Mediamax’s interview with Arar Foundation co-founder and Chairman of the Board Avetik Chalabyan

- Quite some time has passed since the April war. This time has allowed us to view the problem in a more sober and somber light. What are the most important lessons, which we should have learned, and have we, in fact, learned them?

-It has been five months since the April war, and that has given us the opportunity to form a comprehensive understanding of the events, and about the entire period, which preceded them and led us to that outcome.

Because of its complexity, I will try to present the problem from several angles.

In my view, the most important aspect is that starting in 2011 Azerbaijan changed strategy. If prior to that different negotiation packages were discussed, following the stalemate in Kazan, Azerbaijan began leaning toward military options. As of 2011, based on the agreement signed with the oil consortium, budgetary revenues rose sharply Azerbaijan as a result of oil sales, and that provided Azerbaijan with the means to increase their defense and military-industrial budget to over 3 billion dollars. For comparison let’s note that Armenia’s defense budget in those years was on average 450 million dollars, meaning the ratio was seven to one.

If one party has such an accumulation of funds for 5 years on end, while the other party has not taken sufficient steps, it’s understandable that eventually this would lead to a military imbalance. Of course, Azerbaijan did not effectively use its resources. Specifically, it invested approximately 6-6.5 million dollars in the establishment of its own military industry, but the opportunities created by these expenditures proved inadequate. In that time we also took steps, which were not directly reflected in our spending. For example, we received powerful missile and anti-aircraft systems from Russia. However, overall, the balance shifted in their favor.

In these years Azerbaijan has procured large quantities of heavy weaponry, created a significant aviation capacity, and supplied its combat positions and its most combative divisions with modern, light military means. All this resulted in the fact that Azerbaijan’s military capabilities have increased dramatically in the past five years.

- What have we done in this time period?

- I must regretfully note that we have been somewhat left behind. We did not need to spend 7 times more, we simply needed to increase spending by 1.5-2 times, in order to be able to maintain a military balance with Azerbaijan. But the reality is that not only our military spending did not increase in those years, but it even decreased in real terms.

During those years we received a large number of tanks, artillery, anti-aircraft and other means virtually free of charge from Russia. But most of them were outdated and quite costly to modernize. We have approximately the same number of battle tanks as Azerbaijan, but our tanks are not modernized, and are not protected from modern missile and unmanned attack aircrafts. It’s no coincidence that we lost 14 tanks during the April war. The majority of them were shot by modern, high-precision, anti-tank missiles. One of the most important lessons from the April war that we still do not have adequate protection against such high-precision missiles. These technologies exist in the armaments market, but the modernization of one tank may cost up to 0,5 million dollars and the modernization of an entire fleet could cost several hundred million dollars. The same holds true for anti-aircraft and missile equipment, most of which are indeed legacies from Soviet times, and are in need of serious modernization.

- Recently a group of journalists and Members of Parliament visited the frontline and confirmed that serious improvements have been made and will continue.

- Indeed the Artsakh authorities are now carrying out serious work on the front line. But I can assure you that all those problems were known already years ago. Our outdated communication system and the lack of high bandwidth optical cables, night observation equipment, or the fact that our frontline defense is vulnerable in a number of places was obvious. These problems were constantly being raised, and the answer was always that “we do not have the resources”. I’m confident that whatever is being done now could have been done two years ago, but that required a clear political decision.

If we can equip our frontline better: protect our firing points, supply regiments and battalions with powerful observation equipment, provide a communication system with much higher capacity, and establish unified command and control centers on the level of army corps, our level of defense will rapidly improve.

In April, one of our critical vulnerabilities was that the weak communication system did not allow us to comprehend the full scope of operations in the beginning, and therefore prevented us from adequately responding to enemy attacks. The front line is approximately 200 kilometers in length, and if we could have understood and visualize what was happening on each kilometer, we would have been able to deter the enemy more effectively by allocating resources for quick counterattacks. In fact, that was exactly what happened when the surprise factor of initial attacks had diminished, and it already became clear in which directions the enemy’s operations were being carried out.

As a result of the April military operations about 30% of the casualties on the Armenian side were officers, which is a very heavy toll. During military operations the loss of officers should not exceed 10-15%. The officers' profession is beginning to be viewed as extremely risky, and thus we are left with the problem of recruitment. The army should have a cadre of educated, knowledgeable officers, in full command modern technical and military capabilities. The best young men should want to become officers, but they will not if that profession is seen as extremely risky, financially and materially disadvantageous, and lacking high social status within society. We need to provide material security, higher job safety, and dramatically raise the social status of the profession, if we want to have a strong, combat-ready army.

