Caucasian confederation

Is the formation of a Caucasian Confederation a desirable and/or feasible proposition ?

This idea has been discussed in some circles, but not much has come out. I do recognize the difficult issues that would have to be dealt with in order to make it possible. But should we consider it ?

Naaah, I don't think so. It was tried once in 1917 (the Transcaucasian Federation) and never worked. Peoples of Caucasus are too different in culture, religion, traditions, mentality, interests, etc. Of course, there are similarities, but I guess they ain't enough to make a Caucasian confederation real.

As far as I can tell, the three major nations of the Caucasus region-Armenia, Georgia, and Azerbaijan, seem to hate each others guts! I think Armenia is much better off pursuing an alliance with Iran, Greece,and also India, as the Pakis seem to be chummy chummy with the Azeris. How about Tajikistan too?

For the record: I also think this is idealism, but whether we like it or not we are stuck with Azerbaijan and Georgia. The current situation is also far from ideal.

I don't think this can happen in the near future, but remember that at the turn of the century, when Transcaucasus was a part of Russia, and there where no borders between Armenia, Georgia and Azerbaijan, Armenians dominated in the regions economy. The whole Eastern Caspian oil business was run by one single man Mantashov (or Mantashyan). Azeris where third class people in Baku. Economy was dominated mostly by Armenians and some Jews. The same in Georgia. Actually Mantashov's headquarters was in Tbilisi. The Armenian business collapsed when the Antanta's Army entered Transcaucasia and after that Rotshields became the owners of oil until 1918-1919. This is just for the record.

It’s a great idea to have a Caucasian Confederation. You can bring out the historical animosities that exist among ethnic groups in Caucasus, but you don’t have to go far to get examples where the economic well being takes priority over the historical hatred. Look at Switzerland, where Italians, French and Germans, live together peacefully for hundreds of years. Caucasus is in a region, where it can’t develop unless there is a cooperation amongst the people living there. In order to achieve economies of scale, there needs to be a common currency and legislative field. The ethnic groups forming the alliance shouldn’t think of dominating one another, as it was done in former Yugoslavia, but they should think of collaborating with each other. After all it’s not a zero sum game where, one gains at the expense of the other. Synergistically the alliance of three republics works perfectly. The transit roads of Georgia, the oil resources of Azerbaijan and the manpower of Armenia, and Armenian Diaspora truly compliment each other. You have to remember that confederation is a different from federation, it’s very loose in it’s form. The whole world is moving toward regional cooperation that will eventually lead to confederation, examples of which are NAFTA, European Union, ASEAN or even Black Sea Region Economic Development group. As nation states grow it becomes obvious that it’s impossible to compete in today’s political and economic climate unless there is a big market to justify huge investments and there is a guaranteed free flow of resources and capital in these markets. Culturally, there is not much of a difference between Armenians, Georgians, and Azeris. They share many customs and traditions. Unless three of them come together the region will be backward, and won’t prosper economically.

Sorry for having such a long post.

United Caucasus is a good idea. However, there are serious preconditions on which Armenia, from my point of view, must make a stress in case this will be discussed. It is an ultimative precondition that azerbaijan refuses its turik brotherhood ideas, so that turkish influence on the region becomes limited. There must be NO geographical link between turkey and azerbaijan. In all other cases Armenia will lose everything.

[This message has been edited by Berj (edited August 26, 2000).]

ITAR-TASS News Agency
August 26, 2000, Saturday 09:48 AM Eastern Time
Azerbaijan to join CIS air defence system.
By Sergei Trofimov
ASTRAKHAN, August 26

Azerbaijani Defence Ministry Safar Abiyev said his country will join the
air defence system created by seven CIS countries.

The minister made the announcement after the conclusion of the Combat
Commonwealth-2000 manoeuvres at the Ashuluk training range in the Astrakhan
region, Russia, where he was as an observer.

