The Republic of Armenia re-emerged eight years ago in the course of the collapse of the Soviet Union. A significant out-migration followed, reducing Armenia's population from about 3.8 million to perhaps less than 3.0 million today. The principal causes for this have been reduced economic opportunity and dislocations resulting from the Nagorno-Karabakh conflict. Bilateral efforts are under way between the Armenian and Azerbaijani presidents, with OSCE support, to resolve this conflict. Armenia has a defense agreement with Russia allowing the latter to station its troops and military equipment in Armenia. Armenia's foreign policy seeks regional integration, membership in European institutions, and cooperation with Euro-Atlantic institutions, including NATO. However, Armenia continues to face many challenges in fulfilling its commitment to a complete democratic transformation. In the most serious act of political violence since Armenia regained its independence in 1991, five apparent political dissidents burst into the National Assembly on October 27, 1999, and assassinated the prime minister, the speaker of the parliament and his two deputies, and four other members of parliament. In general, elected officials in Armenia are believed to represent voter sentiment, despite significant flaws in the country’s election procedures. The current government, established in June 1999, has a working majority in the unicameral legislature. The press is generally free, although media organizations often practice self-censorship to avoid possible conflict with authorities over subjects deemed essential to "national security." Freedom of association, particularly for religious groups, is somewhat hindered by burdensome registration requirements. Armenia’s most pressing human rights need is the development of a fully independent judiciary capable of reliably protecting citizens from harassment and abuse by police and prosecutors.

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The government formed in June 1999 announced its commitment to continue moving the country towards a free market economy, and the current government has reiterated that commitment. Prior to his assassination, the former prime minister had undertaken a number of initiatives in the area of structural and institutional reform and had announced a new anticorruption program. The successors to the slain prime minister and speaker have stated their determination to continue these policies. The government’s revised program aimed to achieve real GDP growth of four percent and inflation of no more than eight percent for 1999. The new government is attempting to ameliorate budget shortfalls through increased tobacco and gasoline excise duties that would be funneled to the repayment of energy sector debts. This, along with a number of other similar financial commitments, has led the International Monetary Fund (IMF) and the World Bank to release previously delayed structural adjustment credits. The new government's economic policy priorities include export promotion and the reduction of Armenia's large trade deficit. The government has made moderate progress in drafting legislation for Armenia's accession to the World Trade Organization (WTO). The parliament will soon consider legislation required for WTO accession, including a new WTO-compliant customs code, a law on securities markets, and amendments to the law on intellectual property rights.

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In FY 1999, the U.S. Government provided an estimated $111.95 million in assistance to Armenia, including $79.90 million in FREEDOM Support Act funds, $12.90 million in other U.S. Government funds, and $19.15 million in privately donated and U.S. Defense Department excess humanitarian commodities. U.S. assistance was focused in the areas of market reform, energy sector reform, democratic reform and good governance, private sector development, social sector reform, education and training, and Agriculture. Since 1995, working closely with the Government of Armenia, the U.S. Government has decreased the amount of humanitarian assistance provided to Armenia, replacing it with development assistance and private sector development programs. FY 1998 marked a turning point in this joint endeavor—for the first time since FY 1992, the U.S. Government allocated more funding to development programs than to humanitarian programs. In FY 1999, this trend continued—the vast majority of U.S. Government funded assistance to Armenia was in the form of development assistance. This shift in relative priorities is designed to help Armenia make an efficient transition to a free market economy and create real jobs in new enterprises.

