VZCZCXRO7324
RR RUEHDBU RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHYE #0172/01 0710944
ZNR UUUUU ZZH
R 120944Z MAR 09
FM AMEMBASSY YEREVAN
TO RUEHC/SECSTATE WASHDC 8796
INFO RUCPDOC/USDOC WASHDC
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 03 YEREVAN 000172 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
STATE PASS TO USAID 
 
E.O. 12958: N/A 
TAGS: EAID ECON AM
SUBJECT:  AMBASSADOR VISITS TAVUSH AND LORI MARZES 
 
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SUMMARY 
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¶1. (SBU) Ambassador visited Tavush and Lori Marzes (northern 
Armenia) March 4 to meet with GOAM officials and several 
regionally-based private enterprises.  Speaking on U.S. - Armenian 
relations, the Ambassador emphasized the commitment of the USG to 
help improve the lives of the Armenian people and support their 
efforts to live in peace and economic prosperity.  On her visits to 
two private enterprises, Ambassador Yovanovitch highlighted the 
importance of such enterprises in generating local employment and 
their contribution to stimulating Armenia's economic growth. At an 
Advocacy and Assistance Center, one of eleven such centers being 
established throughout the country through USAID's anti-corruption 
program, the Ambassador observed efforts of local attorneys to 
provide legal counsel to citizens in addressing public-level 
corruption.  The visit was an opportunity for the Ambassador to hear 
first-hand from those involved in efforts to improve life in the 
regions by challenging the status quo, even in the face of daunting 
challenges.  End Summary. 
 
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ECONOMIC CONCERNS IN DILIJAN 
---------------------------- 
 
¶2. (SBU) Ambassador made a courtesy visit to the Mayor of Dilijan, a 
rustic, picturesque community of 17,000 that has fallen on hard 
times after once serving as a prime destination for tourists in the 
Soviet era.  Mayor Armen Santrosyan thanked the Ambassador for the 
past and present support the USG has provided to the people of 
Dilijan. Asked to describe some of the challenges that Dilijan faced 
in meeting its development in the context of the world-wide 
financial crisis, Santrosyan stated that employment was a major 
concern. Unemployment was worsening due to the increasing numbers of 
returning migrants, mainly from Russia.  He stated that out of a 
total city population of 17,000, the current number of employed was 
only about 3,000, with an additional 2,000-3,000 actively seeking 
employment. Santrosyan said he didn't know what the effects of the 
financial crisis would be, but believed there would be severe 
consequences for the local economy.  Santrosyan mentioned the risk 
that Dilijan faced from landslides and outlined measures being taken 
by the Municipality to mitigate this risk. He also outlined serious 
issues with the Municipality's water supply and water quality, said 
that USAID's public-partnership with UNDP, Coca-Cola and the 
Municipality to install a wastewater treatment facility on the 
Aghstev River basin would greatly help to improve water quality in 
the city. 
 
¶3. (SBU) Santrosyan noted that the GOAM has committed AMD 
700,000,000 (USD 2 million) for investment in public works in 
Dilijan. These funds would be used for renovations of schools, 
parks/playgrounds, a museum, a library and cleaning of the Aghstev 
River basin, and would open employment opportunities for the local 
population.  He also stated that the GOAM was committing AMD 
120,000,000 (USD 330,000) for a condominium housing project, noting 
that this money would leverage an additional AMD 110,000,000 of (USD 
305,000) funding through a public-private partnership.  The 
Municipality is seeking investment of approximately AMD 160,000,000 
to rehabilitate the city's cultural center that also houses the 
city's indigent elderly. 
 
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BUT HOPE IN PRIVATE SECTOR DEVELOPMENT 
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4.(SBU) Ambassador visited Dili, LLC., a regional, privately-owned 
medium-sized enterprise producing a variety of cheeses, milk cream, 
and Ricotta-type curds, and specializing in the production of 
Italian-style mozzarella.  Through the USAID/EBRD Business Advisory 
Services Program (BAS), Dili receives consultancy services to assist 
the company in improving its marketing strategy and increasing its 
sales volume.  Dili is also engaged in cattle breeding, and 
maintains a herd of German pedigree dairy cows that produce high 
quality raw milk which is used in the production of its line of 
dairy products. 
 
