1.2. Political Results of the Transition Period

The unsystematic nature of political change in Armenia from 1991-1994 was caused by the fact that the Armenian National Movement (ANM), the ruling political party at that time, did not have a finalized conceptual framework of the future state structure. Moreover, time and again the opinion was voiced that Armenia did not need a new Constitution and that the state system may evolve gradually through the adoption of a number of constitutional laws. During this period, a number of important laws, which started the dismantling of the totalitarian regime's legacy, were adopted, including,

Box 1.2. Chronology of the Main Economic Reforms of the Transition Period Starting in 1991, Armenia undertook the first steps towards free market-oriented reforms. In 1991-1992 an agrarian reform was carried out and ownership of land and livestock was granted to rural residents, 333.8 thousand individual, and 10 collective agricultural farms were formed. However, as a result of a systemic economic crisis and the lack of State subsidies, the reform led to a preponderance of an in-kind exchange economy in agriculture and did not contribute to the development of an agricultural market. In 1992 the State's control over the prices for goods and services was removed, except for essential goods and services. Later on, the remaining State control over prices and rates was entirely removed. Russia's unilateral rejection its policy of fixed prices as a first step for economic liberalization destabilized the economy in the entire post-Soviet space. This was one of the causes of the collapse of the Armenian economy in 1992-1993 and the factor that inhibited a full-fledged economic recovery. In 1993 privatization of State-owned housing was launched at no cost to residents and proceeded until 1998. In 1993 a unified ruble zone was eliminated and a national currency was put into circulation. The absence of a stabilization fund required for maintaining the fixed rate of exchange for the national currency proved to be a factor that triggered further destabilization. By the end of 1993 the inflation rate reached 11,000 %. Under such circumstances virtually the entire economy resorted to direct bartering. In 1994, under the conditions of the economy's critical instability and with the balance of payments in bad shape, the RA Government, with the financial and technical assistance of the International Monetary Fund (IMF), got on the radical economic reform implementation track. The reform ideology is notable for its maximum simplification of economic policies and is reduced to three key concepts of liberalization, privatization and stabilization through strict planning of and control over the monetary stock (that strategy was applied first in Russia and subsequently in all the CIS countries). 1995 marked the beginning of a large-scale process of privatization of industrial enterprises through vouchers. Later, a privatization for cash option was selected, which envisioned selling big enterprises to foreign investors for hard currency. Over 80% of small, and 70% of medium and large-size enterprises were privatized by the end of 1998. At present, over 75% of GDP is created in the private sector, mostly in the spheres of agriculture and trade, the share of private businesses in the industrial sector being only 45%.

· on enterprises and entrepreneurial activities, on individual entrepreneurs,

· on ownership,

· a number of laws on privatization, including Land Code,

· on NGOs and political organizations,

· on press and mass media,

· election laws,

· first versions of laws on profit tax and excise tax.

The introduction of the post of President of the Republic of Armenia in 1991 strongly enhanced the political stability of the country, albeit disagreements over the necessity of the post and the powers of the President have not been resolved till now.

The RA Constitution adopted in 1995 marked a turning point in the process of transition. Even though adopted through a referendum not deemed entirely fair, the Constitution laid the legal groundwork for the transition from totalitarian and authoritarian systems to a democratic state. At the same time the Constitution is not flawless and is open to amendments.

All in all, the 1995 Constitution contributed to the establishment of a viable and stable state structure, which was instrumental in alleviating such a serious political crisis as the resignation of the President in 1998 and the extraordinary presidential elections.

The guidelines of the political change underway in the transition period were:

1. Formation of bodies of power through elections, which is formally achieved
due to the existing multi-party system. In fact, its improvement is predicated on the further refinement of elections-related legislation as well as on the political will of the authorities.

2. Separation of legislative, executive and judiciary branches of power and the provision for checks and balances. This task has been basically solved, in legal terms. An institution unprecedented for Armenia, viz. the Constitutional Court, is set up. Nevertheless, concrete mechanisms are in need of further clarification and improvement.

3. A shift in the economic role of the State from administration to regulation through transferring most of the production functions to private entrepreneurs. However, the mechanisms of the State's regulation functions are, for the most part, imperfect.

4. Protection of basic human rights and freedoms. The minimum set of legal norms necessary for the protection of these rights and freedoms has been adopted. Even though the comprehensive protection of human rights is a long-term process, such a goal would be feasible under the conditions of the current legal framework.

