I am honored to be here today and to speak to you about a topic which does not make the headlines or the front pages of the world press, but nevertheless is on the minds of policy makers in important capitals because the Caucasus matters. Why does it matter? Because the Caucasus has emerged as a very distinct geographical area in a very volatile region. The Caucasus is in Russia's backyard and that is in everybody's interest today. The Caucasus matters because at this stage it is the weakest link in a broader system, where regional powers are lined up for interests: Russia, Turkey and Iran. The Caucasus seems to be a region around which a lot of politics is played. It is also a region which is rich in oil, gas and other minerals, and this attracts the attention of major powers in the world.

Armenia happens to be one of the three countries comprising what we call today the Caucasus. Only 10 years ago the Caucasus was a part of the Soviet Union and laid right on the fault line of the East-West confrontation. Today, that has changed tremendously and the Caucasus has emerged as a distinct region, with its own characteristics, and it is trying to survive: all three countries, individually and collectively.

There are many challenges, that the three countries face, the biggest being the challenge to overcome the legacies of the past. If we look deep down into the history of the Caucasus, we will see all sorts of layers of legacies, starting from the ancient Iranian influence, to Roman-Christian, then Arabic, Turkish and Russian. But the most enduring one has been the Soviet legacy. That is what is affecting our daily lives and that is what we are trying to overcome, such as the legacy inherited in the economic sphere, the political sphere and in all sorts of different areas, including the ethnic conflicts.

The most overwhelming problem we inherited is the economic legacy - that is the legacy of dependence, the legacy of producing heavy industries, the legacy of producing component parts instead of final products, generally of inferior quality, intended to be assembled in another republic of the Soviet Union. As a country, we now find ourselves having to survive alone economically in the international market when the former republics that had provided the economic complementarity are no longer in a common economic space. Certainly we see that most of the industries that we have inherited from the past, are obsolete. This is a major, major problem facing the country today. Most of our current economic problems, unemployment being the major one, are due to the fact that our industry is not fully operational. This is the result of the economic policy pursued by the Soviets, as part of their general policy to divide and rule and create as much interdependence as possible.

The other, major legacy that we have inherited is the whole mentality of the Soviet period which is no less important in its impact than the economic problems we are facing. And truly this mentality and general outlook stand in the way of most of the reforms that we undertake in different areas of the economy, the judiciary, the whole democratization process and institution building. These are serious issues that most transitional countries of the former Soviet Republics have faced, as did the Eastern European countries. It seems however that the legacy for the Eastern European countries was not as deep and broad as it was for the Soviet Republics. For them, it might have been much easier to overcome. We are still facing these problem and trying to address them.

In addition, there were other problems that most of us have faced, particularly the Caucasian republics, such as defining our national identity and trying to look for ideological and secular alternatives to communism. These were issues before us right after independence. Now that I look back to the past 6-7 years, I see that in the case of Armenia, we have made a lot of headway in all these areas. Given our history, our distinct language and alphabet, we did not have much problems defining our national identity. We did not have to define who we are as did some of our neighbors, with the exception of addressing, whether as Armenians, we saw ourselves as being part of Europe, the Middle-East or Asia.

This issue was truly a subject that was debated during the early period of independence since the Caucasus is at the crossroads of these three cultures. At the time we oriented ourselves towards Europe and that is where the European direction in our foreign policy has been instituted, including our goal to become as quickly integrated into the European structures as possible. In this sense, we have certainly made a lot of progress as evidenced by our relations with the European Union, our relations with the Council of Europe and I hope our inclusion this year as a member, our involvement in the OSCE as an active member, and by our cooperation with other organizations and institutions such as NATO. This is the main direction in our foreign policy, and rightly so, as the values which the European structures embrace are also the values that the leadership in Armenia and the public, have happily adopted, such as the pursuit of democracy and human rights. These, we believe, should be at the heart of our society and be the pillars of our future state.

By no means would I tell you that Armenia is a full and mature democracy. Certainly not. We understand that democracy building is not a matter of days, months and years. It is tradition. it has to be imbedded in our people's collective thinking. It also has to be in their mentality and outlook. So it is going to take some time. But the important thing is that at the leadership level as well as the grassroots level, we seem to have succeeded in adopting these values as part of our national values and we are moving forward in this direction.

Certainly Armenia would have been in a much better position today, had there not been the problems that the region is encountering because the Caucasus is inherently an unstable region. Armenia, being part of this region has been affected by the overall environment that has been created. This region is inherently unstable because there are many many destabilizing factors impacting the region such as the political instability in individual countries and the economic hardships that each of us is facing. These are forces of instability. In addition, there is the absence of an all encompassing regional organization that includes all the countries in the region, particularly the major ones, that can enable us to discuss our issues and work on consensus building. This will certainly help promote the stability in the region.