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A breakdown of FY 1999 U.S. Government funded assistance by category is provided below:

U.S. based training, exchange, and educational reform programs ($17.8 million): This area received increased emphasis in FY 1999, in the form of a congressionally mandated $9.58 million endowment to the American University of Armenia (AUA). U.S. Government funded efforts were focused on strengthening AUA’s master’s degree programs in business administration, political science, health and seismic engineering. (Click here for a more detailed presentation)

Comprehensive Market Reform Program ($16 million): Initiated in FY 1998, this program focuses on privatization, tax and fiscal systems, land titling, capital markets development and accounting practices. (Click here for a more detailed presentation)

Economic restructuring programs ($4.7 million): These programs place a strong emphasis on financial sector reform, including banking supervision and operations. (Click here for a more detailed presentation)

Energy sector reform Programs ($10.2 million): Of this total amount, $5.7 million was allocated to promote a more economically sustainable and environmentally sound energy sector and $4.5 million was allocated for U.S. Department of Energy nuclear safety programs at the Metsamor nuclear power plant. (Click here for a more detailed presentation)

Social sector Programs ($7.4 million): These included a new program to promote social sector reform and improved delivery of services through medical partnerships with U.S. institutions and through reproductive health programs. (Click here for a more detailed presentation)

Democracy and good governance programs ($6.7 million): These programs are designed to increase citizen participation in decision-making processes and to promote an impartial, transparent and independent judicial system. Included in this area is support for the strengthening of civil society, nongovernmental organizations (NGOs), the independent media, local government systems and the judiciary. (Click here for a more detailed presentation)

Agricultural Marketing Assistance Program ($5.7 million): This U.S. Department of Agriculture (USDA) program was initiated in 1996. In FY 1999, USDA expanded the program, adding a particular emphasis on assisting private sector growth in Agriculture and agribusiness. (Click here for a more detailed presentation)

Private sector development and support for micro and small enterprises ($5.3 million): This amount includes a $3 million program for the provision of loans and grants to small and medium-sized Armenian businesses through the Eurasia Foundation. (Click for a more detailed presentation on Eurasia Foundation, as well as on other USAID Private Sector development programs)

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TRAINING, EXCHANGE AND EDUCATIONAL REFORM PROGRAMS

Since FY 1993, U.S. Government funded exchange programs have brought over 1,700 Armenian citizens to the United States for short-term professional or long-term academic training, including some 400 in FY 1999 alone. These programs give participants an opportunity to develop their skills and establish valuable contacts with U.S. counterparts.

USAID Training: In FY 1999, USAID provided short-term training to over 1,470 Armenian participants. Of this total, 110 participants attended U.S. based training programs, over 40 attended third-country training programs, and over 1,300 attended in-country training programs. The U.S. based training addressed issues such as NGO development, energ ysector reform, legal education, marketing, business administration, and social sector reform and service delivery. To complement the U.S. based training, USAID organized short-term training programs in Armenia and third-country locations in the areas of journalism, economics education, accounting, fiscal decentralization, social policy, health sector reform, capital market reform, and anticorruption. Of the over 1,400 participants, over 1,300 received training in the area of economic restructuring, and over 120 in the area of democratic reform. In FY 1999, USAID also funded master's degree training programs for five Armenian accountants at the University of Texas.

U.S. Information Agency (USIA) Exchanges: These programs, whose aim is to expose future Armenian leaders to Western concepts of democracy and market economics, received a significant increase in emphasis in FY 1999. Over 170 Armenians traveled to the United States on USIA academic exchange programs, including 58 individuals who enrolled in U.S. master’s degree programs under the FREEDOM Support Act Graduate Fellowship Program, 25 students under the Undergraduate Exchange Program, and 50 high school students under the Future Leaders Exchange (FLEX) Program. Four Armenian scholars participated in the Regional Scholars Exchange Program, five in the Contemporary Issues Fellowship Program and four in the Fulbright Fellowship Program. In addition, over 110 Armenians participated in USIA professional exchange programs in FY 1999. Some 30 Armenians received U.S. based training through the International Visitors (IV)/FREEDOM Support Grant Program in areas such as civic education, curriculum development, information technology, conflict resolution, financial management, the role of official spokespersons, media ethics, and establishing professional associations. A total of 60 Armenians were selected for the Community Connections Program, which placed groups of participants in four to five week community-based internships in U.S. cities in the fields of tourism, dairy production, business, job assessment and job marketing, and the environment.

