YEREVAN, Armenia – A close ally of Russia, with a grossly corrupt economy and a ruler accused of increasing authoritarianism, Armenia hardly seems a prime candidate for massive doses of American aid money.

Yet this tiny South Caucasus republic receives more American aid per capita than any other country except Israel – a total of more than $1.6 billion since 1992. When the White House tried to cut sizably American assistance to Armenia earlier this summer, Congress blocked the move, bumping up the administration’s allocation from $55 million to $75 million for 2006.

Armenians can thank one of the most effective and well-organized ethnic lobbies on Capitol Hill for the windfall. With wealthy backing and strong grassroots support, America’s million-strong Armenian population, concentrated in the Northeast and California, has for years successfully lobbied for increased aid.

At the time of its independence after the breakup of the Soviet Union in 1991, Armenia seemed a dream come true for a people with a tragic history. Less than a century after the Armenian genocide – when the Turks killed between 500,000 and 1.5 million Armenians – the world’s 4 million ethnic Armenians finally had a national homeland.

But instead of thriving – and despite the money pouring in from foreign donors – Armenia is languishing. Its politics are moribund, dominated by President Kocharian, whom critics accuse of falsifying elections and cracking down on the opposition. And despite years of significant growth, its economy remains in shambles, with nearly half the population living on less than $2 a day.

The result has been a mass exodus – the reverse of early hopes for Armenia. Instead of hundreds of thousands of dispersed Armenians flocking to the country, more than 1 million Armenians have left for Russia and the West, leaving Armenia with a population of less than 3 million. According to some estimates, the country has lost more than 30% of its working-age population.

“People are leaving because they don’t see any hope for the future,” the chairman of human rights group Helsinki Committee of Armenia, Avetik Ishkanyan, said. “And the worst part is that the ones who are leaving are from the most active part of society – these are the people we need to bring about changes in this country.”

Critics lay much of the blame at Mr. Kocharian’s feet. They say that the president – elected for a second time in 2003 – is running a corrupt and despotic regime, giving free rein to businessmen close to him and stifling any dissent.

“There is a huge gap between those in power and the majority of Armenian society,” said the leader of the opposition Justice coalition, Stepan Demirchian, who is also the son of a Kocharian rival killed in 1999 when gunmen attacked Parliament and shot several prominent politicians. “And when we try to resist, when we try to bring democratic change, they respond with violence.”

In April 2004, inspired by the peaceful Rose Revolution in neighboring Georgia, thousands of Armenians took to the streets to denounce Mr. Kocharian and voting fraud in the 2003 elections. After more than 50,000 people demonstrated on April 12 and 13, Mr. Kocharian called in the police to break up the protest with stun grenades and water cannons.

Government officials insist the crackdown was needed to maintain order and say opposition parties are simply trying to seize power for themselves.

The foreign minister, Vardan Oskanyan, said the opposition uses the pretense of supporting democracy to gain support abroad as they attempt to overthrow the government. He said he knows that Armenia’s democracy is not perfect, but believes it is improving.

“The government is stable, and the country is on the path to becoming a fully democratic country,” he said. “A lot has been done, but a lot remains to be done.”

Under pressure from the West, Armenia will hold a national referendum this year on a package of constitutional amendments designed to limit the power of the presidency and protect judicial independence. Mr. Oskanyan said the reforms will be key to ensuring democratic and economic growth.

“Once we complete our constitutional reforms, Armenia will move forward in leaps and bounds,” he said.

Opposition leaders see things differently. They say the reforms are only symbolic and see the referendum as a potential trigger for the kind of mass protests that drove out authoritarian governments in Georgia and Ukraine.

The leader of the radical Republic Party, Aram Sarkisian, said opposition parties are gearing up to organize mass demonstrations after the referendum, which he said is sure to be fraudulent.

“The situation in our country is terrible, people are leaving because they have no hope,” he said. “Armenian society is ready for revolutionary change, peaceful and civilized change.”

Mr. Sarkisian said he met with White House and State Department officials during a June trip to Washington and emerged confident of American support for a revolution.

“The United States supported the Georgians and the Ukrainians, and they will help the Armenian people,” he said.

Still, experts said it’s unlikely the opposition could organize a successful revolution or win Western support. Fractured by in-fighting and with no clear leader, the opposition is more likely to fall apart before posing any threat to Mr. Kocharian.

“The opposition is too weak and the government is just democratic enough to keep the West from supporting drastic changes,” said a Western official in Yerevan, who spoke on condition of anonymity.

Chatting over rich coffees and ice-cold Coca-Colas in Yerevan’s trendy ArtBridge Cafe, a group of students and recent graduates agreed that a revolution is next to impossible.

Unlike so many other young Armenians, they’ve decided to stay and try to build their country.

“I will not leave Armenia, I want do to things for my country, make it a better place to live,” a 26-year-old university lecturer, Artak Ayunts, said.

But the group was skeptical about radical changes. They don’t believe Armenians are ready for a revolution and say it could take decades of slow progress before the country is free and relatively prosperous.

“People don’t believe in themselves, they think someone else should always make changes for them,” Mr. Ayunts said.

Joked a 28-year-old student, Gevorg Abrahamyan: “The biggest problem with Armenia is the Armenians.”