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051221 - U.S. Approves Grant to Armenia, but Urges Greater Political Rights . BUSH: It will give $236 million to Armenia over five years
By CELIA W. DUGGER, Published: December 20, 2005
President Bush's foreign aid program aimed at reducing poverty in well-governed developing countries announced its second-largest grant yesterday. It will give $236 million to Armenia over five years, but warned the country's rulers that the assistance would be suspended or canceled if its record on political rights continued to deteriorate.

The Millennium Challenge Corporation, the agency administering the program, delayed its approval of the plan to invest in rural roads and irrigation projects in Armenia after allegations of fraud and electoral mismanagement arose in a constitutional referendum on Nov. 27.

Even as the agency announced yesterday that it was moving forward, it released a stern letter to Armenia's president, Robert Kocharian, calling for corrective steps to improve the fairness of the political process. Stephen P. Groff, a managing director at the agency, said it was awaiting a reply.

A spokesman for the Armenian Embassy in Washington did not return repeated phone calls yesterday requesting comment.

Mr. Groff acknowledged that it would not be simple to halt the aid once the United States had spent tens of millions of dollars in Armenia, a former Soviet republic with a population of three million. "We'd be fooling ourselves to say it wouldn't be difficult to get out," he said, "but we are willing to cut countries off if their performance doesn't continue on a trend."

The Millennium corporation relies on Freedom House, a nonprofit group that promotes democracy, to rate countries' respect for civil liberties and political rights. Christopher Walker, the group's expert on the former Soviet Union, said political rights were severely restricted in Armenia, deteriorated in 2004 and had not improved this year. He also said corruption was pervasive.

"It's still not really clear that Armenia has the institutional capacity and independence to move forward with reforms," Mr. Walker said. He noted, for example, that a council the government set up last year to control corruption was not politically independent of the president.

President Bush advocated the creation of the corporation, now almost two years old, to aid poor countries that rule justly, invest in their people and have sensible economic policies. His theory, shared by many development experts, was that well-governed countries would not waste aid, but would use it to spark economic growth and reduce poverty.

Armenia has done well according to many of the agency's indicators, though it has slipped on measures of government, officials said. It is open to trade, has inflation under control and is a relatively easy and inexpensive place to start a business and has made progress on corruption. It has increased its spending on health and education, sustained high levels of immunization and improved the rate at which girls finish primary school.

The Millennium corporation's plan for Armenia includes $67 million to rehabilitate almost 600 miles of rural roads and improve the productivity of 250,000 farm households through gravity-fed irrigation and higher-yield crops, among other things.

The agency, which did not get off the ground for almost two years after Mr. Bush announced his intention to establish it, has recently come under pressure from Congress to speed up its approval of projects. Noting the slow pace of spending, Congress almost halved Mr. Bush's budget request for the agency for next year. Mr. Groff said such pressures did not affect the decision to go forward with the Armenia project.

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