TOPIC OF THE WEEK: Who stands to dominate the ballot box in Armenia’s 2026 showdown?
This year I have spent a considerable amount of time discussing and analyzing the political backdrop in Armenia, including because, with the political cycles over in Azerbaijan and Georgia, it is now Armenia's turn to hold parliamentary elections next Jun. However, in contrast to Georgia, where I, against consensus, predicted Georgian Dream's win, I need to acknowledge that I feel much less secure about my Cassandra gifts with respect to how the political process will evolve in Armenia. Still, given that only about half a year separates us from this crucial election showdown, I feel the time has come for me to stick my neck out and make a more formal prediction, even if only in probabilistic terms.
This is, of course, interesting not only for the academics and analytics of it, but also for its investor implications. Stockholders and capital markets would undoubtedly prefer to see Pashinyan and his Civil Contract emerge victorious given the opposition's less-than-enthusiastic, to put this in the mildest possible way, embrace of the ongoing process of political normalization with Azerbaijan. From the opposition's vantage point, this is hardly surprising as the view is well supported by many in the country who see Pashinyan's policy of accommodating almost every wish of Baku as traitorous, demeaning, suppressing national identity and destroying sovereignty.
My scenario analysis advances as its base case a relatively narrow plurality win for Pashinyan, with a reasonably fragmented political field. This would not be an unadulterated win for investors, however, as welcome policy continuity and continued Western drift would be matched by a much more complex coalition arithmetic that implies slower execution in key areas of policy making, including judicial, SOE, and competition-policy reforms. These would likely only inch forward, thus limiting productivity gains and economic growth. There could be some residual protests, but they would not endanger the government.
The base case would be the second-best option for investors. Markets would prefer one of the alternative scenarios, in which the incumbent returns with a workable majority and strong reform agenda, as this would generate strong momentum for the peace process and Armenia's path towards EU accession. However, it is much less likely at the current juncture given incumbent's low ratings. Moreover, there are other scenarios that look even worse.
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