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U.S. Department of State

Diplomacy in Action

FY 2007 U.S. Assistance to Eurasia


Bureau of European and Eurasian Affairs
FY 2007 U.S. Government Assistance to and Cooperative Activities with Eurasia
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Country Overview

U.S. FOREIGN POLICY AND FOREIGN ASSISTANCE OBJECTIVES & PRIORITIES

Armenia is an important ally in the War on Terror, especially given its proximity to the Middle East and the energy-rich countries of Caspian Basin. United States (U.S.) foreign policy towards Armenia encourages improved regional cooperation and security (to be brought about by resolving the Nagorno-Karabakh conflict with Azerbaijan and by improving relations with Turkey), greater movement of goods/people throughout the region and a better trade and investment environment that will be shared by all members of society. U.S. policy also aims to make significant progress on democratic and social reforms to enhance political stability in the region while offering a positive example to neighbors.

U.S. foreign assistance in Armenia is focused on developing institutions and infrastructure – a change from late 1988 when the U.S. began providing assistance in the form of humanitarian aid to help Armenia recover from a catastrophic earthquake. U.S. programs are closely coordinated with other international donors and a key accomplishment to date has been helping to set the foundation for Armenia's growing economy. U.S. assistance also allows the U.S. Government (USG) to support Armenia to confront its remaining development challenges: resolving its long-running conflict with Azerbaijan over Nagorno-Karabakh; opening closed borders with Azerbaijan and Turkey to eliminate a significant barrier to economic development and facilitate regional integration; ensuring that Armenians enjoy full democratic rights, including the right to choose their leaders through free and fair elections; developing secure energy resources so that Armenia avoids becoming entirely dependent on any regional power; and securing reforms in Armenia’s economic management and provision of social services to facilitate equity in a sustainable and vibrant market economy.

OPERATING ENVIRONMENT

Assistance contributed significantly to Armenia’s two very positive developments in FY 2007. Armenia’s May 2007 nationwide polls for the National Assembly were an improvement over past elections. Rapid economic growth raised the country’s gross domestic product (GDP) above the level of the Soviet period and lifted thousands out of poverty. Nevertheless, obstacles to Armenia’s development remain, and in some cases have increased. Despite an overall decrease in poverty, income inequality has widened. Armenia’s impressive economic growth over the past several years has been based largely on increased remittances from abroad and a booming construction sector. Most experts agree that this does not form the basis for sustainable growth. Armenia continues to be at an impasse in its relations with Azerbaijan and Turkey; hopes are dim for open borders anytime soon. Lastly, Armenia has made little headway against deep-rooted and widespread corruption, as evidenced, inter alia, by stubbornly low tax collections.

The impact of U.S. assistance efforts has also been directly affected by the average 11 percent annual loss in the value of the dollar versus the local currency since February 2005. To reflect this reduction in the dollar’s purchasing power, goals had to be scaled back for assistance activities dependent upon construction and rehabilitation.

FY 2007 Country Program Performance

PEACE AND SECURITY

In the Peace and Security sector, USG assistance is designed to increase Armenia’s control over its borders, reduce the risk of terrorist financing and facilitation, and improve its ability to participate in coalition operations against terrorism. Assistance focuses on strengthening Armenia's borders against the smuggling of illegal and potentially lethal material related to weapons of mass destruction (WMD), ensuring that the Armenian Nuclear Power Plant (ANPP) does not pose a risk for future generations, encouraging the Government of Armenia (GOAM) to adopt stringent financial regulations that would allow law enforcement authorities to track, freeze, and/or seize financial assets and enhance cooperation with U.S. law enforcement, building the capacity of Armenia's fledgling Financial Intelligence Unit (FIU) to reduce the risk of terrorist-related money-laundering, and supporting Armenia's cooperation with NATO and the U.S. military to improve its ability to participate in peacekeeping or coalition missions.

Counter-Terrorism - USG assistance to Armenia in FY 2007 focused on improving the legal-regulatory structure and law enforcement capacity for Armenian export control and border security. The USG trained up to 250 border guards and related service personnel in document examination and fraud detection, English language, legislation, anti-trafficking and human smuggling issues, and computer operation. The USG also provided 19 passport readers and office equipment to the Border Guards Training Center in Yerevan. Armenian border guards became more efficient in document examination, improved their English language skills, became more knowledgeable in local and international legislation related to border protection, and developed skills in identifying potential victims of human trafficking and providing assistance to them at the border. They also learned about cooperation with other law enforcement authorities, both international and domestic.

USG assistance also improved Armenia’s border management system and reduced illegal migration flows. In 2007 the U.S. funded theinstallation of a special software program called Border Management Information System (BMIS) at Zvartnots International Airport in Yerevan and the Bagratashen port of entry on the Georgian border. BMIS will continue to track the entry of all travelers and cargo arriving to or transiting through Armenia. In 2007 BMIS training systems were installed at all the ports of entry. All software licenses and the equipment were purchased and the equipment is being synchronized with the central database. When installation is complete at the end of 2008, Armenia will have real-time data exchange between borders and headquarters.

USG-funded programs also assisted the FIU to admit Armenia in the Egmont group, which will improve the Armenian FIU’s ability to exchange money-laundering information and counter-terrorism information with other Egmont members throughout the world through the Egmont secure network. U.S. assistance provided for a series of workshops with investigators and prosecutors that also enhanced the GOAM’s ability to investigate and prosecute money-laundering.

Combating Weapons of Mass Destruction (WMD) - In FY 2007 the USG provided training and equipment to combat illicit trafficking of WMD and related materials to Armenia’s Customs Service, Border Guards, National Security Service, Export Control Commission, Nuclear Regulatory Agency, and the GOAM’s interagency Nonproliferation Center to increase border security. Radiation portal monitors continued to be installed on all Armenia land border and rail crossings. In 2003 the National Assembly passed The Law on Control over Export of Dual-use Goods and Technologies and Their Transit through the Republic of Armenia (commonly known as the Export Control Law or Law on Dual-use Export Control), which serves as the basic legal/regulatory structure and enforcement capacity needed for a strong border control and security program. As a result of this law, in 2007 Armenian officials adopted the Armenian dual-use control List, which they based on the CIS dual-use control list. Officials have since harmonized the Armenian control list with the EU control list as well.

