Under the Soviet Union, Armenia had a history of border concerns, particularly in relation to those regions with high concentrations of Armenians and where territories had been given to Azerbaijan. Full-scale war took place in 1991 and there was eventually a Russian-mediated ceasefire in 1994. 'Ongoing talks between Armenia and Azerbaijan have as yet failed to produce a solution.'13 Armenia formally declared its independence in 1991; its constitution of 1995 and subsequent amendments gives sweeping powers to the president. Its early years of independence have been fraught with difficulties:
'… the lasting impacts of the 1988 Spitak earthquake; the conflict over the Nagorny Karabakh enclave; the war with Azerbaijan in 1992-3; the Azerbaijani-Turkish blockade of Armenia; terrorist attacks on energy supply lines; and economic collapse in neighbouring Georgia all contributed to the collapse of the Armenian industrial base and the destruction of infra-structure.'14
GDP contracted by 50% in 1992 and hyperinflation reached nearly 11,000% in 1993 (the highest among all former Soviet republics in the transition years). Inflation had fallen to 9% by 1998 and there was mild deflation (-0.4%) in 2000 due to falling food prices and low consumer demand. There is a significant 'black economy', estimated to have fallen in recent years to around 20% of GDP. There are major problems of pollution, despite the decline in industrial activity.
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