Resurgent Russia flexes muscle in Armenia

Armenia, a small republic high in the Caucuses mountains, had a problem. Since emerging from the detritus of the Soviet Union the economy fared badly, with massive debts to Russia it could not pay back.

Last year the country's leadership hit upon a solution: Moscow would take over Armenian industrial assets equal to the value of its borrowings from Russia, and the $100 million (93.5 million euro) debt would be written off.

But now, with the crown jewels of its economy in the hands of its former imperial masters in Moscow, analysts and pro-Western politicians are asking if Armenia has paid its debt with its political independence.

"These assets-for-debt swaps put into question, on a conceptual basis, the sovereignty of the Republic of Armenia," said Raffi Hovannisian, a former foreign minister who now heads a think-tank.

Armenia is not an isolated case. More than a decade after the Soviet empire collapsed, Russia is using its resurgent economy to re-assert political control over the weakest of its former satellite states, according to analysts.

They claim that similar scenarios are also being played out in other former Soviet republics, including Ukraine, Belarus, Moldova and Kyrgyzstan.

"Armenia has become the first case study in Russia's strategy to regain political dominance over post-Soviet countries by taking over their economic infrastructure," said Vladimir Socor, a fellow with the Washington-based Institute for Advanced Strategic and Political Studies.

Armenia has welcomed Russian investment because it has had little success attracting businessmen from anywhere else.

Western investors have been scared away by a protracted conflict with neighboring Azerbaijan that has left Armenia isolated from its markets, as well as by rampant official corruption.

The list of assets now controlled by the Russian government under the debt-for-assets deal is substantial.

Six generating units at the Hrazdan power station, which account for 15 percent of Armenia's energy supply, the Mars electronics plant in the capital, Yerevan, and three other high-tech factories were all handed over.

Armenia's government argues there is nothing unusual about any of this. Foreign ownership of businesses is a feature of the global economy, they say, and the World Bank has backed the arrangement.

"We are doing this for the good of our people," said Defense Minister Serge Sarkissian, who also chairs a commission formed to oversee the debt-for-assets swap with Russia.

"You don't hear anyone saying that since Armenia sold its airport to the Argentineans it lost its sovereignty, or if it sold shares in its enterprises to other investors that it lost its sovereignt," he said.

But what worries skeptics is that the latest acquisitions by Moscow join a long roster of other Armenian assets already in Russian hands which, taken together, make up a big chunk of the country's tiny economy.

"Armenia is integrating so closely with Russia you could even say it is becoming part of Russia," wrote the opposition Haikakan Zhamanak daily.