The USG worked to improve nuclear safety in Armenia by increasing operational safety and security of the ANPP at Metsamor and by helping reform the country’s nuclear regulatory structure. As a result of USG assistance in FY 2007 the ANPP opened a new safety training center and updated its three-year plan for upgrading training, including increasing the size of the training staff, reorganizing the administration of the training center, and developing new operator and employee training programs. The ANPP also improved access controls to the plant, including badges, physical barriers, video surveillance and other physical safety upgrades. The USG also assisted ANPP staff to prepare for an Operational Safety Review Team inspection, scheduled for 2009 by the International Atomic Energy Agency.

USG assistance provided support to Armenia’s regional experimental support centers to engage WMD experts in civilian work to safeguard their knowledge from states of concern or terrorists. The centers provide training, research grants, and host conferences. Twelve grantees in total received training at different centers in FY 2007. The USG also worked with the Armenian National Foundation of Science and Advanced Technologies (NFSAT). One hundred eighty former weapons researchers received grants through USG/NFSAT competitions to conduct civilian research. The USG provided three equipment grants to give the Armenian scientific community access to electronic journals and trained three NFSAT staff members on strategic planning, institutional capacity building, and English language skills. As a result, the GOAM engaged the NFSAT director to be part of the GOAM’s high-level policy development for science reform. The Armenian Government also pledged to provide $150,000 in funding for NFSAT.

Stabilization Operations and Security Sector Reform - In order to improve Armenia’s capacity to conduct stability operations, the USG assists Armenia to reform its defense institutions and procedures, enhance crisis response capabilities, and develop capability for North Atlantic Treat Organization (NATO) operations in the areas of deployable medical skills and de-mining. During FY 2007 the USG brought 25 Armenian officers and non-commissioned officers to the U.S. for English language training and professional military education courses conducted in English. To date USG assistance has sponsored over 120 Armenian military personnel to attend U.S. military schools. Armenian defense officials have placed all of these personnel in key leadership or staff positions at the Ministry of Defense, or as part of its peacekeeping forces.

In addition, the USG delivered a field hospital and training to Armenia to meet crisis response and deployable medical capability needs. Funds were obligated to provide the Armenian 12th and 2nd Peacekeeping Battalions and the new Peacekeeping Brigade staff with U.S. - and NATO-standard equipment essential for stability operations and to meet NATO capability needs. This equipment included de-mining protective equipment, communications equipment and vehicular assets to support local training and deployment. As this equipment is delivered, the Armenian Armed Forces will receive training to enable them to safely and effectively utilize this equipment in the field.

USG assistance is also directed to ensure that Armenia’s criminal justice system is rooted in democratic principles and protects human rights. It also assists Armenian agencies to develop effective law enforcement and prosecutorial capabilities. In FY 2007 the USG funded programs to strengthen Armenia’s Police Center for Induction Training by introducing practical training, human rights components, and evidence collection methods. Several classrooms were refurbished and standard training equipment and vehicles for transporting cadets were provided. Four hundred new police recruits were trained using modules developed by the Constitutional and Legal Policy Institute of the Open Society Institute, a curriculum adopted by several countries in Eastern Europe. Expert monitors continue to visit Armenia periodically to track the Center’s progress and provide guidance. Over 90 students have used classroom equipment that the USG provided to Armenia’s Police Academy in September 2007 to learn counter-terrorism/organized crime techniques that will lead to more arrests. Additional training took place on the laser shooting simulation equipment installed in 2007 with USG funding. The U.S. also paid for training by American instructors to improve firearms training and follow on capability. Academy and Training Center personnel also made a number of videos in the Armenian language. The improved training in tactics, marksmanship and combat skills in a safe, controlled environment will allow Armenian police officers to use firearms more efficiently and make better "shoot/don't shoot" decisions when the need arises.

In 2007 the USG outfitted Armenia’s Organized Crime Bureau (OCB) with modern office tools and donated radio communication equipment. The OCB is a unit of elite police officers enlisted to fight specific areas of organized crime. The computer equipment provided members of the OCB’s Illegal Migration Section with modern tools to pursue purveyors and users of illegal and fraudulent travel documents; the USG also gave officers the radios they needed to communicate with Yerevan. While it is too early to measure the impact of this assistance, better equipment should lead to a more effective enforcement of Armenia’s migration laws, including combating trafficking in persons.

USG assistance also continued to upgrade Armenian law enforcement’s computer network. The project connected 54 regional police precincts situated throughout all 11 administrative regions of Armenia. Twenty-six databases were completed and installed at all locations during FY 2007, improving law enforcement's ability to track trends in criminal activity, locate fugitives and access criminal records, and communicate with foreign law enforcement agencies. As a result, real-time communication among the police precincts has improved and sites throughout the country can access requests for information from the main Yerevan databases. Local police no longer have to release a suspect because they do not have access to his criminal record or warrants. Police can also now access international law enforcement databases, including those run by the International Criminal Police Organization (INTERPOL).

In FY 2007 the USG continued a program to provide counseling to troubled youths in an effort to stem juvenile criminal activity by bringing law enforcement personnel into schools to meet with youths, parents and educators, developing curricula for schools to raise awareness of juvenile justice issues, and creating juvenile justice centers (CJCs) to counsel youths, parents and community members. As of October 2007 the Yerevan and Vanadzor CJCs have heard 34 cases (both opened in FY2006), resulting in approximately 570 hours of community service and participation in educational activities. The majority of youth undergoing the CJC reparative process successfully completed the terms of their agreements and showed significant changes in their behavior along with better attendance and performance at school as reported by their parents and teachers. The analysis of the data gathered from the reported period showed that the CJCs have achieved their two main goals: increasing their communities’ role in prevention and improving the behavior of juveniles. Since the CJCs opened, their case loads have increased by 50% (from 2 to 4 cases per month).

