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Armenian Economy Emerging From Recession
Eurasia Daily Monitor Volume: 7 Issue: 38
February 25, 2010 04:16 PM
Category: Eurasia Daily Monitor, Home Page, Economics, Armenia
By: Emil Danielyan
World
Bank Managing Director Ngozi Okonjo-Iweala (right) with Armenian Prime
Minister Tigran Sargsyan in October, 2009 at the opening of the bank's
Yerevan office. (Photolur)
Armenia appears to be emerging from its first economic downturn in
over 15 years, which was triggered by the global financial crisis. The
latest macroeconomic data released by authorities in Yerevan suggests
that its unfolding economic recovery may well surpass government
expectations for this year.
After a decade of robust growth, the Armenian economy contracted by as
much as 14.4 percent in 2009 -one of the sharpest declines in GDP
registered in the former Soviet Union. Economists blamed it on a
slump in construction (a key driving force in the previous growth),
international prices of base metals (the country's number one export
product) and multimillion-dollar remittances from Armenians working
abroad and in recession-hit Russia in particular.
The Armenian government scrambled to alleviate the consequences of the
recession with heavy borrowing from Russia, the International Monetary
Fund (IMF), the World Bank and other international lending
institutions. It secured some $1.3 billion in anti-crisis loans, which
nearly doubled the country's foreign debt by the end of 2009. A large
part of those funds was used to offset a serious shortfall in tax
revenues and thereby prevent major cuts in government spending on
social and other programs. The government has also been using such
loans to shore up the national currency (the dram), finance
infrastructure projects, improve small and medium-sized enterprises'
access to credit and provide direct financial assistance to mining and
construction firms. These anti-crisis measures have clearly not proven
sufficient to avert a decline in living standards in the
country. According to a World Bank report published in November 2009,
the proportion of Armenians living below the official poverty line
rose to 28.4 percent in the second quarter of 2009 from 25.6 percent
registered during the same period of 2008. `These developments are a
setback for Armenia after a decade of nearly double-digit growth -
and reduction in poverty from 56.1 percent in 1998-1999 to 23.5
percent in [late] 2008,' said the report (Kapital, November 18,
2010).
Nonetheless, Armenian Finance Minister Tigran Davtian claimed
afterwards that Armenia is coming out of the recession with minimal
losses. On February 22, the Trade and Economic Development Minister
Nerses Yeritsian declared that the economic crisis was over. `I want
to assure you that we have come out of that crisis well,' he told
journalists (www.armenialiberty.org, February 22).
Yeritsian pointed to official statistics that show the Armenian
economy grew by 2.4 percent year on year in January 2010, despite a
continuing downturn in the construction sector, which has been hit
hardest by the recession. According to the National Statistical
Service (NSS, www.armstat.am), Armenian economic growth returned
primarily because of a 6.5 percent rise in industrial output. The
manufacturing sector seems to have been significantly boosted by the
strong rally in recent months in the prices of copper and other
non-ferrous metals.
Armenian authorities and the IMF forecast late last year that GDP will
grow by only 1.2 percent in 2010. Mark Lewis, the head of an IMF
mission to Armenia, said the full-year growth rate should exceed 2
percent as he ended a two-week visit to Yerevan on February 17. He
reaffirmed the IMF's positive assessment of the authorities' handling
of the crisis and said the mission will recommend that the IMF board
disburses the next $74 million tranche of a $827 million stand-by loan
for Armenia approved in March 2009 (Arminfo, February 17).
`The authorities have successfully implemented a broad range of
policies to address the macroeconomic challenges in 2009 - and
macroeconomic policies are on track,' read a separate statement issued
by the IMF. The statement at the same time stressed the need for
`Ccontinued structural reforms' and `additional efforts to increase
competition' in Armenia. That was a clear reference to the country's
flawed business environment, which Western donors have long regarded
as a key obstacle to sustainable economic development (Arminfo,
February 17).