Responding to Abiyev's statement, the chairman of the Coordinating
Committee for Air Defence under the Council of the CIS Defence Ministers,
the commander-in-chief of Russia's Air Force, Army General Anatoly
Kornukov, stressed that "for the sake of security we are open to all
countries of the Commonwealth. We do not close our doors on anyone".

These are the third such manoeuvres at the Ashuluk training range. While
the first exercise in 1998 involved only four countries, this time there
were seven countries: Russia, Ukraine, Belarus, Armenia, Kazakhstan,
Tajikistan and Kyrgyzstan.

Turkey might be militarily powerful, yet it's economoically and ideologically weak country. It seems like it hasn't found it's place in the world in the last 85 years. It wants to be part of Europe, yet it's being contiuously rejected. Besides the few developed cities in the west, overall Turkey is backward, and can not be a threat to Caucasian confederation. Opening a Turkish market will be a key to success, and using the Azeri friendship with our historical enemy, Turkey, will give us an opportunity to enter the Turkish market. The businesspeople doing business in Turkey won't be Armenian, but Caucasian, thus they won't be discriminated. The latest report of EBRD (website is ebrd.org), shows the the main concern for Armenian businessman is the size of Armenian market, and difficulty to penetrate foreign markets. The existance of Caucasian Federation will provide the opportunity to become an economic power. Armenia has the potential to use it's brainpower, just like Israel does. If you look at the statistics the Israeli economy experienced a huge growth after the Oslo accords and starting of peace process in the Middle East. I believe Armenia has the potential to achieve such a progress if it can gain access to the markets of mostly backward Middle East. We must not be stuck back in the past. I believe only through economic means and creating a powerfull homeland we can heal the wounds of the past.

Alpha, I agree with most of what you said, only I don't see what does Armenia have to gain from the Confederation. In my view, all the benefits of an alliance can be achieved without a political confederation. The historic precedent also has to be taken into consideration. The Caucasian Confederation has been tried once. What has been the benefit?

When considering the idea of Caucasian Confederation, one has to remember the circumstances under which it was created. The break up of Russian empire and the end of World War II has pushed the Caucasian Gubernias to form a Confederation. There was absolutely no preparedness. With careful drafting of infrastructures I think it’s completely possible to achieve confederation. I look with envy at Scandinavian countries, who choose to form their own confederation instead of joining EU, which is significantly larger unit. So instead of forming economic structures within CIS, Caucasian counties will be better off to have close knit ties with themselves. Geographically that whole region is one, and represents a huge power when it’s united. Separate Caucasian counties can become puppets of stronger regional powers. It’s obvious that if current trends continue, Armenia will continue staying a vassal state of Russia, Azerbaijan of Turkey, and Georgia of Germany (which is unanimous of EU). Each of the powers will pursue their own interest, while the Caucasian counties won’t have the power to develop. We will become something like Yugoslavia, where Serbs have Russian sponsorship, Croations European, and Bosnians of Muslim world. Remember the time when Yugoslavia was united. It was one of the most prosperous counties of the world. We have to realize that we share more interests with Azeris than Russians. Russia will always be an imperial power in our region, and will never be interested in seeing a strong neighbor in it’s south. In order for Caucasian confederation to work neither of the sides should think of dominating. There should be rotating presidency among three republics, and the two vice presidents of Caucasian confederation should be the presidents of their respective countries. The potential reward of the confederation is significantly higher than the risk it takes to create it.

Again, I agree with all your arguments, but believe that it wouldn't be in armenia's best interest to enter into confederation. I thing all these things may be achieved without a confederation, but rather recognising Armenias unique (theoretically, and potentially) opportunity to become the center of financial transactions and institutional trade in the Middle East and Cacasian regions (much like London for Europe and Singapore and Hong Kong for Asia), and filling the gap beween the European and Asian (stock) markets. This may guranty a constant cash-flow to Armenia. Why do we need others to drag Armenia's growth down?

What kind of comparative advantage would allow Armenia to be a financial center ?

We need stability, without that we cannot improve the economic situation, let alone financial markets. Some Baltic states have made progress in financial markets, but basically as destination for dirty Russian money.