Two new CJCs were established in FY 2007 in the northern cities of Gyumri and Alaverdi and began counseling programs. Prior to opening, the Yerevan and Vanadzor CJC teams prepared and trained the newly selected teams of the Gyumri and Alaverdi CJCs. The Juvenile Police of Armenia deeply appreciate the CJC role. In Vanadzor the juvenile crime rate has decreased by 50 percent, an achievement which the Juvenile Police attribute to the CJC activities.

Transnational Crime - In FY 2007 the USG provided funding to a shelter that provides support for Armenian victims of trafficking. The program also runs a hot line that provides information for trafficking victims, conducts a nationwide awareness campaign, and trains attorneys who represent victims. In addition to providing a safe haven, the shelter provided medical, legal and psychological services and raised public awareness to prevent potential victims from falling prey to traffickers. Upon leaving the shelter, each victim received financial assistance in the form of a monthly stipend for a period of three months. During 2007 about 15 victims made use of the shelter. The efficacy of the program is reflected in the referrals made by the Armenian Police and Procuracy to the shelter in 2007.

The Armenian police and the National Security Service both run forensics labs to support successful prosecutions of defendants. In FY 2007 USG assistance supported the development of an independent forensics lab – funded and run by the National Academy of Sciences – to facilitate the unbiased analysis of evidence collected at crime scenes. The Lab is open for use by all of Armenia’s law enforcement agencies. The program brought in several American advisors to train lab personnel on new USG-funded equipment, evidence processing and storage, basic management skills, and ballistics analysis. The USG funded training trips for ballistics experts to tour a munitions factory in Poland, computer experts to attend training in Portland, Oregon, and the Lab Director to attend training in Latvia and England. The USG also donated over $250,000 worth of equipment to the Lab, and funded the drafting and printing of manuals in Armenian detailing modern forensics techniques. These manuals have enabled forensics lab personnel to discard their Soviet-era procedures and utilize more sophisticated methods. These modern techniques and the new equipment measurably improved the quality of the Lab’s analysis, resulting in fairer and more accurate results. The Lab has seen a steady increase (250%) over the past year in the amount of work it receives from Armenian law enforcement agencies – a reasonable measure of the Lab’s success in improving its methods and procedures.

Conflict Mitigation and Reconciliation - To establish a more favorable climate for cross-border conflict reduction in the South Caucasus, the USG supported a number of initiatives in Armenia, as well as in Azerbaijan and Georgia, that increased the number of cross-border partnerships among civic activists and other engaged citizen groups. These initiatives promoted and strengthened economic and social ties at the grassroots level to accelerate confidence building in the region. The participants increased regional cooperation through the exchange of ideas and lessons learned in key common areas of public policy and increased opportunities for intra- and extra-regional trade among businesses. Universities in the region also establish a joint Masters Program in Journalism. These grassroots efforts increase public support for officials to take higher-level actions to improve interstate cooperation.

Through another cross-border program, USG assistance increased opportunities for the development of positive economic and diplomatic relations between Armenia and Turkey through the Armenia – Turkey Project (ATP). The ATP supported research on best practices of Armenian-Turkish Track Two Diplomacy Projects and research and a international conference on the possible economic effect of opening the Armenian-Turkish border. Opportunities for further dialogue and cooperation are being explored. But political will from both governments is needed to make major advances in this area and bring about greater regional stability and prosperity.

GOVERNING JUSTLY AND DEMOCRATICALLY

In the Governing Justly and Democratically sector the USG assistance objective is to promote and strengthen effective democratic practices at all levels of society. To achieve this objective, the U.S. supports programs to ensure that legal reforms and processes are in place in the judicial and prosecutorial systems to protect human rights and personal freedoms. The USG also provides assistance to help Armenia conduct elections internationally recognized as fully free and fair and to ensure that the fraud that does exist is prosecuted fairly and evenly. Still, significant gaps remain in media freedom, rule of law, and corruption. Armenia has an anti-corruption strategy and completed an action plan in 2007. The GOAM, however, has not implemented this framework and has not demonstrated that it has the will or capacity to tackle corruption effectively. Although Armenia’s May 2007 nationwide polls for the National Assembly represented an improvement over past elections, Armenia’s democratic institutions will soon face another significant test in presidential elections in February 2008.

Rule of Law and Human Rights - The GOAM has made steady, but slow progress in rule of law. The USG supported institutional reform by helping the Prosecutor General’s office, as well as the judiciary, meet democratic standards through improvements in the judicial code of ethics and the monitoring of more court cases. USG assistance provided U.S. and European legal expertise and technical assistance to modify and restructure Armenia’s laws and legal systems.

In FY 2007 the USG trained 80 prosecutors and defense attorneys, and 140 judges, in European case law application. The USG funded the publication of procedural guidelines for judges and proposed alternative language in the Criminal and Criminal Procedure Codes to help Armenia create a modern legislative base that respects basic human rights.

In 2007 the Public Defender’s Office opened its first government-supported offices, funded by its own line item in Armenia’s national budget. This is a key reform that will help develop a defense team that is independent of the prosecution. To support the development of qualified legal services, the USG supported reform of Armenia’s 2007 bar exam. Twenty-five questions submitted by the USG were included on the 2007 exam and U.S. assistance supported significant improvement of the administration of the exam. Computer scoring and expert proctoring reduced the opportunities for fraud and ensured that only those who scored highly enough on the bar exam were admitted to the Bar. One hundred and ninety-three attorneys took the exam, with 50% qualifying for admission in the first round. More than 90 of those recent Bar members chose to become members of the Public Defender’s Bar. Clients will be able to be represented more effectively by these new lawyers who have the skills to legitimately pass the bar exam.