Another destabilizing element is the unequal distribution of wealth, oil for example. Some people would argue that oil should be a source of stability. Well, we hoped that it would be, but at this stage it is not. If we look at the oil element in the short term vs. the long term, we think different rules might come to play. In the short term, oil seems to be a zero sum game, and there is a lot of competition over it: Russia, the United States, Western European countries, Iran, Turkey are all competing to have a share of the Caspian oil and gas resources. There are only limited amounts as we are finding out, and the volume seems to be much less than was predicted earlier. So the competition is intensifying between countries. This is certainly a source of instability as is the ambiguity over the status of the Caspian Sea. This has led to a rift between Iran and Azerbaijan, between Azerbaijan and Turkmenistan, Russia and Turkmenistan. All this is about oil and how it might be divided. Another major problem is the number and eventual course of a main export pipeline. You cannot have ten pipelines. There is either going to be one or two, especially in light of the most recent estimates about the overall volume of oil in the Caspian. Certainly there will be a fight over which country will get the pipeline and what course will this take. This is going to be a major, major problem. So at this stage it is a zero sum game, because whatever a country takes, it will be at the expense of another. So that is why the bickering over oil and gas in the Caspian is affecting our region.

In the long run, countries like Armenia, hope that eventually oil will become a stabilizing element. If oil is used as a stabilizing factor by the owner countries such as Azerbaijan, and it is not used as a weapon of choice, it might become a way to contribute to the overall peace and stability in the region. So in the long run oil may not present a zero sum game if the countries owning it act prudently and use it as a stabilizing element.

Of course the most destabilizing elements are the existing ethnic conflicts: in Georgia, in other regions of the CIS and in our case, Nagorno Karabagh. This is a very problematic issue. It affects Armenia in a very negative way and our foreign policy basically revolves around this issue. This conflict also determines our relationship with our neighbors, particularly with Turkey, but also with Iran, Georgia, other countries in the region, as well as with the European countries. So Nagorno-Karabagh is a major, major issue facing Armenia. Its peaceful resolution is our top foreign policy priority. Consequently, we have adopted a regional policy that is as conducive as possible to the overall peace and stability of the region so that Armenia may survive and benefit economically and politically to the largest extent possible.

We are basing our policy in the region on six pillars:

One is to advocate democracy and human rights in the region. We believe that this could be very conducive to the overall peace and stability in the region. We believe that Armenia is in a good position to be a leader in these issues. For this, we understand that we must first put our house in order so that we are more credible in advocating democracy and human rights for the region. We have made substantial progress in these areas domestically as compared to our region and we think that the resolution of the conflict could be facilitated if democracy became the norm rather than the exception in the Caucasian countries.

The second aspect of our regional policy is to advocate equal economic development and economic cooperation in the region. Unfortunately, Azerbaijan does not meet us half way on these matters. We think that economic cooperation will help us transcend the political problems and will facilitate the resolution of the political issues. Azerbaijan's policy today in the region is to isolate Armenia. That is clearly visible. We have seen this in the TRACECA conference. Despite all odds, the Armenian Prime Minister went to Baku to attend this conference which is the Silk Road project sponsored by the European Union, intended to create a corridor linking Europe to the Caucasus, to Central Asia. It is of major importance to the economic development of our region. Armenia is eager to be part of regional economic and other programs. This is a major tenet of our regional policy.

The third aspect of our regional policy is to encourage and support stronger regional organizations. Looking at our region, we see that there is no single regional organization that includes as members all the regional powers such as Iran, Turkey and Russia. Iran is not a member of the Black Sea Economic Cooperation or the OSCE while all the others are. The CIS includes the former Soviet republics but Turkey and Iran are left out. In the Economic Cooperation Organization, Turkey, Azerbaijan, Iran and a few other Central Asian republics are members, while Armenia and Georgia are not. This is very critical. We need such an organization. I think the region has become hostage to the western policy of isolating Iran. This is why we have been unable to involve Iran in an interregional organization, where all the countries in the region, including the major players, having a common interest can come together to discuss common issues and build a consensus.

The forth element of our regional policy is to eliminate the whole thinking and ideology of the cold war which still exists in the Caucasus. Our approach differs from that of our neighbors. Azerbaijan's policies contribute to the polarization of the region while Armenia's policies promote reconciliation. We see our relations with both Russia and the West, our militarily links with Russia and NATO to be complimentary with each other, contrary to Azerbaijan's policies of deepening relation with NATO as an exclusionary measure to fend off Russia's influence in the region. This kind of policy leads to regional polarization which the Caucasus cannot afford.

Armenia's policy is one of reconciliation. We think that with the end of the cold war the ideology of the Cold War should be removed and we need to use all the available possibilities to augment and strengthen our security while at the same time working for regional cooperation. That is what we are doing and we think that our approach is more conducive to overall peace and stability.

The fifth element in our foreign policy is to engage Turkey in a more positive and constructive way in the Caucasus. If we look at the three major regional powers, Russia, Turkey, and Iran, we see that, because of Turkey's Caucasian policy, particularly with regard to Armenia and the Nagorno Karabagh conflict, there is a disbalance in the region. Russia has equal relations with both Armenia and Azerbaijan. Azeris may dispute this. But you will see that Russia and Azerbaijan have diplomatic ties. They trade. One does not blockade the other. They have ambassadors in both countries, they carry diplomatic relations as well as a dialogue between them. Despite all sorts of problems with Azerbaijan, Iran maintains an equal balance in the region and maintains normal relations with both Armenia and Azerbaijan.