We are decades away from stock markets. And in any case, both Turkey (fairly active) and Iran have them. The recent trend in any case has been for listings to be concentrated in a few places, especially NY and to a much smaller degree, London.

I do recognize the difficulties of establishing a confederation, but I do not believe that Armenia has the upper hand and thus would "give up" something very valuable in order to create it.

What we need is to solve the Karabagh question, and fast.

I think Armenia's comparative advantage in this context may only be the growing software industry (which I think is of strategic importance to Armenia), and the potentially lax regulations for motivating the foreign capital to flow through Armenia. Also, despite lacking significant energy resources, Armenia has a good chance of organizing the regional energy markets trading, regardless of the pipelines passing through Armenia. To a larger degree, this concerns to the Power Markets. Of course I assume that this issues are addressed in a strategic context, as a part of state policy. As we know, Azerbaijan is not much more stable than Armenia, but it has attracted significant interest from the International Oil and Gas community, and the US State Department, despite the awareness that their resources are significantly overstated.

Sure, establishment of stability is necessary for this type of function, but orientation towards the kind of activity also is a contributing factor into the stability.

The facts that we ourselves have no real stock market, or that Turkey is more advanced are not obstacles, I think. Bermuda is a good example for it. There is no industry there (financial or any other), but it is the third largest reinsurance market in the world, and not by local efforts. Just due to the Tax and Regulatory shelter they provide.

NY concentrates primarily the trade of the US equity and interest rate markets, while London does the same for Europe. Additionally, the currency market and the market for metals are primarily concentrated in London.

I would still search for Karabagh problem solution not in the political domain, where I don’t see any solution. Let’s search it in the economic domain. (See my note in Meghri: Exchange or not to Exchange).

As far as the Confederation is concerned, even if we agree to it, I can assure you that Georgia will never agree to it. This idea was entertained some 12 years ago, and I don’t see that Georgians have changed much since.

I have never posted on message board so many times, but I think this is a very interesting topic.

If you do a risk / reward analysis Caucasian confederation is definately worthed, though the necessary infrastructure should be put in place. The laws that will guarantee a free movement of labor, and capital should be implemented. It will also bring the necessary stability to the region. As for Artsax problem, I don't think unification with Armenia is the best solution to the problem with us. As for Artsax, Abkhazia or South Ossetia they can become younger partners to Caucasian confederation. Somewhat like Kosovo and Vojevodina in Yugoslavia, but with more powers. MJ can you please present your arguments against Caucasian confederation. What all sides are gaining from this substantially overweighs what they are loosing. As for Armenia becoming a financial center, I think we are decades behind in this. If any power in the region has the potential to become a financial center it's either Israel or Lebanon. Both of them have history of strong enterpreneurship and the backing of wealthy diaspora. I see Armenia's role more like a technological center, considering the fact that it has the history and resources to develop it. The financial industry is consolidating and we are too small to be a player in that field. Today London Stock Exchange was a target of hostile takeover by Deusche Bourse. If Great Britain feels the need to consolidate, how can Armenia do it on its own. The example of Israel or Ireland shows that developing information technology is the best path for Armenia. The government should start spending more money on Polytechnic Institute of Yerevan. Irish government did spend a lot of money on information technology and it has the highest growing economy in Europe today. I think their GDP grew 10% last year.

MJ as much as I see where you are going, I still think that in finance we would have a problem. Bermuda is such a large jurisdiction only for tax and regulatory purposes. But in the case of stock markets there is nothing of the sort. Stock markets tend to grow in places where there is wealth and savings and a favourable investment climate for investors: pension funds, the largest investors of all would never by any meaningful equity in a crazy market (yes, some have invested in Egypt, Ivory Coast, Sri Lanka, these are emerging markets, exotic markets). New York has also become a very important place for listing European, Asian, Israeli and Latin American companies. These are ADRs (American Depositary Receipts). True, this is mostly for larger companies, but almost all large stock transactions are also listed in NY, like Deutsche Telekom.

