Armenia and Eurobonds: Yerevan may be looking West to ease reliance on Russia

Armenian Prime Minister Tigran Sargsyan said last week that Armenia intends to issue government bonds to be for the first time placed on the world market. He said that till the end of this year the country will try to place Eurobonds worth 500 million to 1 billion USD.

It is interesting that to the question on what the acquired funds will be spent for, the head of the Armenian government said that Armenia will try to repay its $500-million debt to Russia. The Kremlin lent the funds to Yerevan in 2009 amid a global storm when Armenia experienced a 14-percent economic decline.

Now, apparently, Russia has demanded that Armenia repay the debt, even though during this year it forgave larger debts to countries like Kyrgyzstan and others. Debts are usually ‘forgiven’ in exchange for political loyalty, and, judging by the fact that Armenia has decided to borrow on the world market to pay off its debt to Russia, Yerevan has not agreed to stay politically loyal to the Kremlin.

The fact that prices for Russian natural gas distributed in Armenia are set to be raised by up to 67 percent at a time can be considered as a sign of estrangement between Moscow and Yerevan. As a result of this planned increase, Armenia will be paying to Russia more for natural gas than even some European countries. This has already caused not only a wave of social discontent, but also certain anti-Russian sentiments in Armenia.

Moscow has consistently opposed Armenia’s intention to sign an Association Agreement with the European Union. The initialing of this document is due in November. Using economic levers, such as external debt, natural gas prices, etc., Moscow is trying to keep post-Soviet countries from slipping off to the European zone of influence.

It is yet unclear what decision the public utilities regulator of Armenia will make on gas operator ArmRosgazprom’s application, but some already assume that Yerevan may as well demand a high rent for hosting a Russian military base. At present, Russia, which is Armenia’s top military ally, pays nothing for stationing its 102nd base in Gyumri. Some insist charging for the lease may offset the increased gas prices for Armenia.

Besides, the issuance of Eurobonds may also mean that Armenia has finally decided to change its creditors as it is increasingly looking up to the West for financial security.