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Armenian Government Collapses, Ukrainian Oligarch Faces Bribery Charges

Plus, Moldova wins EU visa-free travel and Bulgaria’s EU funding comes under a cloud.

by S. Adam Cardais, Ioana Caloianu, and Barbara Frye 4 April 2014

1. Armenian premier steps down day after legislative defeat


Armenian Prime Minister Tigran Sargsyan resigned unexpectedly 3 April, saying on Facebook that "I wish the new government productive work for the good of the country," Radio Free Europe reports.


Tigran Sargsyan
Sargsyan offered no further explanation. Nor did his ruling Republican Party, with a representative saying only that it was unrelated to a no-confidence vote the opposition plans to propose on 28 April.


Sargsyan, 54, reportedly tendered his resignation last month, but President Serzh Sargsyan asked him to stay on until a Constitutional Court ruling on a controversial pension reform implemented in January as a government priority, according to RFE. It mandated that Armenian workers aged 40 and under invest 5 percent of their salaries into private pension funds in an effort to reduce poverty and energize the economy.


But the reform sparked protests and an appeal by the opposition for the Constitutional Court to overturn it. In a surprise ruling 2 April, the court found that the reform violated constitutional rights including what calls a "person's right to possession, use, and administration of his/her salary. …"


The court gave the government until 30 September to amend the law.


President Sargsyan had also backed the reform as a way to boost state pensions that are on average 10,000 drams ($24) a month.


Tigran Sargsyan has served as prime minister since 2008. Under the Armenian constitution, all government ministers must now resign.


2. U.S. indicts Ukrainian oligarch linked to Russia through gas industry


The United States has leveled bribery charges against Dmytro Firtash, the Ukrainian billionaire arrested in Austria last month in an evident move to pressure Russia over Ukraine.


Dmytro Firtash
U.S. prosecutors say the 48-year-old gas magnate allegedly conspired in an $18.5 million international bribery scheme involving an Indian mining project, BloombergBusinessweek reports. Energy analyst Mikhail Korchemkin spoke to a larger motive behind the case: namely that Firtash might know about dubious deals involving Gazprom that Washington could use to develop stronger sanctions against President Vladimir Putin's allies over Russia's annexation of Crimea.


U.S. prosecutors deny any relation to the Ukraine crisis. Firtash, who has been released on bail, says the case is political and that he will fight extradition.


Firtash is one of Ukraine's richest men. His Group DF controls much of Ukraine's chemical industry and, as a longtime player in the gas industry, he is believed to have ties to Russia and possibly even Putin.


He was arrested in Vienna 12 March, days before Crimea's successful referendum to join Russia, in what one analyst called an "absolutely seismic development." Though issued by a U.S. federal grand jury last year following a lengthy FBI investigation, the bribery indictment was sealed until this week, according to BloombergBusinessweek.


It accuses Firtash and four others of paying bribes to Indian officials to win their blessing for companies controlled by Group DF to launch a titanium mine in 2006, The Wall Street Journal reports. They are being prosecuted under the Foreign Corrupt Practices Act because some of the payments were wired through U.S. banks.


Firtash was a co-owner of RosUkrEnergo, a company active in the Russia-Ukraine gas trade until 2009. He has close ties to top officials in the government of former Ukrainian President Viktor Yanukovych.


3. Moldova EU visa-free milestone comes amid annexation concerns


After years of negotiations, Moldovans will be able to travel in most EU countries without visas from 28 April – a milestone that comes amid fears of a Crimean scenario in the country's east.


Following a European Commission proposal in November, EU institutions on 3 April formally signed off on allowing Moldovan citizens with biometric passports to travel visa-free in the Schengen area for 90 days in a six-month period, Radio Free Europe reports.


At the signing ceremony, Cecilia Malmstroem, EU Commissioner for Home Affairs, heralded a “great achievement and the beginning of a new chapter” in Moldova's relations with the EU, according to RFE. It follows four years of negotiations in which Moldova pushed through several reforms while bolstering anti-corruption efforts.