USG support against electoral fraud seeks to safeguard Armenia’s fledging democracy. In FY 2007 USG assistance provided training to legal professionals in election adjudication prior to and on the day of the May 2007 National Assembly elections. One hundred eighty judges and 400 lawyers were trained in both procedural and substantive areas of the law. Six prosecutors and two members of the Central Election Commission took part in a study tour in the U.S. on how to prosecute election fraud and corruption. Seventy three prosecutors, judges, election commission officials, human rights ombudsman officials, and police officials attended training on election fraud and related corruption.

The USG awarded grants to three local organizations to advance alternative dispute resolution practices in Armenia. Anecdotal reports show an increase in the number of businessmen applying to the Arbitration Court. The newly adopted Law on Arbitration includes a set of revisions that were suggested by the USG to make it more effective.

The USG also assists Armenia to combat human trafficking by seeking the passage of legislation that protects victims and prosecutes traffickers. As a result, Armenia had its first court-ordered compensation for a trafficking victim. The GOAM for the first time also allocated budget funds on trafficking programs, rather than relying exclusively on the donor community.

Good Governance - USG efforts to support Armenia to improve governance had mixed results in FY 2007. The new National Assembly did not demonstrate the political will to implement legislative enforcement mechanisms, and so the USG terminated its program designed to strengthen the Assembly’s effectiveness several months ahead of schedule. However, as a result of that assistance, 157 accredited journalists used the Budget 2007 summary document in their coverage and visits to the National Assembly website doubled over the last two years. The National Assembly is also institutionalizing an intern program started with U.S. assistance.

Even though the GOAM has been slow to implement decentralization-related legislation, USG assistance has strengthened local government capacity. With USG support, 31 cities developed 37 capital improvement projects, the Ministry of Justice approved “Rules of Procedures for Local Councils,” approximately 30 cities implemented improved financial management systems, and municipalities began to work with local banks to find alternative funding resources through loans. A new anti-corruption project began in FY 2007 with the USG providing the GOAM’s Anti-Corruption Monitoring Commission with technical assistance to help draft a new anti-corruption strategy.

Political Competition and Consensus-Building - Armenia faced numerous challenges to holding free and fair elections before the May 2007 National Assembly elections, including campaign finance loopholes, manipulation of voter protocols by territorial election committees, and allegations of vote buying. To promote election processes that meet international standards, the U.S. trained election management bodies to enhance their technical capabilities and the transparency of election administration. This assistance contributed significantly to the professional preparedness of election officials and improved their conduct at the polls. Also due to U.S. assistance Armenia’s voter registry was more accurate than in previous elections. USG assistance supported an election hotline and the provision of legal advice to voters. For voters with disabilities, tactile ballot guides were introduced in all polling stations throughout Armenia and nine ramps were constructed.

In the run-up to the May 2007 National Assembly elections, the USG funded several activities that were singled out by the Organization for Security and Co-operation in Europe’s (OSCE) Office for Democratic Institutions and Human Rights as contributing to its overall assessment of the elections as “demonstrating improvement.” To provide the Armenian public with a better understanding of the candidates’ positions leading up to the parliamentary elections, the USG sponsored television debates with political party leaders, which promoted democratic competition based on voter priorities. The USG also funded a public service announcement on Armenian television to inform voters of the penalties for violations of election procedures contained in the new electoral code.

Prior to the election, USG assistance provided polling and training to help political parties develop issue-based platforms. Parties engaged in door-to-door campaigning, targeted constituencies based on research, and were able to articulate specific policy priorities to voters. Twenty-one parties pledged to ensure that at least 25% of candidates on party lists were women; the number of women elected to the new National Assembly increased from seven to 12. In addition, the USG provided grants for training in election adjudication to local nongovernmental organizations (NGOs) and other organizations which prepared a cadre of trained professionals. Other grant recipients were active in voter education, organizing debates, and get-out-the-vote efforts.

Civil Society - The development of Armenian civil society faces significant challenges, including the lack of a transparent legislative framework for NGO development, the inability under Armenian law of NGOs to directly generate commercial revenues, and weak institutional capacity for expanded membership. While these problems persist, NGOs did make steps toward sustainability and influencing government policies with USG support, albeit on small, sector-specific levels. For example, the GOAM withdrew a controversial bill on lobbying due in part to pressure from NGOs; other USG grant recipients made major in-roads with the GOAM in implementing sub-regulatory provisions supporting mental health care; and Armenian NGOs pointed out shortcomings of the GOAM’s program on transition to digital radio and television and delayed adoption to allow time for improvements to the program.. A USG-funded program helping to create youth clubs that focus on community-based issues expanded to ten new communities.

USG assistance also supported Armenian citizens’ efforts to cultivate democratic institutions and address challenges that affect their lives. Among the 19 small grants provided to indigenous organizations, USG assistance increased transparency in school financial management systems to facilitate scrutiny of the use of public monies in the schools with the aim of decreasing corruption in the education system. Other USG programs supported the monitoring of Armenian prosecution agencies to help strengthen the judicial system and increase confidence in the courts, and trained students from 35 schools across Armenia to become advocates for human rights, including preparing project proposals in their local communities.

The greatest hindrance to a truly free press in Armenia remains the control of most major media by oligarchs and business interests connected to ruling elites. This has led to self-censorship and lack of objectivity. That said, USG-supported experts have trained cadres of journalists and business managers in Western practices, who await a political opening to create a more hospitable environment. In FY 2007 the USG focused assistance towards increasing media freedom and freedom of information, as well as strengthening regional media distribution companies. A USG-supported media development program helped five media organizations develop workplans and undergo pre-loan assessments and two Armenian banks signed cooperation agreements with the program and are prepared to make loans to these qualified media outlets. In addition, USG-supported broadcast monitoring is providing advertisers with verifiable data of ads aired. Yerevan State University has taken reponsibility for the sustainability of a the journalism Masters program that was established by a USG-funded program. Finally, U.S. assisance provided training for hundreds of local officials, NGOs, and citizens about their rights under Armenia’s 2003 Freedom of Information Law, resulting in law suits filed and won against the government.

