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Armenia Confirms $500 Million Loan From Russia

MOSCOW (RFE/RL) -- Russia will lend Armenia $500 million to help its regional ally cope with the effects of the global economic crisis, officials in Yerevan have confirmed.

Negotiations on the size and terms of the assistance have been going on since Armenian authorities asked Moscow for a "stabilization credit" late last year.

The Armenian Finance Ministry's confirmation of the outlines of the deal came one day after Russian Finance Minister Aleksey Kudrin on February 4 disclosed the amount of cash Moscow was ready to allocate to Yerevan. "We will helping neighboring countries that we work with," Russian news agencies quoted him as saying. No further details were reported.

A ministry spokeswoman told RFE/RL that Armenian and Russian officials are now discussing the terms of the $500 million loan. She could not say precisely how the Armenian government plans to use the funds.

Large-scale external assistance is vital for the success of the government’s efforts to minimize the global downturn’s impact on the Armenian economy.

The World Bank announced last week that it would provide Armenia with up to $800 million in loans in the next four years, with more than $80 million due to be disbursed this month. The World Bank funds will be used for rural infrastructure projects and channeled into small and medium-sized businesses through Armenian commercial banks.

Kudrin made the announcement just hours after Russia pledged to contribute $7.5 billion to a rescue fund of five ex-Soviet republics on top of more than $3 billion already promised to individual allies. The presidents of the republics making up the Eurasian Economic Community (Eurasec) met in Moscow on February 4, with Armenian President Serzh Sarkisian attending in accordance with his country's observer status in the Russian-led grouping.

Russian President Dmitry Medvedev made clear at a news conference held after the summit that Moscow would give no non-refundable handouts to its ex-Soviet allies. "Terms should be acceptable for the countries finding themselves in a difficult situation, similar to those under which international financial organizations issue their credits," he said, according to Reuters.

Russia itself has been hit hard by the global recession and, in particular, the sharp decline in international prices of oil and other commodities. Its stock markets have lost three quarters of their value and gold and currency reserves plummeted to under $390 billion from more than $600 billion last summer.

"To think that this Russia can help someone now would be unserious," Aleksey Malashenko, a senior analyst the Carnegie Moscow Center, told RFE/RL. "Because of the [financial] crisis, Russia has found itself in a quite difficult situation."

Malashenko suggested that Russian loans to countries like Armenia are likely to come with strings attached.

Moscow has already won major political concessions from Belarus and Kyrgyzstan. After securing a $2.15 billion Russian rescue package this week, the Kyrgyz government announced its plans to discontinue an agreement allowing U.S. troops to use a military base there.

Vartan Ayvazian, chairman of the Armenian parliament's economics committee, acknowledged on February 3 that the impending Russian assistance will "help increase Russia's political influence in Armenia." "Russia and Armenia are strategic partners," Ayvazian told journalists.

Armenia had borrowed heavily from Russia in the early and mid-1990s. The country’s largest thermal-power plant and four other enterprises were handed over to state-run Russian companies in 2003 in payment for Yerevan’s remaining $100 million debt to Moscow.