Caucasus Report: May 5, 1999

Abkhaz Deadline Expires. On 29 April, a Georgian delegation headed by Minister of State Vazha Lortkipanidze flew to Sukhumi for the eighth session of the Coordinating Council created under UN auspices in November 1997 to discuss technical issues related to the resolution of the deadlocked Abkhaz conflict. Also present at the talks were UN Special Envoy Liviu Bota and the ambassadors of the countries that comprise the UN Secretary-General's "Friends of Georgia" group -- the U.S., Britain, France, Germany, and Russia.

The session was, in effect, a last-ditch attempt to reach an agreement between Georgia and Abkhazia on the text of two documents that have been under discussion for several months. They are the "Agreement on Peace and Guarantees for Preempting Armed Clashes" and a "Protocol on the Return of Refugees to the Gali Raion and Measures to Restore the Economy." At their 2 April summit in Moscow, CIS heads of state had adopted a resolution calling on the Georgian and Abkhaz leaderships to sign those documents by 2 May. In the event of the two sides' failure to do so, the CIS heads of state reserved the right to consider the withdrawal of the CIS peacekeeping force that has been deployed along the internal border between Abkhazia and the rest of Georgia since July 1994. Abkhaz officials rejected the resolution as favoring Georgia and ignoring Abkhaz interests (see "RFE/RL Caucasus Report," Vol. 2, No. 15, 13 April 1999).

UN Special Envoy Bota met in early April with the Abkhaz leadership in Sukhumi and finally succeeded in securing their agreement to talks with Georgian representatives. But the subsequent meeting outside Tbilisi on 26 April between Abkhaz presidential envoy Anri Djergenia and Georgian Minister of State Vazha Lortkipanidze was "not a success," Lortkipanidze told journalists afterwards.

Nor did the Sukhumi coordinating council meeting result in the signing of the two documents, although Lortkipanidze met afterwards with Abkhaz President Vladislav Ardzinba to continue discussion of the draft agreement on the return of displaced persons. Comments by Ardzinba and Djergenia make it clear that they are disappointed at the lack of international recognition for Sukhumi's efforts to enable the Georgian displaced persons to return to Abkhazia. Meeting with the five ambassadors, Ardzinba complained that they and the Georgian leadership insist on giving a political dimension to what he termed the "purely humanitarian" problem of repatriation. He also noted that the international community has not offered to assist Abkhazia in this undertaking. (The U.S. has, however, vowed to give the Georgian government between $5-10 million for economic reconstruction in Gali, according to "Nezavisimaya gazeta" on 21 April.)

Despite the expiry of the 2 May deadline, no immediate change in the status quo is likely. A decision on the withdrawal of the CIS peacekeeping force can only be taken by the next CIS summit, no date for which has yet been set. "Rezonansi" on 3 May quoted Bota as saying that he believes the peacekeeping force should remain until a formal settlement of the conflict is reached. Ardzinba, for his part, told Sukhumi radio the following day that if the peacekeeping force is withdrawn, Georgia and Abkhazia should sign a document guaranteeing peace in the region. (It is not clear whether he was referring to the draft "Agreement on Peace and Guarantees for Pre-empting Armed Clashes" under discussion, or a separate agreement.)

How serious the remaining points of disagreement are between the Georgian and Abkhaz sides is unclear. Djergenia said after the 29 April meeting that the Abkhaz side had shown its readiness to compromise, whereas the Georgians refused to do so. The willingness of both sides to compromise further is, however, likely to diminish over the next few months, as Georgia gears up for parliamentary elections due in the fall. And Ardzinba's presidential term expires before the end of the year.

Yet even if progress towards signing the two draft documents under discussion remains elusive, Tbilisi and Sukhumi have made one concrete move that reflects a desire for mutually beneficial cooperation. Georgian and Abkhaz government representatives have signed a memorandum on measures to guarantee the security of a group of western technicians who are to conduct repairs at the Inguri Hydroelectric Power Station, which lies within the conflict zone. The European Bank for Reconstruction and Development has allocated $38.5 million to finance that reconstruction. The Coordinating Council has set up a working group to monitor compliance with the memorandum. (Liz Fuller)

Azerbaijani Officials Anticipate New Karabakh Peace Proposal. In the wake of the Washington NATO summit and the parallel meetings Azerbaijani President Heidar Aliyev conducted with his Armenian counterpart, Robert Kocharian, and with members of the U.S. administration, two senior Azerbaijani officials have expressed optimism that international mediators will soon draft new proposals for resolving the Karabakh conflict.