5. Initiation of reforms of the legal system. The New Civil Code, Code of Civil Procedure and Code of Criminal Procedure and other Codes were adopted, which incorporate provisions that seek to secure basic human rights.

6. Simplification of the state administration system and development of a new conceptual framework for local self-government. Specifically, an intermediary level of territorial administration, the district elective body was abolished and 37 districts were superseded by 11 provinces, marzes.

Box 1.3. Duration of the Transition Period The duration of the transition period in the perspective of the SHD can be gauged by quantitative and qualitative indices, taking the transition period's ultimate goal of building the private property-based social State with a market economy as a criterion. The provision of an encompassing complex of legislature for reforms, including freedom of choice, protection of personal rights, the social guarantees by the State, etc, are taken into consideration while evaluating qualitative indices. Only when all of these conditions have been met can they be considered as having occurred and finalized in qualitative terms. The return or at least proximity to the level of pre-reform socioeconomic indices can be suggested as a quantitative index for assessing the transition period. The combination of these two indices may be used to gauge the transition timeframe for the former socialist bloc. Qualitatively, the transition can be regarded as completed by a number of countries (Poland, Czech Republic, Hungary and Estonia). Several others (Slovakia, Slovenia, Lithuania and Latvia) are nearing the completion of the process. For most of the CIS countries (e.g. for Armenia) it is a project for years to come. The bulk of reforms undertaken in Armenia prior to 1996 can be regarded a success of the political will of the RA leadership, even though the final outcome not always matched the initial goals. From 1996-1998 no serious economic reforms were undertaken. Education, public health care, housing construction, insurance and pensioners' social protection systems, the spheres of social guarantees for the population and of loan and investment support to entrepreneurs and producers have been virtually left out of that process. Provided that the conditions are favorable, lost opportunities could be regained within the next 2-3 years. However, even in that case it will be impossible to proclaim without reservations that the transition period is already over in quantitative terms. Restoring the qualitative balance will be much more difficult for Armenia, mainly due to a six-seven fold absolute decrease in production that Armenia has experienced over the period of transformation. Assume that the annual production growth rates can attain the unbelievably high 10 _ 12% (replicating the achievements of Japan in the 1960s and of China in the 1990s), even in that case it would take Armenia 15 to 20 years to achieve pre-reform gross production output, that is to say, almost the span of a generation. The author's estimates are based on the data that goods and services integrated in GDP were equal to 17.5 billion USD in 1988. The author contends that GDP (that includes also shadow economy, international aid, all kinds of investments and loans which increase the RA population's amount of individual and production consumption) now equals USD 2.7 billion, i.e. 6.5 times less.

Thus, the foundation of a democratic system has been laid, but the system itself has not been brought yet to completion.

The process of the establishment of statehood in the transition period can be graphically shown by the diagram below (Figure 1.1), wherein the State is represented by a "bungalow". Its "foundation" consists of a given country's existing natural and human resources, whereas the "roof", - of the entirety of its goods, which are the result of the population's labor. The dwellers of the "bungalow", i.e. the country's residents, are protected by "walls", i.e. by the country's laws, which conventionally represent four groups of laws on: A) the state structure, B) the human and citizens' rights, C) economic activities, and D) social infrastructures. The "pillars" stand for the most important power structures.

Figure 1.1. A. The "Ideal" Democratic State The "walls" and "roof" rest on four "pillars", on equally competent and autonomous structures of power: 1. Legislative, 2. Executive, 3. Judiciary, 4. Local self-government.   B. Totalitarian State The "roof" of that State rests only on one central "pillar" instead of the four independent "pillars" of power, which are essentially but appendices to the only power structure _ to the ruling political party. The "walls" are also inadequate and as a result citizens are not, speaking in legal terms, sufficiently protected.   C. The State in the Transition Period (the outcome of state and legal reforms carried out in Armenia) Four corner "pillars" have been erected in Armenia instead of a single central one. They are not equally powerful yet. In particular, the "pillar" of the local self-government (4) is shorter, whereas the "pillar" of the judiciary (3) is thinner than the other two. The "walls", i.e. laws, are partially incomplete, especially in the sectors of economy and infrastructure. The "roof" is also inadequate, which is inevitable when "walls" are incomplete.

It took about a decade (from 1990 to 1999) to accomplish the transition from B to C in Armenia. As to how much time is needed to make a challenging and decisive leap from C to version A, and to have it "constructed" at least in first approximation, is highly debatable (Box 1.3).