The World Bank, in particular, believes that a stronger rule of law is
critical for diversifying the landlocked country's economy and making
it less vulnerable to future crises. Visiting Yerevan in October 2009,
the bank's managing director, Ngozi Okonjo-Iweala, bluntly warned that
Armenia cannot attain a higher level of development as long as the
most lucrative sectors of its economy are controlled by a handful of
government-linked businessmen and other `oligopolistic structures.'
She also called for a sweeping reform of tax administration, the
creation of a `strong and independent judicial system,' and a tougher
fight against government corruption (www.armenialiberty.org, October
19).
Armenia's reformist Prime Minister Tigran Sargsyan subsequently
publicly acknowledged the existence of `oligopolies and a low level of
competition in the economy' and pledged to do his utmost to remedy
the situation (Armenian Public Television, November 18,
2009). However, he has yet to follow up with any meaningful action.
The Armenian government is only raising more questions about the
seriousness of Sargsyan's reform agenda with a continuing crackdown on
Khachatur Sukiasian, a wealthy opposition-linked businessman, and his
extended family. Last December, the government completed a highly
controversial confiscation of the Bjni mineral water plant belonging
to Sukiasian's SIL Concern resulting from its refusal to pay hefty
fines imposed by tax authorities. Bjni and several other SIL Concern
firms were raided by tax officials and accused of tax evasion shortly
after the tycoon voiced support for opposition leader Levon
Ter-Petrosian in September 2007. The Sukiasian family rejected the
charges as politically motivated.
Earlier this month, the Armenian police briefly detained
Sukiasian's younger brother Saribek before charging him with
intimidating a fellow entrepreneur. Officials from the London-based
European Bank for Reconstruction of Development (EBRD), which holds a
minority stake in an Armenian commercial bank controlled by the
Sukiasians, expressed serious concern about the case on February 16.
`We are glad that Mr. Sukiasian has been released, but that does not
improve the image of Armenia,' Valery Razlogov, the Head of the
EBRD's Yerevan office, warned at a news conference, adding: `Nor does
it strengthen the business environment here' (Aravot, February 17).
The Jamestown Foundation
Eurasia Daily Monitor Volume: 7 Issue: 38
February 25, 2010 04:16 PM
Category: Eurasia Daily Monitor, Home Page, Economics, Armenia
By: Emil Danielyan
World
Bank Managing Director Ngozi Okonjo-Iweala (right) with Armenian Prime
Minister Tigran Sargsyan in October, 2009 at the opening of the bank's
Yerevan office. (Photolur)
Armenia appears to be emerging from its first economic downturn in
over 15 years, which was triggered by the global financial crisis. The
latest macroeconomic data released by authorities in Yerevan suggests
that its unfolding economic recovery may well surpass government
expectations for this year.
After a decade of robust growth, the Armenian economy contracted by as
much as 14.4 percent in 2009 -one of the sharpest declines in GDP
registered in the former Soviet Union. Economists blamed it on a
slump in construction (a key driving force in the previous growth),
international prices of base metals (the country's number one export
product) and multimillion-dollar remittances from Armenians working
abroad and in recession-hit Russia in particular.
The Armenian government scrambled to alleviate the consequences of the
recession with heavy borrowing from Russia, the International Monetary
Fund (IMF), the World Bank and other international lending
institutions. It secured some $1.3 billion in anti-crisis loans, which
nearly doubled the country's foreign debt by the end of 2009. A large
part of those funds was used to offset a serious shortfall in tax
revenues and thereby prevent major cuts in government spending on
social and other programs. The government has also been using such
loans to shore up the national currency (the dram), finance
infrastructure projects, improve small and medium-sized enterprises'
access to credit and provide direct financial assistance to mining and
construction firms. These anti-crisis measures have clearly not proven
sufficient to avert a decline in living standards in the
country. According to a World Bank report published in November 2009,
the proportion of Armenians living below the official poverty line
rose to 28.4 percent in the second quarter of 2009 from 25.6 percent
registered during the same period of 2008. `These developments are a
setback for Armenia after a decade of nearly double-digit growth -
and reduction in poverty from 56.1 percent in 1998-1999 to 23.5
percent in [late] 2008,' said the report (Kapital, November 18,
2010).
