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In addition to coping with war, independent Armenia was facing immediate tasks, the most important ones of which were rebuilding its devastated economy and strengthening its democratic institutions. By mid-1990s, the Armenian government headed by Levon Ter-Petrossian was facing mounting economic problems, including an economic blockade by

For both 1998 and 2001 cases, Baku later reneged on the tentative agreement reached (Fuller in RFL/RE, May 2009).

Finally, during the Prague Process a new method of negotiation involved "no agenda, no commitment, no negotiation, but a free discussion, on any issue proposed by Armenia, Azerbaijan, or by the [OSCE Minsk Group] co-chairs (German, 2005). The Prague Process culminated in Warsaw on May 15, 2005, and was followed by the Madrid Principles.

182 Azerbaijan and Turkey, an energy crisis and cold winters, and relative material deprivation of the Armenian people. In February 1993, the first wave of demonstrations resulting from poverty and scarcity demanded the resignation of the government. President Ter-Petrossian formed a new cabinet with economist Hrant Bagratian as the Prime Minister, intending to improve the country’s economy. But this was not an easy task. The war had been all

consuming, and the remaining resources in the government budget were scarce. The war and its consequences made it very difficult to concentrate state resources on strengthening the economy.

Meanwhile, some tensions had emerged among different government members, who started to express conflicting political ambitions and disagreements about the course of action of the country’s development. By the cease fire of 1994, elite fragmentation had already taken place within the Armenian ruling circles. “The political consensus had disappeared as soon as some major items on the agenda (independence, basic laws on political and economic reforms) were resolved” (Libaridian 1999:10). Already between 1991 and 1993, some ANM members joined the opposition or distanced themselves from ANM. Among those members were Vazgen Manukyan (the first Prime Minister) and Davit Vardanyan (Head of Supreme Soviet’s Permanent Committee on Foreign Relations), who formed the National Democratic Union (NDU), Hambardzum Galstyan (mayor of Yerevan during the Ter-Petrossian years), Samson Ghazaryan (a member of the Supreme Soviet), and Davit Shahnazaryan (Minister of Security in the Ter-Petrossian government). More specifically, Vazgen Manukyan had been an ardent critic of the Ter-Petrossian administration since 1991, when he thought to assume the presidency instead of Levon Ter-Petrossian.

In 1994, Ter-Petrossian banned the ARF (Armenian Revolutionary Federation) – an extremely nationalist party – on national security grounds. First, the banning of ARF was based on the idea of terminating terroristic activities and criminal acts often organized by the ARF. The second reason for banning the party was that the ARF had failed, despite two warnings from the Ministry of Justice, that according to the law no party could function in Armenia if the majority of the members of the ruling body were not citizens of Armenia and residents of Armenia. Ter-Petrossian decreed the banning but turned it over immediately to the Supreme Court for adjudication. (The Supreme Court was not a constitutional court.) The

183 Court determined that the president was wrong to decide that criminal acts were committed that such issues should be determined in courts of law. But the Court agreed with the President regarding the second charge and that in that respect the banning was within the jurisdiction of the executive as the party had failed to comply. The banning of the ARF created a fervent opposition led by ARF against the Ter-Petrossian administration.

As already mentioned, besides ARF, President Ter-Petrossian was facing another major opposition by once a fellow ANM member, a former Prime Minister and Armenian Defense Minister, Vazgen Manukyan, who had created his own political party, the National Democratic Union (NDU). By 1996, the ANM had lost its main positions of power in the government. As Libaridian recalls, “the governing party had become complacent, arrogant, self-confident, and careless, while the opposition had turned impatient.” (Libaridian 1999:11)

According to RFE/RL (July 05, 1994), Noyan Tapan (September 19, 1994) and Hailour (October 21, 1994), anti-government rallies and demonstrations convened by NDU of Vazgen Manukyan were massive and frequent in 1994. In October a demonstration of 50,000 called for the resignation of Levon Ter-Petrossian. Members of the Parliament were reportedly victims of armed attacks (Balian 1995). Demonstrations continued through the spring, organized by the main opposition parties, the ARF and the NDU.

Amidst this political and economic situation, in September of 1996, presidential elections took place. Ter-Petrossian won the elections with 51.75% of the vote, winning over his main opponent Vazgen Manukyan. Following the victory of Ter-Petrossian, a violent and disorderly protest broke out in the streets of the capital city, organized by the coalition

opposition of NDU and ARF. Protestors stormed the Parliament building, physically attacked members of the National Assembly, beat two Vice-presidents of the National Assembly, and kidnapped the President of the National Assembly. Manukyan had determined, even before the ballots were cast, that if he lost the elections, it could only be due to fraudulent elections.