5.(SBU) Ambassador toured the cattle sheds, milking station and 
dairy products processing facility, and sampled Dili's products. 
Asked about the major impediments that Dili and other enterprises in 
the region face in expanding their business, Sales Director 
Alexander Alexanyan replied that access to affordable finance to 
expand the business was the biggest constraint. He stated that 
interest rates were too high, making it difficult to service debt. 
Asked by the Ambassador whether the GOAM was supportive of SME 
development, Managing Director Astghik Tamrazyan responded that the 
GOAM's lifting of VAT on purchases of industrial equipment valued 
over USD 1 million was helpful (although not to Dili; it purchased 
its equipment before this VAT exemption came into effect).  When 
 
YEREVAN 00000172  002 OF 003 
 
 
asked whether the enterprise has felt the effects of the economic 
downturn in Armenia and what effect the recent devaluation of the 
AMD would have on its business, Alexanyan said he viewed the 
devaluation as an opportunity to expand Dili's operation, because it 
would make its products more competitive against imports. 
 
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SEEKING INVESTMENT IN VANADZOR 
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6.(SBU) The Ambassador also visited Vanadzor, Armenia's third 
largest city, and one of the hardest-hit communities in the 1988 
earthquake.  Vadadzor is home to a number of large, Soviet-era 
enterprises, including a massive chemical plant on the outskirts of 
the city.  That plant operates at a fraction of capacity, while 
others are mostly idle.  Vanadzor Mayor, Samvel Darbinian expressed 
his appreciation for U.S. support to the municipality and people of 
the city. Specifically, he mentioned the work of the Urban Institute 
in helping to establish housing units for the poor under the USAID 
Earthquake Zone Recovery project, and the work of the USAID Local 
Government Project in helping the municipality improve its public 
service delivery and financial management systems and the furnishing 
of two new garbage trucks (under a cost-share arrangement with the 
municipality). 
 
7.(SBU) Responding to the Ambassador's question about the challenges 
facing Vanadzor, and about the effects of the world-wide financial 
crisis and recent devaluation on the local economy, Darbinian stated 
that a negative impact is inevitable, and that the GOAM is looking 
for ways to mitigate these negative impacts.  He predicted that the 
next two to three years will be difficult ones for Armenia. He said 
there was a dire need for recovery of Vanadzor's SME industrial 
base, including the chemical, machine processing, textile and shoe 
manufacturing sectors, as well as revival of the tourism sector 
(winter sports facilities development, hotels and spas). The 
Ambassador asked if it is possible to attract private capital for 
investments in these areas. Darbinian commented that all the 
pre-conditions for investment in Vanadzor were in place, and that 
incentives would be provided to encourage such investment.  He added 
that the banking sector should examine its policy on interest rates, 
noting that current high rates of interest on loans won't help the 
economy.  Ambassador replied that the USG is interested in 
supporting Armenia's economic development and private sector 
competitiveness.  (Note: Later this month, Vanadzor Deputy Mayor 
Norik Sardaryan will participate in an International Visitor 
Leadership Program visit focused on Regional Economic Development. 
End Note). 
 
8.(SBU) Asked about unemployment in Vanadzor, Darbinian replied that 
there was a need for 25,000 new jobs.  He said that out of a 
population of 106,000, only 6,000-7000 people are employed (citing 
the fact that in a pre-independence population of 180,000, there had 
been 45,000 employed).  Darbinian noted that the flow of remittances 
from Russia is slowing because of lack of employment opportunities 
for foreigners there.  He stated that in the last several months 
remittance flows from the U.S. have also slowed.  Darbinian argued 
that the GOAM should do something to control prices increases 
resulting from the March 3 devaluation of the AMD.  To the 
Ambassador's question about how long he thought the economic 
downturn would last and how difficult it would be for Armenians, 
Darbinian replied that Armenia has been enjoying political and 
economic stability, and that the GOAM should take measures to ensure 
that the current economic crisis does not set the country back.  He 
closed by saying that Armenia has faced difficult times in the past, 
and predicted it will overcome the current difficulties. 
 