USIA Secondary School Partnerships: In FY 1999, 20 Armenian students and four Armenian educators from Yerevan, Vanadzor and Echmiadzin participated in a three-week exchange under USIA’s NIS Secondary School Partnership Program. In addition, a USIA-sponsored Internet connectivity project facilitated an exchange of teachers between six U.S. and six Armenian schools. The exchange took place in conjunction with the establishment of computer/Internet centers in the six Armenian schools. One of the six U.S. schools involved in this program donated additional computers that were subsequently installed in three additional Armenian secondary schools.

USIA University Partnerships: A USIA funded partnership between the American University of Armenia (AUA) and the University of California – Berkeley’s Boalt Law School continued in FY 1999, with 19 Armenian students accepted into the L.L.M. program's fourth cycle. There are currently four additional USIA-sponsored university partnerships under way in Armenia: Yerevan State University and Florida State University; Yerevan State University’s Journalism Department and Middlesex Community College; Northeastern University and the Cambridge-Yerevan Sister City Association; Yerevan State University’s Economics/Business Department and the University of California, Fresno; and the American University of Armenia and the Miami University of Ohio. These partnership programs continue to support faculty and administrative staff exchanges that involve a combination of teaching, lecturing, faculty and curriculum development, collaborative research, and outreach.

U.S. Department of Agriculture (USDA) – Cochran Fellowship Program: In FY 1999, USDA’s Cochran Program continued to support Agricultural reform in Armenia, organizing FREEDOM Support Act funded short-term exchange programs for a total of six participants.

USDA Support for Agricultural Education Reform: USDA’s Marketing Assistance Program (MAP) is helping the Armenian Agricultural Academy (AAA) revise its curriculum and integrate the Armenian Agricultural Extension Service and several national research institutes into the AAA. MAP is also helping the AAA design an undergraduate degree program in agribusiness management to be implemented in the 2000 fall semester, which will be taught entirely in English and will feature guest speakers from several American universities. MAP is also providing limited opportunities for exceptional AAA students to continue their studies and receive advanced degrees from prominent U.S. universities. All of these students have contracts to return to Armenia to teach undergraduate courses. In addition, USDA facilitated the creation of the Foundation for Applied Research and Agribusiness, whose membership consists of more than forty AAA professors and students and whose goal is to use applied research to improve income at the farm level. One successful Foundation project tested U.S. tomato varieties and found varieties that increased tomato production by 60 percent in comparison with Armenian varieties.

U.S. Department of Commerce – Special American Business Internship Training (SABIT) Program: In FY 1999, the SABIT Program provided internships for two Armenian participants. (Please see the U.S. Commerce Department SABIT section in Part III of this report.)

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ECONOMIC RESTRUCTURING AND DEVELOPMENT PROGRAMS

USAID Economic Restructuring and Reform Programs: In FY 1999, USAID continued its broad program of support for economic restructuring, which was initiated in FY 1998 and addresses a comprehensive set of market reforms. Despite the Armenian Government's strong initial commitment to these efforts, several factors, including election-related politics and changes in key Armenian Government leadership positions, led to a slowing of the pace of reform. While progress was somewhat disappointing, assistance in this area continued to lay the groundwork for long-term economic development in Armenia.

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USDA Marketing Assistance Project (MAP): In FY 1999, MAP played a key role, both technically and financially, in a highly successful collaborative effort involving the World Bank, the Lincy Foundation and the Andre Group of Switzerland. Under this program, 7,000 metric tons of tomato paste were produced and exported, with an export value of $4.5 million. In addition, $2.5 million worth of tomato paste was produced and packaged for domestic sale. In addition, MAP loans were used to purchase Agricultural production from 6,000 Armenian farmers and to provide aseptic production and packaging equipment to four major canneries to meet world-quality standards. MAP also provided a $550,000 credit for the purchase of 2.3 million glass jars and the establishment of Armenia’s first leasing company. More than 1,000 seasonal jobs were created at the cannery level and an estimated 5,000 jobs were created at the farm level. Counting farmers, cannery workers, harvest workers and their dependents, more than 50,000 people benefited from the tomato paste project. Also in cooperation with the World Bank, MAP played a key role in the opening of Armenia’s only domestic fruit juice processing plant, by providing a loan for 63 percent of the required funding. The company, New Wave, Limited, began operations by selling 3,500 liters of juice per week in the Yerevan market and secured a contract for exporting their production. The plant, which uses modern aseptic packaging, processes apricot, peach, apple, and rose hip juice, and has created 40 new jobs and 60 seasonal jobs, and has purchased fruit from 20,000 farmers. In addition, MAP provided financial and technical assistance to Armenia’s cheese industry and to packaging firms that support the industry. Armenia’s production of European style cheeses was increased by 300 percent, resulting in substantial import substitution. In FY 1999, MAP also provided over $1.52 million in loans to 215 agribusinesses and individual farmers, milk processors, and livestock producers to expand the sale of cheese, dried fruit, milk products, meat, wine, tomato paste, and fresh and processed fruit.