I think that Armenia could be a banking center of some sort. But for that we need strict regulation and enforcement. Most countries in the world, Japan, the US, Sweden Norway have witnessed severe banking crises. We need to be careful, and that is where the diaspora could help.

Stability will definitely be helped with a good investment climate, but I am afraid we have a chicken and egg problem.

I don’t mean that Armenia may become a financial center in terms of being an independent financial center. It may just be a convenient location for doing some of the things that London and Singapore cannot do, for example because of the time zones they are in. In this sense, Armenia is in the middle of the two time zones I mentioned in my previous message. I mentioned the software industry of Armenia as to point on the IT function of the Financial Industry. Similarly, I suspect that the lax regulatory landscape may be the only attraction to major Western players. Clearly, Israel could’ve played this role more successfully if only not the potential boycott of the Arab world and Iran. I do admit the viability of Lebanon, however. But I think this may be an issue of initiative, or even if they get an upper hand in the game, Armenia still may functionally participate in it.

I think the fact of Armenia’s Capital Market’s decades of distance from maturity is not of much relevance. I think Armenia will never have enough equity to attract foreigners. In fact I propose in a way the opposite – to organize and structure other’s markets, by providing a centralized and integrated platform. As I mentioned, Armenia’s role in it may be of just technological and regulatory character. And I would place more emphasis on the Energy Markets, rather than on pure financial ones.

As far as the Caucasian Confederation is concerned, I just don’t see the necessity. I just think that all the benefits coming from the Confederation may be achieved without it. If it is about the transportation tariffs, they might be waved away on a reciprocal basis. If it is about military stability, that may also be achieved through some kind of demilitarization. If it is about the currency, this is where I am mostly opposed to the issue. I think basically, today Armenia’s currency is guaranteed by US $, and not by gold, or Trust in God . The Armenian Diaspora in this sense is a very significant advantage over other Caucasian states. I conjecture that the Armenian population will rotate on a cyclical basis for a very long time to come. This rotation may have very significant and positive implications, if it is moved to a strategic plain (Look at the examples of Israel or India.). I think this is what the other Caucasian States will lack.

P.S. Hardly I can sustain the pace of posting messages at the given frequency past the Labor Day. Until then, I have some time in my hands to kill

Finally someone in Armenian government realized the potential of development of Information Technology.

Snark Business Bulletin
August 30, 2000

Ministry of Industry & Trade Promotes Information Technology Industry in
Armenia

Armenia's Ministry of Industry and Trade plans to attract $10 million from
international financing institutions for the development of an Information
Technology (IT) industry in Armenia. Currently, the Ministry is examining
possibilities for the creation of a venture capital fund.

"According to a preliminary agreement, the World Bank is ready to allocate
$5 million for the creation of the fund. The Izmirlian Fund also intends to
provide the same amount of money. Negotiations are still underway with other
international organizations and private investors," said Armen Grigorian,
Deputy Minister of Industry and Trade.

As of today, around 50 computer-programming companies operate in Armenia. 10
of them are contractors of different American companies. Though exact
statistical data is not available yet, according to some experts'
estimation, the annual turnover of these companies is around $500 million,
exceeding even the country's Budget for 2000.

Within the framework of the program, it is also expected to create business
incubators. In September the representatives of the Israeli Ben Shahar
Associaties company will come to Armenia to establish the first business
incubator.

The Government of Armenian sees good development perspectives in the IT
sphere and is ready to provide any assistance including tax and customs
privileges.

Good news!

I don´t believe that we need any sort of political tie up in the region,in the sense of giving national power away. We need a common market for goods and services and hopefully a common defense strategy. This would be the most advantageous form of coexistence for Armenia.

The present degree of animosity and distrust doesn´t allow for this kind of proposal to be discussed in any serious way. But this is a way of promoting economic growth and at the same time some kind of stability. Hopefully in the not too far future, this issue will be on the table.