Another related issue is the demographic situation, which leads to a reduction in military conscription resources. This resource can be replaced only by contractual ones which also implies an increased attractiveness of the contractual service, and likewise requires serious measures. We have reached a point where by continuing defense spending on a residual basis, we can potentially bring about an irreversible deterioration of our defense system. Even if Azerbaijan’s next several military ventures do not result in an immediate victory, they could cause our defense system to be deprived of its best resources, which would subsequently lead to its degradation. We must do everything in our power to ensure that this scenario does not materialize, but for that we require drastic political decisions, which have constantly been delayed or deliberately not made in the past.

- Armenia’s political and military leaders are individuals, who have been directly involved in the Artsakh Liberation War and have greatly contributed to its victory. How is it that these individuals allowed the mistakes or shortcomings which you mentioned to take place? I believe that one of the most severe psychological consequences of the April war was that the claim of the strongest army in the region was shaken - something which was repeated so much that it had become axiomatically fundamental. In your opinion, is the governmental system capable of realistically analyzing the situation and making systematic changes?

- It is difficult to answer this question with full certainty. My interaction with the authorities, on one hand has shown their acknowledgment that these problems are critical. Yet on the other hand, so far I have not seen enough political will to resolve these fundamental issues.

The dismissals we witnessed after April war were on the level of Deputy Minister or Department Heads. However, I believe that the prime responsible for the overall security situation is the country’s Commander in Chief. He sets defense policy directions, and makes the key strategic decisions. In my view, not taking adequate measures while seeing Azerbaijan’s apparent military preparations, and delaying the necessary response all the way up to late 2015 was under his purview.

In 2013, our military spending accounted for 16% of our state budget, and in 2016, it accounted for only 15%, in real terms meaning that our defense budget was reduced over these years. This absolutely contradicts all government statements that they have done everything in their power to prepare for the imminent war. In my view, the budgetary priorities were determined every year not according to military, but internal political necessity. For example, instead of increasing the military budget, the police budget increased by over 45% while the state debt rose by an astronomical 90% in three years. Not to mention that businesses affiliated with a number of MPs and state officials have operated outside the tax field, and those untaxed profits have become real estate and offshore assets abroad, whereas if the profits were included in the budget, they could be directed toward defense spending.

Overall, there is an impression that during the last few years the rationale for budget spending has been based mostly on internal political priorities. Why has police spending increased so much? Because our government, was most likely preparing more for internal fights than external ones. The fact that the army’s nominal expenses have increased by only 13%, while police expenses by 45% in three years says a lot, and is enough to understand where the government anticipated the danger. It anticipated danger from within, but in reality, it is going down that path which invites internal conflict. The more funds are being spent on building a police state, the more likely the people will start to resist it. Similarly, why have we seen a rapid increase in the state debt? Because foreign investments decreased due to a lack of investor confidence, and the areas, which should be addressed by the private sector, are being settled by the state at the expense of new debt. We need to break away from this flawed logic. Our limited resources should be directed first and foremost toward real external and internal challenges, instead of wasting them to conserve the situation.

- Often when the question is raised there are unofficial or semi-official hints about the fact that the part, which is not allocated to the budget through taxes is in fact being directed towards defense expenditures.

- I doubt that this is actually true. If the state wishes to direct funds toward defense expenditures, transparently collect them in the budget first, and allocate them from there. We have to stop this vicious practice, where there are two budgets: the state budget and the authorities’ “shadow” budget, which most likely under the guise of defense spending is used for keeping the power. After the April war, there have been some changes here. For example, Gagik Khachatryan’s private companies have begun to deploy surveillance equipment at the Artsakh border. But this is absurd, as Gagik Khachatryan should have paid taxes into the budget first, especially since he is also the Finance Minister, only after which the MoD can systematically use these funds. Generally, after the April war, one of the most absurd realities is that many private organizations started “working” in the defense sector, often in a chaotic manner, and that is the most obvious sign of flawed public policy.

- This could potentially bring us to a point where these procurements are not coordinated with one another, and as a result the army can receive, for example, 200 of the same equipment, which it doesn’t really need, while other urgent needs remain unmet.

- To a certain degree, this is exactly the situation now. Our Foundation is trying to avoid this by working directly with the Ministry of Defense, jointly deciding the priorities, and allocating funds towards mutually agreed on problems, and developing standards based on a systematic understanding of defense needs. But there are problems which are being simultaneously addressed by different private organizations, and coordination is very weak, and sometimes even leads to meaningless competition.