He announced himself a winner and urged "the people" to take matters into their hands. The tendency to resort to violence and rebellion, advocated and implemented by NDU, was

184 unacceptable.¹⁵⁹ The government had to order troops into the streets to control the crowds (Freedom House Report 1998; Armenia This Week, September 25, 1996).

But it was not in 1996, under the pressure of his traditional antagonists, NDU or ARF, or the impoverished masses that President Levon Ter-Petrossian resigned. It was only two years later, in 1998, when he resigned. It was not because of Ter-Petrossian’s ‘unpopularity’

among the Armenian citizens that he resigned. It is believed that the "people" had very little to do with Ter-Petrossian's resignation. After about a decade of leadership under the most challenging circumstances, Ter-Petrossian managed to receive the support of about half the voters against a united opposition (Libaridian 1999; Suny 1999). Poor socio-economic conditions were not the key factors for the political weakness of Ter-Petrossian

administration. Neither was Petrossian's stance on the Karabakh conflict.

Ter-Petrossian’s foreign policy, particularly his preference of the "step-by-step" approach for the Karabakh conflict resolution, was a pretext to be used by the opposition coalition in order to oust Ter-Petrossian.

On 26 September 1997, during a press conference, still president Levon Ter-Petrossian argued that Armenia should agree to the "step-by-step" peace proposal recommended by the Minsk Group earlier that month. He based his argument by providing a comprehensive analysis of five options available to the Armenian nation.

1. To maintain the status quo - no peace and, hopefully, no resumption of war.

2. To have Armenia recognize Karabakh as an independent state or annex NK to Armenia.

3. To renew the war to force a final settlement on Azerbaijan.

4. To return to the “package” approach.

5. To accept the “step-by-step” approach. (Sargsyan 2006)

Ter-Petrossian reasoned that it was unfeasible to preserve the status quo indefinitely, because Armenia would not be able to survive the economic pressures of blockades imposed

159 Since 2004, the Armenian people have organized an extraordinarily powerful and massive wave of social movements aimed against the socio-economic, political and environmental policies of the subsequent,

Kocharyan and Sargsyan, administrations. Those movements, however, as opposed to the September 1996 postelection turmoil, have been characterized by their non violent nature. A detailed description of the February -March 2008 demonstrations that will be presented in a following section of this chapter is a stark example of that.

185 by Azerbaijan and Turkey (the first option);¹⁶⁰ that for Armenia to formally recognize the independence of Karabakh would put Armenia in the risk of decades-lasting imposition of international community's harsh sanctions (the second option). This option would be perceived as an ultimatum to Azerbaijan and to the international community, and would ultimately fail. He also stressed that it would be difficult, if not impossible, for Armenia and Karabakh together to win a new war against Azerbaijan (the third option), as it required a complete defeat and capitulation of Azerbaijan, which would be impossible. Ter-Petrossian announced: "We must be realistic and understand that the international community will not tolerate the situation around Nagorny Karabakh for a long time, since this situation represents a threat to regional cooperation, security and the West's oil interests." More importantly, the President asserted that the Armenian nation faced a choice to either compromise on the Karabakh problem, or accept economic stagnation and socio-economic problems for the Armenian people for the years to come.

"Armenia will not become a normal state. We will not live well until the Karabakh problem is solved and the blockade is eliminated. Either - or. Or we should tell the world: move over, we ourselves will solve our problems, we are confident in our abilities and will not go for

concessions. But in this case, no-one has the right to demand better living standards; on the contrary, we will have to get used to the idea that living standards will decline even further.

Or, if we want to live well and develop our economy, we should have the courage to go for serious mutual concessions." (Ter-Petrossian, 2006:610-611)

The fourth (the "package" approach) and the fifth (the "step-by-step" approach) options for resolving the Karabakh conflict were deemed as the only two “realistic approaches.” Outlining merits of both approaches, the President pointed out that since Azerbaijan and Karabakh had irreconcilable disagreements regarding Karabakh's final legal-political status, the only realistic approach left was the step-by-step approach.¹⁶¹Negotiating

160 For a more detailed analysis of Levon Ter-Petrossian's calculations of economic prospects of Armenia versus Azerbaijan, see Arus Harutyunyan (2010:168-170). Briefly, Ter-Petrossian argued that even investments from diaspora Armenians (at the time around $10 million annually) would not compensate for Armenia's economic losses, let alone boost up the infrastructure, if Turkey and Azerbaijan would not end their blockade. Meanwhile, Azerbaijan, already in 1994, attracted more than $35 billion investmen ts by international oil companies. In 1994, Azerbaijan signed the "Contract of the Century" with powerful oil companies from the US, UK, Norway, Turkey, Saudi Arabia, and Japan (ibid).