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U.S. Department of the Treasury – Technical Advisors: Throughout FY 1999, three U.S. Treasury Department advisors, working in close cooperation with USAID, continued to support an essential element of Armenia’s economic reform program by providing practical advice to the Ministries of Finance and Economy in the fields of budget administration, tax administration, government securities management, and enforcement. (Please see Treasury Department section in Part III of this report.)

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ENERGY AND ENVIRONMENTAL PROGRAMS

USAID Energy Sector Reform Programs: FY 1999 was a watershed year for USAID's energy sector reform efforts in Armenia. In February 1999, a memorandum of understanding was signed with the Armenian Government outlining planned assistance and, most importantly, a series of Armenian Government commitments that are essential to the development of sustainable energy systems in Armenia. While major reforms still need to be taken over the next year, technical and commodity assistance is laying the groundwork for the wide-scale privatization of energy distribution in May 2000, and the subsequent privatization of energy generation. Achievements made during the past year, in close coordination with the World Bank, include the following:

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Democracy Fund Small Grants Program: Under this USIA administered program, the U.S. Embassy’s Democracy Commission disbursed five grants totaling approximately $50,000 to local Armenian organizations in FY 1999, including independent radio and television stations, consumer protection groups, environmental protection groups, human rights groups, women’s rights groups, and other local nongovernmental organizations (NGOs). By helping the recipient organizations increase their institutional capacity, these grants helped strengthen civil society in Armenia.

USAID Democracy Programs: In FY 1999, these programs focused on two main objectives: increased citizen participation in political and economic decision-making, and ensuring that laws are enforced and adjudicated impartially. 

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SECURITY PROGRAMS

The Armenian Government has demonstrated a willingness to cooperate with the United States in preventing weapons of mass destruction (WMD) proliferation and in fighting transnational crime. Armenia is an active member of the State Department-supported International Science and Technology Center (ISTC), which provides former Soviet weapons scientists with opportunities to work on peaceful civilian research projects so that they would not be tempted to sell their expertise to countries of proliferation concern. In FY 1999, the U.S. Government also promoted the participation of former WMD scientists in peaceful research projects supported by the U.S. Civilian Research and Development Foundation (CRDF). In addition, Armenia has taken several steps to strengthen its export controls, and U.S. Government funded export control and border security programs provided training and equipment to the Armenian Customs Service and Border Guards to improve their export control capabilities and prevent WMD proliferation (for more detail, click here).

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USAID Hospital Partnerships: Two USAID-funded U.S.-Armenian hospital partnerships have been active since 1993: one between the Yerevan Emergency Scientific Medical Center, Boston University and the University of Massachusetts, and one between the Erebuni Medical Center and the University of California, Los Angeles (UCLA) Medical Center. These partnerships have resulted in the application of new concepts in emergency medicine, as well as in increased access for Armenian citizens to emergency medical services. In FY 1999, partnership activities focused on pediatric emergency training, disaster preparedness and nursing education training. The Erebuni-UCLA hospital partnership also developed a bachelor’s degree program in nursing, established a neonatal resuscitation center and provided support to a Women's Wellness Center. FY 1999 saw the graduation of the first class of nurses from the bachelor’s degree program and training provided in Armenia’s regions by the Women's Wellness Center in up-to-date approaches to women's health issues. In addition to the two ongoing partnerships, four new three-year partnership agreements were awarded in FY 1999 focusing on increasing the quality of primary health care at the community level. These new partnerships are between UCLA and Armenia’s Lori Region, Care New England Health System and the Gegarkunik Region, the University of Texas and the Armavir Region, and the University of Alabama and the Armenian National Institute of Health.