ECONOMIC GROWTH

Armenia has seen strong economic growth and a high degree of openness in recent years and these improvements have laid the groundwork for the country to complete the transition to a market-oriented, globally integrated system. However, this growth is not broadly based as it is dependent largely on remittances and the construction sector and is disproportionately centered in the capital city of Yerevan. In addition, Armenia imports its primary energy sources and must decommission its largest power generator – an aging nuclear power plant.

USG’s assistance objectives are to address economic imbalances and unemployment and to encourage growth in potentially sustainable sectors. USG programs focus on the building blocks of economic growth including: strengthening the competitiveness of small and medium enterprises (SMEs) especially farms and off-farm production in rural Armenia; job creation; improving the legal and regulatory environment; increasing the transparency and effectiveness of the tax administration; and, developing the financial sector. At the policy level, assistance targets the reform of Armenia’s legal, regulatory, and administrative entities to reduce or remove barriers to private sector development. Support for energy diversification is also a priority.

Macroeconomic Foundation for Growth - In FY 2007 USG assistance improved the GOAM’s capacity to manage public finances and the economy by training Ministry of Finance and Economy managers in general and financial management, overseeing the development of a conceptual design for a government financial management system, and drafting a proposal for bringing the GOAM into compliance with international public sector accounting standards. As a result of these activities, the GOAM is ready to put into operation a new financial management system that is integrated and comprehensive. The GOAM has already accepted the system design and a training plan that will include 900 participants and 70 state budget institutions. The GOAM has also reviewed a USG proposal to move from cash to accrual accounting and has agreed to its implementation.

After years of resisting efforts to foster reform, the State Tax Service (STS) began to open up to real changes in its practices. In June 2007 the GOAM endorsed the 2007-2009 Strategic Plan for the STS. The USG proposed the plan, developing it in close collaboration with both the International Monetary Fund and the World Bank. The Plan includes numerous critical goals, including Tax/GDP targets and structural changes. The USG helped set up the STS’s first-ever Outreach and Training Division and assisted the STS to complete and publish a comprehensive Taxpayer Handbook to help business taxpayers with self-assessment. In December 2006 the USG-supported “Pay Your Taxes” social advertisement campaign received two 2006 MarCom Creative Awards, out of more than 5,000 entries in the world-wide competition. (The MarCom Creative Award is a highly respected award in the international marketing and communications industry.) These ads increased citizen awareness about their responsibility and rights with respect to taxes.

With USG support, the STS issued a decree in December 2006 to implement a computer-based risk audit system and an automated VAT refund system by the end of 2007, which will streamline and simplify internal audit procedures and introduce computerized tax refunds. In addition, USG assistance provided computers to update the STS’s outdated servers and connected all STS regional offices to their headquarters. The USG also assisted the STS to set up a new website to help educate taxpayers and assist them in completing tax forms. Finally, to improve internal communications and record-keeping, USG assistance helped the STS initiate an internal e-mail system in August 2007.

Although the overall tax/GDP ratio at the end of 2006 was still low at 14.4%, the STS increased its contribution while Customs Committee contributions, about 40% of total taxes collected, declined. By June 2007 the overall tax/GDP ratio increased to 22.3%, as compared to the 20.6% at the end of the first six months of 2006.

Trade and Investment - In FY 2007 USG assistance supported legal and systemic reforms to assist private companies improve goods and services, build trade knowledge and skills, and meet international standards to compete successfully in international markets. The U.S. provided technical assistance to help develop business association and policy advocacy capabilities. USG support helped increase the competitiveness and productivity of SMEs in the targeted sectors of tourism, information technology (IT) and agribusiness. In FY 2007 the Armenian economy experienced a 30 percent increase in domestic and export sales, over 2,200 new jobs in IT and tourism, and 4,500 new jobs in agribusiness.

In FY 2007 eight professionals in the health care, agribusiness and tourism sectors spent four weeks in the U.S. receiving training in their respective fields and visiting American businesses within their sectors. As a result, a program alumnus used information from his training to develop a voluntary certification procedure for companies selling medical equipment in Armenia based on Good Manufacturing Process (GMP) and International Standards Organization (ISO) principles. Another graduate purchased a construction material testing manual from an American company, Oakland Construction, then translated and distributed it to construction companies in Armenia. He also joined the Union of Constructors, and won a United Nations tender to develop regulations for testing concrete, reinforced concrete, and armature.

Financial Sector - The USG assisted the Armenian financial sector to mobilize and allocate financial resources for economic growth by focusing on improving financial sector infrastructure, increasing the effectiveness of financial institutions, and enhancing financial sector supervision. In FY 2007 the USG supported measures that improved the financial sector enabling environment. The GOAM took steps to implement internationally accepted financial reporting standards, which will make Armenian enterprises more transparent and attractive for international investors. Eleven new pieces of legislation improved the legal framework for the banking, insurance and security sectors, making the system more compliant with international best practices. The GOAM improved the credit review system, reducing an information asymmetry which constrained bank lending. It also reorganized the Central Bank of Armenia to improve the quality of its banking and non-bank supervision and enhance its supervisory capacity in the insurance and securities sectors. As a result, the system’s soundness and safety is improving, making it more attractive for international investors.

To develop the financial services sector, USG technical assistance and training for banks helped decrease operational risk and promote well-managed risk taking. This assistance enabled banks to secure longer-term financing through the issuance of bonds. As a result, interest rates began to fall, increasing access to credit and the credit-to-GDP ratio. In addition, with USG assistance, the Nordic Stock Exchange agreed to purchase the Armenian Stock Exchange.

