings are based on a 1-to-5 scale with 5 representing the most advanced. Progress in formalizing the informal sector contributed to significant growth of the private sector in FY 2004, although economic growth is still not broad-based. Despite virtually universal literacy, poverty levels remained high, constant and concentrated in small and medium-sized towns. Economic Structure and Human Development, 1990-2004 World Bank, World Development Indicators 2004 (2004); UNICEF, Social Monitor 2004 (2004); EBRD, Transition Report (November 2004); and UNDP, Human Development Report (2004). SECTORAL PERFORMANCE MEASURES
DEMOCRATIC REFORM Performance Indicator: USAID NGO Sustainability Index (1 = highest; 7 = lowest; data based on previous calendar year)
FY 2002 Baseline FY 2003 Actual FY 2004 Target FY 2004 Actual 4.4 4.2 3.8 4.1 FY 2004 Results: The NGO Sustainability Index 2004 overall score for Armenia improved this year, from 4.1 to 4.2. Progress was noted in organizational capacity, advocacy, and infrastructure. Even with this progress, improvement remains possible in virtually all areas and is most urgent in the legal arena. NGOs have been active in advocating changes in the legal treatment of charitable contributions and the status of volunteer workers and will continue to do so in the coming year. Improved constituency relations would also benefit a large sector of NGOs and their clients. Performance Indicator: Corruption,Drawing from Freedom House, Nations in Transit 2004 as modified by, "Monitoring Country Progress in Eastern Europe and Eurasia" USAID/E&E/PO, #9 January 6, 2005. (1-lowest, 5-highest; data based on previous calendar year)
FY 2004 Results: Significant government corruption remains a major obstacle to Armenia’s transformation to accountable, democratic governance and economic development. During the report period, corrupt practices continued despite the Government’s adoption of an anti-corruption strategy and action plan. ECONOMIC AND SOCIAL REFORM Performance Indicator: Increase in the number of registered active businesses (legal entities and entrepreneurs) Source: BearingPoint (USG implementing partner), citing Armenia State Tax Service.
FY 2004 Results: The USG assisted with structural reforms and provided firm-level assistance in Armenia to help increase the number of active businesses. As a result of major inflows of donor financing, especially private funds dedicated to rebuilding infrastructure along with a moderately improved business climate, GDP growth has been robust over recent years. In FY 2004, the indicator target was set slightly lower, in the expectation that the earlier high growth rates, for both businesses and GDP, could not be sustained. Performance Indicator: Percentage of population below poverty line (Source: National Statistical Service).
FY 2004 Results: Preliminary data shows that the striking gains during 2003 can be attributed to an increase in monthly pension payments, improved targeting of benefits for the vulnerable, and a healthy growth in GDP thanks to robust employment opportunities in the construction sector. USG assistance has an active role in promoting growth in these areas. The 2004 poverty numbers will be released in summer 2005. SECURITY, REGIONAL STABILITY AND LAW ENFORCEMENT Performance Indicator: Armenian law enforcement computer training capacity will be increased.
FY 2004 Results: Computer laboratory classrooms were created at the Procuracy Training Center, Police Academy and Police Induction Training Center with up-to-date Pentium computers, servers, other hardware and software. Training was implemented by the Procuracy training faculty for the prosecutors and by Glendale, California Police detectives for the Armenian police. This training will enable law enforcement to effectively utilize the law enforcement computer networks that are also being established with the USG assistance. ARMENIA
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Area: approx.18,520 sq. miles, slightly smaller than Maryland 