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ARMENIANS SKIMP ON BREAD, MAKE THEIR OWN 
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9.(SBU) The Ambassador visited Grisar Ltd., a medium-size enterprise 
producing a variety of pasta products (macaroni, fettuccine, etc.) 
largely for local consumption.  The company has installed modern 
production facilities (by Armenia's standards) and an automatic 
drying machine that both minimizes production labor and guarantees 
pasta quality.  Grisar is the recipient of business consulting 
services through the USAID/BAS Program.  The consultancy assisted 
Grisar to conduct marketing research, develop a company branding 
strategy, design promotional materials and identify potential 
merchandisers and supermarket chains for product distribution.  The 
marketing and branding efforts have helped Grisar expand its 
clientele and increase sales volume, leading to an 18 percent 
increase in revenue in 2008. 
 
¶10.  (SBU) Factory Director Karo Kaplanyan led the Ambassador on a 
tour of the facility, which includes a flour mill, a warehouse where 
pasta products are inventoried, and the storehouse of wheat grain 
that was recently imported from Ukraine.  Following the tour of the 
pasta production facility, the Ambassador was taken to a nearby 
 
YEREVAN 00000172  003 OF 003 
 
 
bakery that Grisar also operates, where she observed bread baking 
operations. Asked about the effect of the current economic crisis in 
Armenia, particularly on employment, Kaplanyan stated that although 
sales of bread (and profits) were down 15 percent (people are buying 
their own flour and substituting home-made for store-bought bread), 
Grisar hasn't laid-off any staff.  Kaplanyan said the company was 
retaining all its employees at the expense of lowered net profit. 
The Ambassador thanked Kaplanyan for his welcome and praised him for 
his entrepreneurship. 
 
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MEDIA QUESTIONS ON HUMAN RIGHTS REPORT 
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¶11.  (SBU) The Ambassador also met with local media (print and TV) 
to address their questions about her impressions from Dilijan and 
Vanadzor. In her answers, Ambassador stressed that the USG continues 
to provide assistance to regional businesses as well as support to 
citizens to help them resolve corruption-related problems, including 
legal advice through the USAID Mobilizing Action Against Corruption 
(MAAC) program.  Asked about the Human Rights Report recently issued 
by the State Department, the Ambassador replied that she stood fully 
by the findings and conclusions of the report.  Asked if the 
Millennium Challenge Corporation (MCC) will suspend its programs in 
Armenia as a result of the problems outlined in the report, the 
Ambassador said this question will be addressed by the MCC board 
later this month. 
 
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LAWYERS WORKING ON CORRUPTION COMPLAINTS 
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¶12.  (SBU) The Ambassador was also welcomed at the Helsinki Citizens 
Assembly office in Vanadzor, where the USAID "Mobilizing Action 
Against Corruption" (MAAC) project has established an Advocacy and 
Assistance Center (AAC).  The center provides support to citizens to 
help them resolve corruption-related problems, including legal 
advice and assistance in legal processing of complaints.  The AAC 
provides citizens with a channel for reporting public-level 
corruption and directing these complaints back to government.  The 
Ambassador highlighted the importance of the work of the center in 
creating greater awareness among the general public about corruption 
and its negative effects, and in decreasing the public's and 
business owners' tolerance of corruption. Center staff -- primarily 
lawyers -- discussed their activities to date, highlighting some of 
the cases they have undertaken and the results of their 
interventions to combat corruption.  The Ambassador encouraged 
Center staff to continue their work to raise public awareness and 
discourage public tolerance towards corrupt practices.  She also 
stressed the need to show tangible results in these cases in order 
to advance the fight against corruption. 
 
¶13.  (U) USAID/E&E Desk Officer Lori Rakoczy has cleared this 
cable. 
 
YOVANOVITCH