Infrastructure - USG assistance is directed to improve Armenia’s energy security and independence and to support a competent and responsible regulator to support consumer’s rights and help attract investment. Over the past decade, the USG has supported the GOAM’s progress in reforming its energy sector. The GOAM’s aggressive commercialization and privatization strategy has improved the quality of service and health of the sector. However, progress on telecoms is just beginning as Armenia liberalizes its telecom market.

To support energy sector development, USG assistance built a number of demonstration projects to show how small and private hydro, boiler, solar panel, and bio-gas projects can raise energy efficiency through cost-effective heating and power solutions. Micro-hydro plants have adopted simplified regulations; as a result of these and other USG pilot projects, many private investors are now building small hydro plants nationwide without foreign assistance. To further support energy diversification, the USG and GOAM are cooperating on developing planning studies for replacing Armenia’s aging nuclear power plant.

In FY 2007 the USG supported the GOAM enactment of an Electronic Communications Act, which brought the sector under the Public Service Regulatory Commission’s jurisdiction, made World Trade Organization commitments on telecoms services, licensed a second mobile operator, and terminated the fixed-line monopoly. As a result, the Public Service Regulatory Commission increased its capability to effectively regulate the telecoms sector. In addition, the GOAM developed an appropriate framework for a competitive market through the adoption of licensing/authorization procedures, the issuance of a new operator license, the development of cost-oriented service prices, and the adoption of policies governing the use of scarce public resources. It is expected that these important changes will bring higher quality services to consumers at lower prices.

Agriculture - USG assistance in the agricultural area focuses on sustaining the productivity of the agricultural sector, improving food safety and animal health, and reforming the agricultural educational system. In FY 2007 USG assistance supported the establishment of a dedicated farm credit institution based on cooperative principles. As a result, the Armenian Central Bank legally registered the Farm Credit Armenia as a “nonbank” on September 18, 2007. With its board of directors elected already, Farm Credit Armenia has hired and trained 13 staff members and has reviewed and pre-approved 80 initial loan applications.

In FY 2007 USG technical assistance programs increased the GOAM’s capacity to ensure a safe food supply and safeguard animal, plant and human health. USG assistance provided training for over 200 private and public animal health specialists to improve methods of animal disease monitoring, reporting, diagnosis and control. Additionally, 400 food processors were trained to use up-to-date practices to improve safety and health. The USG also supported more than 230 trainings and demonstrational small grant projects in five main agricultural sectors, emphasizing processing and marketing skills. As a result 6,000 farmers improved their linkages to markets and increased farm productivity, production and crop yield; rural communities generated over $6 million via milk marketing cooperatives and milk collection units; and over 95 new rural SMEs and food processing companies improved production technologies, marketing practices, food safety and sanitary conditions and upgraded production equipment. Companies recorded increased incomes, 150 new jobs created, over 19 new products developed, and entry into local and export markets to the benefit of over 10,000 people.

In addition, the USG is working to reform and improve agricultural education. With USG assistance, the Agricultural Academy is establishing its Bologna curriculum crediting system. An American professor provided support to 540 faculty members, 110 lecturers, and ten pro-rectors and deans, and has chosen six peer-elected coordinators to sustain the program after his departure.

Private Sector Competitiveness - For private enterprises to survive and grow, they must be competitive in domestic and international markets. In FY 2007 USG funding assisted the GOAM to make legislative reforms to improve the business environment, help enterprises and industries to become more profitable and productive, and support workforce development. As a result of USG assistance, legislative measures improved the business enabling environment by increasing the capacity of seven business associations to advocate for industry-friendly laws and regulations. Also, the Tourism Department of the Ministry of Trade and Economic Development has developed and is enforcing a number of regulations and procedures. The Tourism Department developed these in close consultation with the sector representatives, including the associations. The GOAM has developed a new tourism law compliant with the European Union (EU) standards and it is expected to be adopted by the Parliament next year.

USG assistance also helped private enterprises adopt more efficient production processes and better management practices, invest in improved technologies, and compete more effectively in international markets. USG assistance contributed to the tourism and IT industries adding of 2,146 new jobs. Total sales in the IT industry grew by 16%, reaching $97 million in 2007; tourism grew by 49%, reaching $317 million. The supporting consulting industry grew by 44 percent, reaching nearly $55 million.

To develop Armenia’s workforce, the USG supported work to identify and minimize gaps between workforce supply and demand and to address gaps through curricula reform for academic and vocational courses. USG assistance put in place international certification schemes and courses, the design of skill building activities for the most vulnerable unemployed segments, and provided short-term employment opportunities to beneficiaries of this assistance. USG assistance helped the GOAM develop a strategy to implement proactive employment services, create a model regional employment office, provide demand-driven training, and build stronger links with private sector employers.

Environment - In FY 2007 USG assistance focused on further improvements of the institutional and policy frameworks for sustainable and decentralized water resources management. USG assistance also focused on legal and institutional conditions to improve water quantity and quality management, water permitting and allocation, and encouraging public participation in decision-making.

The GOAM, with considerable USG assistance, developed and adopted the National Water Program law, the most important legal act in the water sector, which entered into force in March 2007. The U.S. provided the Prime Minister’s Working Group with international experts to present best practices and legal and policy recommendations on such issues as water resources and system classification. The National Water Program describes Armenia’s water resource base, presents an analysis of problems and potential solutions, sets priorities, develops the strategy for their achievement, and provides a USG-developed action plan until 2010 to improve the water sector in the near term.

Additionally, USG assistance supported drafting the Law on Making Changes and Amendments to the Water Code. The USG funded an analysis of Armenian water legislation and the Water Code and provided draft amendments to almost every article of the Water Code. The draft law is expected to be adopted by the new National Assembly.