USAID Social Sector Reform Programs: Armenia has made significant efforts to address the needs created by the weaknesses of the country’s social protection systems, which have largely collapsed after the breakup of the Soviet Union. However, the current economic environment in Armenia is creating an increasingly large number of vulnerable individuals who require assistance and for whom adequate protection does not yet exist. 

U.S. Department of Agriculture (USDA) – Government-to-Government Food Aid: In FY 1999, the Government of Armenia decided not to accept a $10 million concessional loan for the procurement and delivery of U.S. wheat to Armenia under USDA’s P.L. 480, Title I Program, basing its decision on the premise that accepting the loan would have exacerbated the country’s 1999 budget deficit and would therefore have seriously jeopardized the planned release of segments of Armenia’s IMF and World Bank loans. The Armenian Government subsequently requested a USDA Section 416(b) grant wheat program for FY 2000, the provision of which will be dependent on commodity availability and funding authority.

USDA PVO Food Aid Programs: In FY 1999, USDA allocated $9.15 million for the provision of approximately 6,200 metric tons (MT) of food commodities to Armenia, drawing from USDA resources under the Food for Progress and Section 416(b) Programs. USDA’s Food for Progress Program donated 5,700 MT of commodities through two U.S. private voluntary organizations (PVOs) working in Armenia: the Fund for Armenian Relief (FAR) and the United Methodist Committee on Relief (UMCOR). UMCOR monetized 2,500 MT of these commodities and used the proceeds to carry out several programs to assist health care providers and to improve Agricultural facilities. FAR used 1,900 MT of donated commodities for the direct feeding of 60,000 beneficiaries. In addition, FAR used the proceeds from the monetization of 1,300 MT of commodities to help revitalize the country’s dairy industry. In addition to the Food for Progress commodity donation, USDA also donated 500 MT of dry milk to support United Nations World Food Program (WFP) initiatives in Armenia.

USAID Humanitarian Assistance: In FY 1999, only 18 percent of the FREEDOM Support Act assistance budget for Armenia was allocated to humanitarian assistance. This decrease was the result of a mutual U.S. and Armenian Government desire to reduce humanitarian assistance in favor of development assistance and private sector job creation. During FY 1999, the Government of Armenia demonstrated an improved ability to identify and target humanitarian assistance needs, in large measure due to the USAID-funded PAROS system, a computerized database of 750,000 households that was initiated in 1996 and is now used to manage the distribution of humanitarian assistance in Armenia. The PAROS database allows USAID, other donor organizations, and the Armenian Government to identify the most needy members of the population and to distribute humanitarian assistance accordingly. The Armenian Government is also better positioned fiscally to shoulder more of the responsibility for maintaining and strengthening the country’s social safety net, especially for the most vulnerable members of the population. For example, last winter, the Armenian Government allocated $3 million to pay a winter supplement to approximately 200,000 needy families.

1998/99 Winter Warmth Program: For a sixth and final year, this U.S. Government funded program distributed 7,300 metric tons of kerosene to Armenian schools and to the vulnerable population living in temporary shelters in northern Armenia’s earthquake zone. This important, high profile program was the only source of heat for a large segment of the population and for the vast majority of Armenia’s schools for the entire winter. Over the last six winters, the program has been gradually reduced, both in the number of beneficiaries and in the amount of kerosene distributed, and it was closed out after the 199899 season. This closeout was accomplished in coordination with the Armenian Government, as the focus of U.S. Government funded assistance programs continued to shift away from humanitarian assistance and as the Armenian Government expanded its capability to provide for the needy and the country’s schools. The final 7,300 metric tons of kerosene was distributed to almost 36,000 beneficiaries living in temporary shelters since the December 1988 earthquake, 1,303 schools throughout Armenia, and 81 other institutions.