161Despite Ter-Petrossian's unspecified reservations about the September draft, it was considerably more advantageous to Armenia than the two preceding "package" proposals. Specifically, a) it provided enhanced security guarantees for the population of Karabakh, Armenia and Azerbaijan; b) it did not call for a withd rawal of Armenian forces from the key districts of Shushi and Lachin; c) it did not explicitly insist that the final settlement must respect Azerbaijan's territorial integrity; and d) it envisaged Karabakh's de facto independence

186 the complicated issue of Karabakh's status and land simultaneously seemed to be an unlikely prospect.

The President's arguments triggered a storm of dissent across the Armenian political spectrum. The "step-by-step" approach of conflict resolution was unacceptable for the Karabakh leadership and their allies in Armenia. Ter-Petrossian’s compromising stance was termed as ‘defeatist’ by some of the governing elites. Among the most fervent antagonists of the "phased" approach were Robert Kocharyan (Prime Minister of Armenia), Serzh Sargsyan (Minister of Internal Affairs and Security of Armenia), Vazgen Sargsyan (Defense Minister of Armenia), and Arkady Ghukasyan (the newly elected president of Karabakh). Karabakh’s president Ghukasyan announced that “however badly the people live, there are holy things, there are positions that they will never surrender under any circumstances” (De Waal 2003:260). At the same time, the opposition parties in Armenia, taking advantage of the situation, accused the President of giving up on national ideals. Vazgen Manukyan of the NDU, a long-time challenger and opponent of the President, announced the latter's reasoning as "capitulation" and "treason" (RFE/RL, 1 October 1997).

Ter-Petrossian's opponents insisted on the "package" solution, strenuously avoiding and rejecting any kind of subordination of Karabakh to Azerbaijan. "Fear is fertile ground for nationalist politics, and Ter-Petrossian found it increasingly difficult to promote his own more compromising line in the face of opposition from many Parliamentary parties, and even from members of his own cabinet, such as regime strongmen Serzh Sarkissian, Vasken Sarkissian and Robert Kotcharian" (Tavitian, 2000:11).

While Ter-Petrosian linked Armenia's future stability and economic development to the resolution of the Karabakh conflict, his adversaries believed that Armenia could develop politically and economically without any concessions in the Karabakh issue. Those, who disagreed with the President, assumed that Armenia’s and particularly Karabakh’s economic well-being would be fine even without a lifting of Turkey’s embargo, as well as the

resolution of the Karabakh issue. They were willing to wait while the international mediators

remaining unchallenged until such time as final status negotiations produced a mutually acceptable treaty (Libaridian 1999:58; Laitin and Suny 1999:165; Fuller, 2004).

187 rethought their position (Suny 1999:169).Prime Minister Kocharyan specifically argued that

"negotiations should consolidate the victory and give Armenians time to cash in" (Libaridian 1999:66). He and his allies 'believed' that even in the case of a renewed war with Azerbaijan, Armenia would be secure, because as the Karabakh war showed, Azeris lacked will and ability to excel Armenians militarily and that Azeris could not retake Karabakh by force.¹⁶² Vazgen Sargsyan condemned the step-by-step approach and opposed Ter-Petrossian by announcing: “Certain people should not be allowed to resolve the Karabakh problem on behalf of the whole Armenian nation . . . . Armenia and the ‘Nagorno-Karabakh Republic’

should be prepared for a protracted conflict not only by rejecting concessions to Baku, but also by annexing Shusha and Lachin in the interests of Karabakh’s security” (Croissant 1998:122; Baghdasaryan in Hayastani Hanrapetutyun, 1998; Gayane Karapetyan in Hayastani Hanrapetutyun, 1999). According to Ter-Petrossian's opponents, Azerbaijan would also be reluctant to start any military action against Armenia or Karabakh fearing to make their oil assets, oil production facilities, and international business deals vulnerab le.