- The other side of the problem is that for years not enough attention was paid to local defense capacity, the ability to use our engineering potential. We have seen some changes here: Ayb and Arar Foundation Trustee David Pakhchanyan was appointed Deputy Minister of Defense, Ruben Vardanyan announced the establishing of the FAST Foundation initiative.

- This issue is just as important too. In five years our military-industry research and development spending has amounted to a mere $‌18 million. That is a negligibly low number. During that time, Azerbaijan's total military-industrial expenditures amounted to $‌6.5 billion, roughly 350 times larger than ours.

During the previous war, Azerbaijan did not have a significant military-industrial capacity, while we had serious internal resources. Beginning from 2000s, our military-industrial capacities have gradually decreased. We have adopted a deliberate policy of running down our own military-industry with the logic that everything can be procured from Russia, with a lower cost and higher quality. Yet this logic has serious shortcomings, the first being that in the event of a war, Russia may refuse to supply us, or be unable to because of impediments from other countries.

Secondly, if something is less expensive to procure from Russia, but more expensive to produce here, we must take into account that production expenditures partially, indirectly return to the state budget. Direct cost comparisons are relative, and we need to assess the totality of economic benefits, job creation, and acquired knowledge, which can be applied in other fields as well. The third issue is that within the last 10 years the high-tech sector has emerged in Armenia, which is capable of solving certain problems, yet the straightforward application of “cheap shopping” logic had brought us to the reality that until the April war there was practically no collaboration between this sector and the Ministry of Defense. There were regular major discussions about it, but the mechanism did not work.

If the Ministry of Defense has to optimize and efficiently use its scarce resources, it asks for ready technical solutions which can effectively deal with combat problems, and are also not expensive, only in which case it is ready to buy that solution. High-tech companies come from an opposite position. They asks for resources, in order to develop the required solution. Essentially, one side asks for cheap, ready-made solutions, and the other side asks for the means and time to find a solution. If two sides with these respective demands are negotiating, they will never be able to come to an agreement. We need here a competent intermediary. In this case the intermediary is the military industry, which can be public, private or in the form of public-private partnerships. The most important is that the intermediary have its own resources. The intermediary can receive the problem specification from the Ministry of Defense, allocate its resources to solve the problem, and when the solution is prepared, can sell the product to the defense structure, in essence bearing the main technological risks. We did not have the intermediate link, since the entire military industry was subject to the same deputy minister who was responsible for procurement. He was essentially sitting on two chairs and the logic of his actions naturally stemmed from the procurement policy.

The separation of procurement and military industry is a first and very important step in this process. This is necessary, but still insufficient. It will become more sufficient when the system will also receive sizeable public and private funds. Private funds (on commercial and noncommercial basis) will not enter here though, as long as the government itself doesn’t make adequate investments.

You mentioned FAST Foundation, which hopefully will help to jumpstart this process. Arar Foundation has also expressed its readiness to support the Ministry of Defense in the tech industry, even though this is much more resource-intensive than our modest means. If we set clear tasks of ensuring the safety of our soldiers, then we are ready to raise and invest appropriate funds, provided the government will also implement measures to solve these problems. If we combine our resources, we can solve a number of technological problems in a reasonable timeframe. In Armenia, we have sufficient amount of research groups and projects that can meaningfully use these resources, and get tangible results. When we get these results and successfully test them in our conditions, there will also be a second phase, where we have the opportunity to export these solutions to other countries. That will also bring additional economic return, the chance to specialize on specific areas, and so on.

- The 2017 parliamentary elections are approaching. Do you think the problems you identified should become the keystone for the election campaign of all parties?

- Ensuring the nation’s security should be the “focal point” of the coming elections, and should serve as an effective “referendum” for all political parties. In this sense, it will be an important test for the present government. It must demonstrate to the public that it is capable of ensuring security of the country and its citizens. The resources, which the government has wasted in the name of its own political priorities, must be directed to the solution of security problems. That does not automatically mean that those resources will be optimally used. Effective use is the next step, which is a separate conversation.

The July events in Yerevan served as a stark reminder that if problems are not adequately solved through the political process, sooner or later, the political process digresses and can slip into a civil war, effectively bringing the external conflict into a domestic realm. However, we must avoid any scenario of civil war at all costs. These events should be a powerful lesson for everyone to find sensible solutions, and provide the public with a vision of security and sustainable development. The window of opportunity to for sensible solutions is not gone, but in one year’s time, it might be over, so we need to act now.

Ara Tadevosyan spoke with Avetik Chalabyan