The exception is Turkey. Turkey has good, even exceptional relations with Azerbaijan. Turkey has no diplomatic relations with Armenia however. Turkey blockades Armenia. So if we look at the Caucasus as a three legged chair, whereby these three major regional powers hold the balance, the Turkish policy vis a vis Armenia creates a disbalance in the region. Despite all our historical problems and differences with Turkey, we are trying to engage them as positively as we can in this region because we believe it is important to keep balance in this region. But unfortunately that has not happened yet because of the very intransigent Turkish policy and because of their choice to put their ethnic affinities with the Azeris ahead of the geostrategic interests of the region. A more balanced engagement by Turkey in this region will certainly help the overall regional peace and stability and enable Turkey to play a much more conducive and positive role in reaching a peaceful resolution to the Nagorno-Karabagh conflict.

The last and most important element of our foreign policy is our position with regard to the Nagorno-Karabagh issue. This is one of the major destabilizing elements in this region. Generally, the conflicts that we are facing today, and particularly in our region boil down to the reconciliation of two major principles of international law, that of territorial integrity and the right of people for self-determination. But in a way the latter has been inclusive of the former, that is the approach to conflict resolution has given preference to territorial integrity. This policy has been applied across the board to all conflicts in the name of stability and status quo, to avoid opening dangerous pandora's boxes or setting precedents for other conflicts or ethnic groups when a given solution to one problem deviates from the norm.

Certainly, we need to make a distinction between stability and forced maintenance of status quo. The key words here are "forced maintenance of status quo". A status quo in political life is never inherently permanent. A viable policy of stability requires the mechanisms to pursue a dynamic process of managing change. These are the key words. The international community has to be ready to adopt a policy where it can manage change in this quickly changing and dynamic international environment. This is what we need to focus on instead of simply applying a blanket policy supporting the territorial integrity of states. Such a standard approach cannot be applied to every case of self-determination.

In my view there are four categories of self-determination movements in the world today, depending on the level of self-determination that the secessionist movement has reached and the degree of control of the mother state over the seceding territory. That is the relationship between the level of self-determination and the level of preservation of territorial integrity.

The case of Quebec, and perhaps Northern Ireland in the near future, fall in one category. In the case of Quebec we have on the one hand, the full preservation of Canada's territorial integrity, and on the other, the full self-determination of the people of Quebec, expressed in their freedom to conduct referenda. Sometimes people confuse self-determination with independence. When we talk about self-determination, people think we are striving for independence. In the case of Quebec, the people exercised their right to self-determination but decided to remain part of Canada. Having this right is in itself an expression of self-determination. So in this category of secessionist movements, there is full control of the territorial integrity of the mother state and full expression of self-determination.

The second category where most secessionist movements fall is the one where there is a claim for self-determination but nothing is done to achieve anything in that regard. The mother state continues to have full control over its territorial integrity. This is the case of the Kurds in Turkey. Despite all the claims and the fighting, the Kurds have not achieved any level of self-determination in Turkey while Turkey keeps control over all its territory.

A third category is where neither the mother state nor the secessionist movement has any control and there is fighting. This was the case of East Pakistan in the seventies which eventually led to independence and the formation of Bangladesh. During this period neither India nor Pakistan had any control. The situation was the same with Eritrea in the sixties and the seventies, where no one had any control but eventually Eritrea became independent. So was the case in 1992-1993 with Karabagh when there was fighting and territories kept changing hands and neither Azerbaijan nor Karabagh had solid control over the territory of Nagorno-Karabagh.

The fourth category is when the secessionist movement has achieved full self-determination. This is the case of Nagorno-Karabagh today whereby Azerbaijan has no control whatsoever over the territory of Nagorno-Karabagh. There is full self-determination.

We cannot apply the policies of the second category which I mentioned above, such as those applied in the Kurdish situation, talk about providing autonomy, addressing issues in the context of minority rights and human rights when the secessionists have already attained de facto full self-determination. So the approach needs to be different from one category to another. That is why we believe that the standard blanket approach to self-determination movements will not work.

Armenia has really welcomed the most recent Minsk Group proposals, precisely because, for the first time they suggested something that took into account these dynamics without setting any preconditions about the eventual outcome of the negotiations. They introduced the idea of a common-state which is something between independence and autonomy. Certainly it is more than autonomy but short of independence.

In cases like Karabagh, the issue should not be to try to reconcile the principles of territorial integrity with the principle of self-determination in a way that prioritizes these concepts, but to find the right balance between these two principles. It seems that the international community has truly come to appreciate that in cases like Karabagh, there needs to be a different approach, as demonstrated by the Co-chairs recent proposals and the support lent to these proposals by the European parliament. Armenia has welcomed this. We hope that Azerbaijan will eventually accept these proposals as the basis for negotiation so that we can move forward in the negotiation process and reach long lasting peace and stability in the Caucasus.