In response to the speculations raised by the opposition, Ter-Petrossian published an essay titled "War or Peace? Time for Thoughtfulness.” The essay, which was published in most Armenian newspapers on November 1, 1997, addressed anew the benefits of the "step-by-step" approach and argued that a final resolution of the conflict was in the interests of both Armenia and Karabakh, highlighting that the conflict should be resolved peacefully, rather than militarily. Once again, Ter-Petrossian stressed the urgency of compromise. He wrote:

To solve the question of Karabakh we have only one option, a compromise solution, which does not mean that one side is the victor and the other the loser; it does mean finding an agreement based on what is possible when the conflict has reached maturity ... The opposition

162 In her dissertation, Harutyunyan (2010) presents an excellent overview of the ethno-nationalistic discourse in Armenia. According to Harutyunyan, the denouncement of the "step -by-step" solution was accompanied by the rhetoric of national self-affirmation and resentment. This discourse believed that Karbakh was the first step towards the establishment of the "United Armenia", as well as towards the restitution of historical injustices.

The ethno-nationalists denied territorial concessions based on the rhetoric of Armenia's recent military success and the winning of war.

This nationalist assumption, as well as the rejection of concessions in the Karabakh conflict, was referred by Ter-Petrossian and his supporters as erroneous and irrelevant respectively, arguing that winning the battle should not be equated to winning the war. Ter-Petrossian said: “Unfortunately, Karabagh has won the battle, not the war. A war is considered won only when the foe has been forced into capitulation. The confusion between battle and war has brought misfortune to many.” (Ter-Petrossian, 1997, 2006)

188 should not mislead the people by arguing that there is an alternative to the compromise: the alternative to compromise is war. The rejection of compromise and maximalism (the drive to obtain the maximum rather than the possible) is the shortest path to the final destruction of Karabakh and the worsening of the situation in Armenia ... That which we are rejecting today, we will be asking for tomorrow, but we will not get it, as has often happened in our history.

We must be realistic and understand that the international community will not for long tolerate the situation created around NagornoKarabakh because that is threatening regional cooperation and security as well as the West’s oil interests ... Compromise is not a choice between the good and the bad, but rather between the bad and the worse; that is, compromise is just a means to avoid the worst, from which parties benefit when they have become conscious of the worst and are able to display the necessary political will and courage ... On the issue of Karabakh’s independence we have no allies. No one will resolve the present enigma but us. We are the ones who must resolve it, and we will resolve it to the extent that our capabilities allow us. Our only ally is our rejection of adventurism.¹⁶³

In "War and Peace," Ter-Petrossian mentioned that by rejecting May and July 1997

"package" peace plans and later also the Minsk Group's September "step-by-step" plan, the leadership of Karabakh had placed both Armenia and themselves in "an uncomfortable situation."¹⁶⁴ Ter-Petrossian was also surprised that his opponents (several of his own ministers) interpreted his endorsement of the September 1997 "step-by-step" plan as

something new and unexpected for them. In fact, the 26 September press conference was not the first occasion when Ter-Petrossian expressed his preference for a compromise peace resolution, and the ministers in question had not previously argued against the issue (Fuller, 2004). Moreover, the disagreement between the President and his opponents did not center on the relative merits of the "step-by-step" versus the "package" approaches. Instead, it centered on methodology rather than specifics. Thus, a question remains unanswered as to why those, who opposed the September proposal's methodology (i.e., the "step-by-step"

deal), had not tried to transform the May or July draft proposals ("package" deals) into an acceptable basis for a peace resolution.

Ter-Petrossian's arguments during the September press conference, as well as his logic in "War or Peace? Time for Thoughtfulness", allegedlyfailed to persuade other state elites that the compromise resolution of the Karabakh conflict was in the best intersts of the Armenian Republic. On January 28, 1998, the Defense Minister Vazgen Sargsyan claimed

163Levon Ter-Petrossian, "Paterazm te Khaghaghutyun, Lrjanalu Pahe'"[War or Peace? Time for Thoughtfulness], Hayastani Hanrapetutyun, November 2, 1997; See also Ashot Sargsyan, "Yntrani: Eluytner' Hodvatsner, Harcazruycner" [Selected Speeches, Articles, Interviews], Erevan, 2006, pages 625-639.

164 I have earlier noted in this chapter that the Karabakah leadership had practically rejected the first two draft proposals in May and July 1997, both of which were based on the "package approach".