To support decentralization of water resource management, the USG trained employees of the five Basin Management Organizations (BMOs) in surface and ground water resources hydrology, quality and quantity monitoring, water use and water resources management issues, social, economic and environmental patterns of water management such as economy and land use, planning, environmental management and ecosystems, and legal and institutional frameworks for water resources management. To support the transparent operations of basin institutions, the USG organized the first Stakeholder Forum in May 2007 with the Southern BMO. Twenty-seven representatives from the Water Resource Management Agency, Water User Associations, NGOs, the Marz Administration, rural community heads, and major industrial water users participated. This forum provided local stakeholders with an introduction to the BMO, its function, role and responsibilities, and its ongoing activities. It also laid the ground work for stakeholders’ future participation in specifically targeted basin planning meetings.

USG assistance also supported the coding of the Armenian river network and catchments, based on European methodology. As a result, all of Armenia’s rivers and tributaries of more than five kilometers in length have a unique identifier. This code links data in different databases held by various institutions to specific rivers and catchments. In addition, experts constructed a unified Geographic Information System (GIS) library, consisting of 65 layers on the environment, water resources and water systems of Armenia. The new GIS will provide the country with stronger means to manage Armenia’s resources, and will facilitate GIS-based planning and management of water resources in the country and along Armenia’s borders. It provides for various detailed (layered) maps on water resources at both national and BMO level. The developed GIS component will also serve as a key source for preparation of the First National Atlas on Water Resources of Armenia. The maps will help to integrate and visualize data from different databases in a given area (e.g. any small watershed) to support basin planning and sustainable water resources management and protection.

INVESTING IN PEOPLE

Armenia’s health indicators compare poorly to those of other countries with similar per capita incomes. Its social services are poorly managed and funded and the education system has not reformed to match the needs of a market economy. As a consequence, USG assistance objectives are to: increase the use of sustainable, high-quality primary health care services; strengthen Armenia’s social protection departments, agencies and systems; support macro-level reforms including the design, refinement and implementation of sustainable national social insurance and pension programs; and support the GOAM on systemic initiatives such as the development of a national strategic plan for Armenia’s education system.

Health - While the GOAM is committed to health care reform, it often lacks the capacity to implement its policies and directives fully. USG assistance is working to increase the use of quality primary health care services by strengthening the Ministry of Health’s ability to implement primary health care reform and improve the quality of service provision. During FY 2007 the USG launched maternal and child health initiatives in five new provinces and developed comprehensive maternal and child health and family planning client education materials. USG funding rehabilitated 70 rural and semi-urban health facilities and assisted with a nation-wide roll out of “open enrollment” for primary health care providers in which over half of Armenia’s citizens participated. The USG also developed a tuberculosis training package to introduce a Directly Observed Therapy System at the primary health care level and a draft National Influenza Preparedness Plan.

In the water sector, USG assistance focused on improvements of the legal and regulatory framework for water supply and sanitation, assisting the improved performance of water companies, and promoting public participation in decision-making. The USG helped draft a National Water Law, which the GOAM officially adopted, and U.S. assistance supported the design for water supply rehabilitation of Artashat town and nearby villages.

Education - In 2007 the USG provided technical support for the design of Armenia’s “2008-2015 Education Development Program,” which the Ministry of Education has now submitted to Parliament for adoption. The document defines the role of the Ministry as that of transparently regulating the education sector and creating a positive enabling environment for communities, institutions and the private sector. The USG strongly facilitated a strategy development process that was open and participatory, involving hundreds of stakeholders representing all relevant segments of the education sector and society, as well as a variety of geographic regions. As a result of USG donor coordination in the education sphere, the World Bank has adopted one of the 2008-2015 Education Development Program’s main directions – the reform of upper secondary and tertiary education – as the follow-on to its current program.

Social Sector Reform - It is estimated that nearly one in three Armenians lives below the poverty line. Remittances constitute 20-25 percent of GDP and are used primarily to purchase basic necessities. In FY 2007 the USG focused on strengthening Armenia’s social protection system, promoting policies and increasing public awareness of the underlying factors for vulnerability, and increasing opportunities for economic self-reliance. The broader goal of these efforts is to reduce citizens’ dependence on public support to meet their basic needs.

U.S. assistance fostered social contracting mechanisms between the government and indigenous NGOs to collaboratively provide community-based social services and to promote professional social work and quality social services. In conjunction with these efforts, the USG promoted an informed pension reform decision-making process to support the Armenian Government’s Pension Reform Task Force, created in FY 2007 to address serious economic and fiscal pension issues. The USG also helped draft proposals to improve labor regulations and occupational safety essential to the operation of effective labor markets and protection of workers’ rights. To help Armenia’s Labor Inspectorate to develop institutional capacity, the USG supported its bid to join the International Association of Labor Inspectorates.

In addition to regulatory and legislative framework assistance, the USG funded 25 activities that rehabilitated vital social services infrastructure, such as kindergartens, drinking water mains, health facilities, and schools and city parks. These improvements produced immediate improvements in the quality of life for targeted populations. A unique small-scale grants program provided funding to allow American volunteers to work withcommunities to identify common concerns, develop strategies to address these concerns, and design and implement small-scale, sustainable community-level projects. Corresponding training builds capacity of NGOs and community counterparts to assume greater responsibility for their own development. In FY 2007 20 grants for 20 community organizations directly benefited 3,060 citizens and indirectly benefited 81,940 others.

HUMANITARIAN ASSISTANCE

The U.S. first sent humanitarian assistance to Armenia following the devastating December 1988 earthquake, which killed some 25,000 mostly poor citizens of what was then a Soviet republic. Since that time, the USG has redirected its humanitarian assistance to provide clothing and necessary food, medicines, medical supplies and equipment, emergency shelter items and school hygiene kits to needy victims of the war with Azerbaijan and the many hundreds of refugees and internally displaced persons that the conflict caused. While the cease-fire has remained largely intact for over a decade, USG humanitarian assistance is still needed in some of the poorer areas of the country that remain untouched by the Armenian Government.

