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Armenian Growth 'Sustainable Without Karabakh Peace'

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  • Armenian Growth 'Sustainable Without Karabakh Peace'

    ARMENIAN GROWTH 'SUSTAINABLE WITHOUT KARABAKH PEACE'
    By Emil Danielyan

    Radio Liberty, Czech Rep.
    Oct 23 2006

    Armenia's economy can continue to expand at double-digit rates without
    a near-term solution to the Nagorno-Karabakh conflict, the outgoing
    head of the World Bank's office in Yerevan said on Monday.

    But Roger Robinson cautioned that continued rapid growth may not be
    sustainable unless the Armenian authorities improve the rule of law,
    strengthen the judiciary and spend more on healthcare and education.

    He also admitted that the dramatic strengthening of the Armenian
    dram might reflect negatively on the country's "very strong economic
    performance."

    According to official statistics, Armenian growth is on track to
    remain in double digits for a sixth consecutive year, with Gross
    Domestic Product increasing by 12.5 percent during first nine months
    of this year. The Armenian government acknowledges that the growth,
    largely driven by a construction boom, has primarily benefited Yerevan
    and surrounding areas.

    In an interview with RFE/RL, Robinson said he has seen a "significant
    change in the quality of life" in the country since taking over the
    World Bank office in the Armenian capital nearly five years ago. "I
    think it has affected the majority of the population," he said,
    pointing to government data showing that the proportion of Armenians
    living below the official poverty line fell from 56 percent to 34.6
    percent between 1999 and 2005.

    "Can this be sustained over the next five or ten years? I believe
    it can be," Robinson said, adding that this will require deeper
    "institutional reforms" that would improve governance, tax and
    customs administration as well as the overall business environment in
    Armenia. He also stressed the need for increased government spending
    on education and other public services.

    Asked whether the growth can be sustainable without a settlement of
    the Karabakh conflict, Robinson said, "It is possible."

    Many Western policy-makers and analysts have long asserted that
    Armenia's economic development hinges on the reopening of its borders
    with Azerbaijan and Turkey, something which they believe would make
    the landlocked country far more attractive to foreign investors and
    reduce high transportation costs incurred by Armenian exporters.

    French President Jacques Chirac subscribed to this belief during a
    state visit to Yerevan last month, telling Armenians that "only a
    lasting and just peace will allow your people to turn their hopes
    into reality."

    In Robinson's words, the growth rates registered by Armenia in recent
    years have taken Western donors by surprise. "I have to say that I
    have been surprised every single year that I've been here," he said.

    "If you asked me last year if I would project 12.5 percent GDP growth
    this year, I would say no. If you asked me the year before if I would
    be projecting double-digit growth in 2005, I wouldn't.

    "Even some of us that know the country and the economy quite well
    are all surprised by the rate of growth."

    Still, the World Bank official, who has helped to allocate hundreds
    of millions of dollars in low-interest loans to Yerevan, insisted
    that Karabakh peace, is a "necessary and good thing to sustain the
    growth in the future." "I think that's a given," he said.

    Robinson also reiterated the World Bank's strong endorsement of the
    Armenian authorities' monetary policies that have come under public
    scrutiny amid the continuing appreciation of the national currency,
    the dram. Government critics allege that the authorities have
    "artificially" boosted the dram's value by over 40 percent since
    December 2003 to enrich government-connected importers and siphon
    off a large of part of massive cash remittances from Armenians
    working abroad.

    The Armenian Central Bank strongly denies any exchange rate
    manipulation, insisting that the dram's strengthening is the result
    of a surge in the volume of those remittances. The bank's under-fire
    chairman, Tigran Sarkisian, said last week that the construction boom
    has also been responsible for the exchange rate fluctuation.

    "I believe that the foreign exchange market in Armenia is very free,
    very open, and I do think that it reflects the real flows of foreign
    currency," said Robinson. "I don't think there is much doubt about
    that."

    Local manufacturers complain that they increasingly have trouble
    competing with imported goods and selling their production abroad.

    This might explain why Armenia's net exports fell by more than 6
    percent while imports rose by 16 percent during the first nine months
    of 2006.

    Robinson admitted that the stronger dram could slow down Armenian
    growth, but said its impact on the economy should not be overestimated,
    arguing that local firms should cope with the situation by boosting
    their productivity. "There are many firms in Armenia ... that are not
    operating at 100 percent of capacity," he said. "There is probably
    a lot of productivity gains and efficiency gains that could be made
    in the Armenian producing sector."

    From: Emil Lazarian | Ararat NewsPress
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