State Foreign Policy Advisor Vafa Guluzade told Turan on 30 April that Aliev's visit to the U.S. demonstrated that relations with Azerbaijan have become "a priority" for Washington. Guluzade also said that U.S. President Clinton assured Aliyev of his desire to resolve the Karabakh conflict before his term in office expires in 2001. Guluzade predicted for that reason that the OSCE Minsk Group, of which the U.S. is one of the three co-chairs, will come up with a new peace proposal.

Deputy Foreign Minister Araz Azimov similarly told Turan that "if the Minsk Group wishes to succeed, the co-chairs and other members should seriously think about putting forward new proposals." Azimov added that the new peace plan should be based on that put forward in 1997. It was Armenian President Levon Ter-Petrossian's willingness to accept that plan as a basis for negotiations that precipitated his forced resignation in February 1998.

Azerbaijani officials have explained their rejection of the subsequent, 1998 Minsk Group draft peace proposal, by arguing that it fails to guarantee Azerbaijan's territorial integrity. (That proposal advocated the creation by Azerbaijan and the unrecognized Nagorno-Karabakh Republic of a "common state.") Kocharian, for his part, said in Washington that the 1998 peace proposal in general, and the "common state" proposal in particular, are advantageous to Azerbaijan. He added that Yerevan "has nothing more to concede."

Speaking in Yerevan on 5 May, Kocharian said that the 1998 Minsk Group proposal "remains in force." He added that events in Kosova have demonstrated that "the principle of territorial integrity cannot be realized in countries that have a very basic understanding of democracy. The forcible suppression of a people's right to self-determination leads only to war." (Liz Fuller)

Armenia's Economic Growth Continues Despite Decline in Industrial Sector. The Armenian economy continued to grow in the first quarter of this year despite an ongoing decline in industrial output caused by the financial crisis in Russia, according to government figures released earlier this week.

Official statistical data for the first three months of 1999 showed that Armenia's GDP was up 4.6 percent compared with the same period last year. Deflationary processes that began one year ago have accelerated this year with the consumer price index in late March 3.9 percent lower than at the end of December.

Economic growth in Armenia hit 7.2 percent last year under a 1.3 percent consumer price deflation. A strong boost in the construction and agricultural sectors more than offset a 2.5 percent industrial decline, triggered by the Russian crisis of last August. That trend continued into the first quarter of this year, with the manufacturing sector producing 4.4 percent less than during the same period in 1998.

A sharp fall in Armenian exports to Russia and other post-Soviet states has added to the country's huge trade deficit, which reached $588.7 million last year and is still on the rise. By contrast, exports to countries outside the borders of the former USSR, which now account for the bulk of Armenia's foreign trade, have increased by one-third.

"Our main achievement is that we have managed to save our market from the effects of the [Russian] crisis and keep up [economic] development," Finance Minister Eduard Sandoyan told a news conference on 4 May. He said the government's tight macro-economic policies coupled with Armenia's economic "re-orientation towards the European Union" have been the main mitigating factors. Last year, the EU pulled ahead of the Commonwealth of Independent States as Armenia's leading trade partner, with a $334.4 million annual turnover.

Sandoyan also cautioned political opponents against the use of populist economic rhetoric in the run-up to the parliamentary elections scheduled for 30 May. Many parties and candidates are calling for a larger government role in managing the economy in an effort to capitalize on widespread disillusion with reforms.

"Any change of economic policy may put an end to any prospects of development," Sandoyan said. "The only option for countries like Armenia is to form a legal and political framework to attract investments."

According to government statistics, direct foreign investments in the Armenian economy reached $240 million last year, more than during the previous several years taken together. But this growth so far has had little effect on living standards in Armenia which fell precipitously in the early 1990s. Unemployment remains extremely high and the aging economic infrastructure requires billions of dollars in investments. Analysts say higher growth rates and exports are needed for ordinary Armenians to see a quick improvement in living standards.

Armenia's relative macroeconomic stability is to a large extent dependent on regular loans from the World Bank and International Monetary Fund. Interest rates are set disproportionately high, the big trade imbalance being one of the causes. Despite the low inflation Armenian Central Bank maintains its refinancing rate at 52 percent. Yields on government treasury bills are even higher. (Emil Danielyan, Atom Markarian)

Quotation Of The Week. "I don't believe there is even one circle of people in Georgia [who are] content with the present situation. Unless the amount transferred to the state budget from industrial enterprises is used to pay wages and pensions, I will stop paying taxes." "Beer magnate" and leader of the "Industry Will Save Georgia" movement Gogi Topadze, quoted in "Rezonansi," 5 May 1999.