In FY 2007 the humanitarian program focused on several areas: the recovery of rural infrastructure; improvement in conditions of educational facilities and sanitary conditions; provision of pharmaceuticals and medicals supplies for rural medical facilities; and distribution of supplies, clothing, and bedding in rural communities as well as for those residing in boarding institutions. USG provided humanitarian assistance completed small reconstruction projects for two boarding school canteens and a drinking water pipeline, benefiting approximately 850 children, school personnel and residents of rural communities. USG assistance also delivered and distributed 50 containers and two air shipments of humanitarian aid with medicines, medical supplies, equipment, clothing, household supplies and hygiene and school kits and contributed to the GOAM’s nationwide measles and rubella vaccination campaign. A cheese distribution project continued to provide cheese to different boarding institutions. A mobile medical team provided free medical services to rural populations. The commodities distribution activities supported more than 150 NGOs, 150 health care facilities, 39 rural communities, and six government boarding institutions, benefiting 241,792 people. The nationwide vaccination campaign benefited nearly one million Armenian citizens. As a result, the humanitarian program contributed to poverty reduction by mitigating the daily needs of vulnerable people, especially in rural areas.

FY 2007 Measures of Country Performance

The following data are based on the Monitoring Country Progress in Europe and Eurasia system developed by United States Agency for International Development (USAID) to measure and track progress in the region. The system uses four different indices to monitor progress, drawing on readily available standardized country-level data on economic reform, economic structure and performance, democratic reform, and human capital. The primary data sources are the European Bank for Reconstruction and Development (EBRD), the World Bank, the United Nations Children’s Fund (UNICEF), and Freedom House. The data for each of the four indices are converted and standardized to a 1-to-5 scale, with a “5” representing the best performance of the Eastern Europe and Eurasia region, and a “1 the least advancement of the region.

Armenia’s Democratic Reform* Scores in 2006 compared to Romania and Bulgaria in 2002

Date: 01/01/2008 Description: The graph to the left shows Armenias democratic reform scores in 2006* (the grey shaded area) as compared to the average of Romanias and Bulgarias democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. State Dept PhotoThe graph to the left shows Armenia’s democratic reform scores in 2006* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s democratic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

*Actual 2007 scores not yet available


Armenia’s Democratic Reform Scores in 2006 compared to its Reform Scores in 1999

Date: 01/01/2008 Description: The graph to the left shows Armenias democratic reform scores in 2006* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line). State Dept PhotoThe graph to the left shows Armenia’s democratic reform scores in 2006* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line).

*Actual 2007 scores not yet available

*Democratic reforms include the electoral process (the extent to which elections are free, fair and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform) and the scope of corruption as well as anti-corruption income.

Armenia’s 1st Stage Economic Reform* 2007 Scores Compared to Bulgaria and Romania in 2002

Date: 01/01/2008 Description: The graph to the left shows Armenias stage one economic reform scores in 2007* (the grey shaded area) as compared to the average of Romanias and Bulgarias economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. State Dept Photo
The graph to the left shows Armenia’s stage one economic reform scores in 2007* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.


Armenia’s 1st Stage Economic Reform 2007 Scores Compared to its Scores in 1999

Date: 01/01/2008 Description: The graph to the left shows Armenias stage one economic reform scores in 2007* (the grey shaded area) as compared to its economic reform scores in 1999 (the bold line). State Dept PhotoThe graph to the left shows Armenia’s stage one economic reform scores in 2007* (the grey shaded area) as compared to its economic reform scores in 1999 (the bold line).
 



Armenia’s 2nd Stage Economic Reform 2007 Scores Compared to Bulgaria and Romania in 2002

Date: 01/01/2008 Description: The graph to the left shows Armenias stage two economic reform scores in 2007* (the grey shaded area) as compared to the average of Romanias and Bulgarias economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership. State Dept PhotoThe graph to the left shows Armenia’s stage two economic reform scores in 2007* (the grey shaded area) as compared to the average of Romania’s and Bulgaria’s economic reform scores in 2002 (the bold line) when they were invited to join NATO and received favorable indications of future EU membership.

Armenia’s 2nd Stage Economic Reform 2007 Scores Compared to its Scores in 1999

Date: 01/01/2008 Description: The graph to the left shows Armenias stage two economic reform scores in 2007* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line). State Dept PhotoThe graph to the left shows Armenia’s stage two economic reform scores in 2007* (the grey shaded area) as compared to its democratic reform scores in 1999 (the bold line).

*Economic reforms include “first stage” reforms of privatization, stabilization, and liberalization (domestic price liberalization and trade liberalization), and “second stage” reforms in the financial sector, infrastructure (physical and energy), corporate governance and competition policy.


Armenia’s Progress on the USAID Country Progress Indices between 1998 and 2007

Date: 01/01/2008 Description: Armenias Progress on the USAID Country Progress Indices between 1998 and 2007. State Dept Photo

(1) Economic reforms index include “first stage” reforms of privatization, stabilization, and liberalization (domestic price liberalization and trade liberalization), and second stage reforms in the financial sector, infrastructure (physical and energy), corporate governance and competition policy.

(2) The Economic Structure and Performance index tracks indicators such as the size of the private sector as % of GDP, export share of GDP, and the size of the small and medium enterprise sector as % of GDP, economic growth, inflation, debt, and foreign direct investment.

(3) The Democratic reforms index include the electoral process (the extent to which elections are free, fair, and competitive), civil society (primarily NGO development), the independence of media, public governance and administration, rule of law (primarily judicial reform), and the scope of corruption as well as anti-corruption efforts.

(4) USAID tracks progress on the Human capital index by analyzing trends in health (life expectancy, under five mortality rates, and public expenditures on health), education (secondary school enrollment rates and public expenditures on education) and per capita income.



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