Today, as an opposition leader, Ter-Petrossian is the most outspoken critic of what he and his allies call the "Karabakh clan," lambasting his former proteges for raiding the country's treasury, strangling the economy, and stifling democracy.
The main targets of the broadside have been outgoing President Robert Kocharian and his preferred successor, Serzh Sarkisian, the current prime minister who defeated Ter-Petrossian in Armenia's February 19 presidential election. Both Kocharian and Sarkisian hail from Nagorno-Karabakh, an Armenian-controlled and populated enclave within Azerbaijan over which Baku and Yerevan fought a war in 1988-94.
Speaking on the campaign trail in February, Ter-Petrossian accused Kocharian and Sarkisian of bringing their Karabakh allies to Armenia and handing them the crown jewels of the economy.
"Because of these two persons, 15,000 people have moved from Karabakh to Armenia, mainly Yerevan, in the past 10 years," Ter-Petrossian said. "Each of them has been given a position. As if that wasn't enough, now the business sphere is also being given to them."
Sarkisian's pat response to the criticism has been to say: "Yes I am Karabakhian, but I am Armenian first."
Armenia's controversial election has led to allegations of fraud, government resignations, violent street protests, a deadly police crackdown, and a state of emergency. It has also exposed a deep rift in society between those born in Armenia proper and those from Nagorno-Karabakh who have resettled in the country.
Critics allege that Karabakh Armenians have benefited from government favoritism and that Kocharian and Sarkisian have dragged their feet on formally ending the conflict to advance their cronies' business interests.
Yerevan-based political analyst Stepan Grigorian, who is sympathetic to Ter-Petrossian and the opposition, says having a president from Nagorno-Karabakh "who governs Armenia very badly" has fueled resentment.
"Certain negative feelings exist," Grigorian says. "They do not extend to ordinary people of Karabakh, but refer to those people who came to Armenia from there. Robert Kocharian brought many people with him, and appointed them to high positions. This created more caution. So yes, certain tension exists, of course."
The Karabakh Oligarchs
Armenia had control of Karabakh when a cease-fire was reached in 1994. But the victory came with a price, as Armenia's borders with Azerbaijan and Turkey have remained sealed.
Ter-Petrossian, who became Armenia's first post-independence president in 1991, brought Sarkisian -- who was a senior military official in Nagorno-Karabakh -- to Yerevan in 1993 to serve as defense minister. In 1998, he named Kocharian, who served as chairman of Nagorno-Karabakh's State Defense Committee and later as president, Armenia's prime minister.
It was a decision Ter-Petrossian soon regretted. He proposed a compromise solution to Azerbaijan on Nagorno-Karabakh that Kocharian staunchly opposed. Ter-Petrossian was forced to resign over the issue in February 1998 and Kocharian won a special election to succeed him. Under Kocharian, Sarkisian served in a number of posts including defense minister, interior minister, national-security minister, presidential chief of staff, and most recently, prime minister.
Aram Abramian, editor in chief of the Yerevan-based daily newspaper "Aravot" and who has roots in Nagorno-Karabakh, says Kocharian and Sarkisian brought in associates from the territory who took over state posts and dominated the business elite.
"There are 20, 30 families -- oligarchs -- people who, thanks to the opportunities that are provided to them by the authorities, became rich, and have wide possibilities of avoiding taxes and custom fees," Abramian says, adding that well-connected moguls were able to gain "monopolies" over fuel, sugar, and other commodities.
"Others, who are less powerful, do not have this right," Abramian adds. "Not all of these people are from Karabakh. It does not matter where they come from -- the most important thing is for them to serve the authorities."
Among those identified by analysts as part of the Karabakh clan are Kocharian's son, Sedrak, who reportedly controls mobile-phone imports; Barsegh Beglarian, who dominates the gas-station market; Mika Bagdasarov, who controls oil imports and heads the national airline; and Karen Karapetian, head of the Armrusgazard gas company, a joint venture with Russia's Gazprom.
Abramian and other analysts say these oligarchs benefit from the lack of a final resolution to the Karabakh conflict and the closed borders with Turkey and Azerbaijan.
"This is one of the reasons why these issues are not being solved, because to have open borders with Europe, Asia, and so on -- in [that] case, the flows of goods, in either direction, will be wider, and it will be more difficult to control them," Abramian says. "Now, however, when one narrow flow comes through Georgia and another, even narrower, comes via Iran, controlling these flows of goods is much easier."
Observers say such arrangements also stifle local production, hinder small business development, and ultimately harm the country's economy. And that is a major reason why one of Ter-Petrossian's main bases of support is among small and mid-level entrepreneurs.
"This kind of economy -- when the high-ranking officials are importing goods -- leads to these same officials not being interested in promoting local production," Grigorian says. "And, because of this, it is in very difficult shape now. So during the elections, mid-size and big business wholly supported Ter-Petrossian."
There are slight cultural differences between native-born Armenians and those from Nagorno-Karabakh, according to analysts. Abramian says Karabakhians are more "favorably oriented toward Russia," are more likely to speak the Russian language, and are less religious than Armenians, for example.
He adds, however, that it is the dominance of Kocharian and Sarkisian's allies that has fueled resentment against people from Nagorno-Karabakh, few of whom have benefited from the largesse.
"Armenian people, our compatriots who live in Karabakh -- or, like me, have roots there -- have nothing to do with this," Abramian says. "They are Armenians just like everybody else. However, two people who have kept power throughout a decade -- and plan to do so for many more decades -- they indeed provoked certain negative attitude within the Armenian population. For it was not only them, but their relatives, acquaintances -- tens, hundreds of them -- arrived here, and occupied high-ranking positions and had successful business careers. This triggers a natural reaction."
RFE/RL correspondent Salome Asatiani contributed to this report