It also comes amid concerns that Transdniester, a Russia-backed breakaway region in Moldova, could be Moscow's next annexation target after Crimea. Separatist leaders there have asked Russia to incorporate the region, and Putin has started making demands about its future, recently calling for an end "to what amounts to an external blockade of the region."


Russia has threatened Moldova with sanctions if it moves closer to Europe, namely by signing an EU free-trade and association agreement, EurActiv points out. In March, the EU pushed up the signing dates of both Moldova and Georgia to June at the latest, European leaders "having learned the bitter lesson of procrastinating with Ukraine," according to EurActiv.


4. Move afoot to freeze Bulgaria’s EU funds


The European Parliament is recommending that Brussels “seriously consider” cutting off funding for Bulgaria, Novinite reports, as the country continues to make only minor headway against corruption and organized crime.


The funding proposal was reportedly part of a committee review on implementation of the 2012 EU budget. It cited a January report by the European Commission that complained of the Bulgarian government’s “weak and uncoordinated response” to corruption.


The EU has monitored Bulgaria’s attempts to combat corruption and organized crime since it joined the bloc in 2007 and issues periodic reports. In 2008, the country saw a suspension of funds over a lack of progress on that score.


In January, the commission noted, “Repeated controversies such as appointments having to be aborted due to integrity issues, the escape from justice of convicted organized crime figures, and a succession of revelations about political influence on the judicial system have affected public confidence. There remain very few cases where crimes of corruption or organized crime have been brought to conclusion in court.”


According to an IMF report released in February, Bulgaria received about 9.4 billion euros ($12.9 billion) in EU funds during the 2007-2013 budget period, which amounted to an average of 3.7 percent of GDP per year.


If those funds were suspended, the country could not claim them retroactively once the suspension ended, as they would be funneled to other countries, according to Ingeborg Graessle, a member of the European Parliament from the center-right European Popular Party, which counts Bulgaria’s opposition GERB party as a member and which is pushing the proposal.


But Denitsa Karadzhova, a member of Bulgaria’s ruling Socialist party and the country’s EU funds manager, downplayed the possibility that the money would be lost, according to Novinite. She said the proposal had a “political purpose,” coming as it did before elections to the European Parliament in May.


5. Bosnian Serbs hope for Russia loan to replace IMF funds


The Serb half of Bosnia, Republika Srpska, is looking to Russia for a loan that it hopes will preclude the need for it to seek help from the International Monetary Fund, Balkan Insight reports.


The region is hoping to get about 270 million euros from Moscow, thereby avoiding taking out another tranche of a 405 million line of credit the IMF approved for Bosnia in September 2012.


The IMF funds are split between Republika Srpska and the Federation of Bosnia and Herzegovina, where a majority of Bosnia’s Muslims and Croats live.


Some officials in Republika Srpska complained about the conditions of the IMF credit, from implementing political reforms to short repayment periods.


“We knew that we would have problems with the IMF in 2014,” Republika Srpska Finance Minister Zoran Tegeltija said, according to Balkan Insight. “Already in 2013 the IMF started setting political conditions, which until then had not been part of the letter of intention.”


Earlier this year, a top IMF official pressed Bosnia to tackle its public debt by “continued strict control over government spending, but more importantly, increased efforts to improve revenue collection and administration,” and to jump-start a privatization drive.


In February, Reuters reported that “Political bickering has kept two anti-corruption laws demanded by the lender - a new procurement law and anti-money-laundering legislation - stuck in the national parliament.”


In addition to efforts to fight corruption, international organizations are urging Bosnia to cut the size of its government. The country of nearly 4 million has layers of administration from the national to regional to cantonal level, all with their own budgets.


“The public sector wage bill of about 13 percent of GDP  exceeds by a wide margin the region average, partly due to the complex constitutional setup of the country and as a result of unsustainable wage hikes in the pre-crisis period,” according to a review of the country’s economy conducted by the European Commission in July.


That report put Bosnia’s public debt at 34.4 percent of GDP this year.


Negotiations on the loan with Russia are still under way, according to Balkan Insight.

S. Adam Cardais is a TOL contributing editor. Ioana Caloianu is a TOL editorial intern. Barbara Frye is TOL's managing editor.

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