US embassy cable - 05YEREVAN637

UNCLAS YEREVAN 000637 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PREL, AM, RU 
SUBJECT: RUSSIAN AMBASSADOR SPEAKS ON RUSSIAN INVESTMENT IN 
ARMENIA 
 
 
1. (U) Sensitive but unclassified.  Please protect 
accordingly.  Not for internet distribution. 
 
------- 
SUMMARY 
------- 
 
2. (SBU) During his last press conference before the end of 
his posting, April 8, Russian Ambassador to Armenia Anatoliy 
Dryukov cited the large influx of Russian capital to Armenia 
during his tenure, saying that Russia had invested more than 
USD 300 million in Armenia since independence.  Dryukov went 
on to say that Russian capital is behind nine of Armenia's 
20 banks and makes up one third of Armenia's total 
authorized capital stock of Armenia's banking system.  He 
commented that debt-for-equity swaps, in which the Russian 
state acquired former Soviet assets that Armenians complain 
now lay idle, were not unsuccessful as the Armenians claim, 
but are operating according to plan.  End Summary. 
 
-------------------------------- 
RUSSIANS IN THE FINANCIAL SECTOR 
-------------------------------- 
 
3. (SBU) Dryukov claimed that Russian capital was behind 
nine of Armenia's twenty banks and made up one third of 
Armenia's total statutory capital.  While there is Russian 
capital behind some of Armenia's non-transparent "pocket" 
banks, Russian bankers are also behind some of Yerevan's 
most active full service banks like Converse Bank, 
ArdShinInvestBank, UniBank (owned by Russian UniAstrumBnak), 
ArExImBank (owned in part by Russian ImpExBank)and 
ArmSavingsBank (seventy percent owned by the Russian state- 
owned VneshtorgBank).  Russian oligarch Oleg Deripasko also 
owns IngoStrakh, a full-service private insurance company 
working in Armenia. 
 
---------------------------------- 
DEBT-FOR-EQUITY SWAPS TWO YEARS ON 
---------------------------------- 
 
4. (SBU) Confronted by a journalist, Dryukov said that he 
could not agree that Russia's debt-for-equity swaps were a 
failure.  "The four enterprises transferred to the Russian 
State in consideration for the state debt of Armenia were 
military-industrial enterprises, which provide the defense 
needs of Russia," Ambassador Dryukov said.  Dryukov added 
that the Russian budget had allocated USD 5 million to the 
Mars factory, a Soviet era military computer plant, and that 
there is ongoing production there.  (Note:  The Armenian 
government has long complained that the four enterprises 
transferred to Russia during the debt for equity swap are 
operating at very low capacity with a fraction of their 
former employees.  The Armenian directors of two of these 
plants have told us that since their privatization they have 
heard nothing from their Russian bosses about planned 
investment or new orders.  End Note.)  Dryukov added, "as a 
result of obtaining the four enterprises of military- 
industrial complex, Russia's secret technologies are in fact 
transferred to Armenia, and citizens of Armenia may 
ultimately benefit from them as well."  Dryukov also cited 
the success of the Armenia's energy assets that were 
transferred to partially state-owned RAO-UES in a different 
set of debt-for-equity swaps also in 2003. 
 
------- 
COMMENT 
------- 
 
5. (SBU) A significant proportion of the investments that 
Dryukov mentioned were made by Russian firms that are 
largely state-owned and have Russian government seats on the 
board.  Still, even excluding these assets, many of which 
were the results of the debt-for-equity swaps of 2003, 
Russian private investment accounts for an important share 
of Armenia's financial sector.  Russian foreign investment 
tends to be equity investment with little Russian control on 
the ground and, also, less transparency in ownership and 
corporate governance than we see in other foreign 
investments. 
EVANS