Seed Delivery Program: In FY 1999, the State Department’s Operation Provide Hope funded the cost (approximately $107,000) of transporting 1,528 metric tons of spring barley seed purchased by the Armenian Government. This program was undertaken to help Armenian farmers recover from the 1998-99 drought by providing them with an essential Agricultural input for the spring 1999 planting season.

Coordinator’s Office Humanitarian Assistance: Since 1992, the U.S. State Department’s Operation Provide Hope has provided almost $197 million in humanitarian assistance to Armenia. In FY 1999, the Office of the Coordinator of U.S. Assistance to the NIS expended $1.66 million in transportation and grant funds to deliver $19.15 million in humanitarian assistance to targeted groups in Armenia through Operation Provide Hope. In collaboration with the Ministry of Health, this assistance was tailored to Armenia’s needs, with high-value pharmaceuticals furnished by the U.S. PVO CitiHope being delivered to government hospitals and to clinics by the United Methodist Committee on Relief (UMCOR) under a grant from the Coordinator’s Office.

Support for WFP Food-For-Work Program: Since 1996, the United Nations World Food Program (WFP) has been transitioning from humanitarian distributions to development assistance through its food-for-work program in Armenia. With funding from multiple donors, the program has employed more than 75,000 vulnerable Armenians, while at the same time creating the infrastructure necessary for income generation. Through this program, WFP employs more people than any other nongovernmental employer in Armenia. In lieu of wages, workers receive food packages of vegetable oil, flour and sugar. The U.S. Government has been enthusiastically supporting this program since its inception. In FY 1999, two U.S. Government agencies made significant contributions to the execution of this successful and necessary program. In response to an appeal to donors, USAID contributed $571,000 to the program, and through its FY 1999 Section 416(b) Program, USDA provided 500 metric tons of flour with a total commodity and transportation value of over $240,000. It is likely that without U.S. Government support, this important WFP program could not have attained such a high degree of success.

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Peace Corps: During the seven years the Peace Corps has been operating in Armenia, over 200 Peace Corps volunteers (PCVs) have served in its English-language education and small enterprise development (SED) programs. In FY 1999, over 50 PCVs served in 23 sites spread across seven of Armenia’s ten regions. Under the SED program, PCVs provided technical assistance to local NGOs, small business centers, and private entrepreneurs in the form of training seminars, classroom teaching, business-plan consulting, and on-the-job cooperation with Armenian counterparts. English-language education PCVs taught in Armenian grade schools and institutions of higher learning, simultaneously assisting with curriculum development and the organization of community resource centers. For the first time in FY 1999, health education was also integrated into nine of the PCVs’ teaching assignments. USIA continued to support an annual traveling teachers’ show in which PCVs and their Armenian colleagues demonstrated participatory and communicative methods to local teachers in a series of workshops in several communities. This past summer, PCVs also collaborated with the NGO Save the Children to organize a 225-kilometer hike to promote environmental awareness across Armenia. Along the route of the hike, PCVs and their Armenian counterparts conducted environmental workshops and camps. Other community development activities included working with orphanages, improving school facilities, collaborating with community members to organize a festival, setting up computer training programs, and helping a wide range of local interest groups address organizational and resource-related issues.

Eurasia Foundation: In FY 1999, the Eurasia Foundation awarded a total of $1.14 million in grants to Armenian NGOs working to support civil society, democracy building, public administration and small business development. In October 1998, the Foundation initiated a South Caucasus Synergy Program designed to facilitate greater contact and cooperation among leading NGOs in Armenia, Azerbaijan and Georgia through support for cross-border projects in such areas as business development, legal reform, civil society-building, and public administration. (Please see Eurasia Foundation section in Part III of this report.)

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In FY 2000, U.S. Government funded assistance programs for Armenia will focus on increasing the demonstrable and tangible benefit of U.S. Government assistance to the average Armenian citizen and to his/her standard of living. The U.S. Government will seek to accomplish this by designing assistance programs that will:

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