Nonetheless, Armenian Finance Minister Tigran Davtian claimed
afterwards that Armenia is coming out of the recession with minimal
losses. On February 22, the Trade and Economic Development Minister
Nerses Yeritsian declared that the economic crisis was over. `I want
to assure you that we have come out of that crisis well,' he told
journalists (www.armenialiberty.org, February 22).
Yeritsian pointed to official statistics that show the Armenian
economy grew by 2.4 percent year on year in January 2010, despite a
continuing downturn in the construction sector, which has been hit
hardest by the recession. According to the National Statistical
Service (NSS, www.armstat.am), Armenian economic growth returned
primarily because of a 6.5 percent rise in industrial output. The
manufacturing sector seems to have been significantly boosted by the
strong rally in recent months in the prices of copper and other
non-ferrous metals.
Armenian authorities and the IMF forecast late last year that GDP will
grow by only 1.2 percent in 2010. Mark Lewis, the head of an IMF
mission to Armenia, said the full-year growth rate should exceed 2
percent as he ended a two-week visit to Yerevan on February 17. He
reaffirmed the IMF's positive assessment of the authorities' handling
of the crisis and said the mission will recommend that the IMF board
disburses the next $74 million tranche of a $827 million stand-by loan
for Armenia approved in March 2009 (Arminfo, February 17).
`The authorities have successfully implemented a broad range of
policies to address the macroeconomic challenges in 2009 - and
macroeconomic policies are on track,' read a separate statement issued
by the IMF. The statement at the same time stressed the need for
`Ccontinued structural reforms' and `additional efforts to increase
competition' in Armenia. That was a clear reference to the country's
flawed business environment, which Western donors have long regarded
as a key obstacle to sustainable economic development (Arminfo,
February 17).
The World Bank, in particular, believes that a stronger rule of law is
critical for diversifying the landlocked country's economy and making
it less vulnerable to future crises. Visiting Yerevan in October 2009,
the bank's managing director, Ngozi Okonjo-Iweala, bluntly warned that
Armenia cannot attain a higher level of development as long as the
most lucrative sectors of its economy are controlled by a handful of
government-linked businessmen and other `oligopolistic structures.'
She also called for a sweeping reform of tax administration, the
creation of a `strong and independent judicial system,' and a tougher
fight against government corruption (www.armenialiberty.org, October
19).
Armenia's reformist Prime Minister Tigran Sargsyan subsequently
publicly acknowledged the existence of `oligopolies and a low level of
competition in the economy' and pledged to do his utmost to remedy
the situation (Armenian Public Television, November 18,
2009). However, he has yet to follow up with any meaningful action.
The Armenian government is only raising more questions about the
seriousness of Sargsyan's reform agenda with a continuing crackdown on
Khachatur Sukiasian, a wealthy opposition-linked businessman, and his
extended family. Last December, the government completed a highly
controversial confiscation of the Bjni mineral water plant belonging
to Sukiasian's SIL Concern resulting from its refusal to pay hefty
fines imposed by tax authorities. Bjni and several other SIL Concern
firms were raided by tax officials and accused of tax evasion shortly
after the tycoon voiced support for opposition leader Levon
Ter-Petrosian in September 2007. The Sukiasian family rejected the
charges as politically motivated.
Earlier this month, the Armenian police briefly detained
Sukiasian's younger brother Saribek before charging him with
intimidating a fellow entrepreneur. Officials from the London-based
European Bank for Reconstruction of Development (EBRD), which holds a
minority stake in an Armenian commercial bank controlled by the
Sukiasians, expressed serious concern about the case on February 16.
`We are glad that Mr. Sukiasian has been released, but that does not
improve the image of Armenia,' Valery Razlogov, the Head of the
EBRD's Yerevan office, warned at a news conference, adding: `Nor does
it strengthen the business environment here' (Aravot, February 17).
The Jamestown Foundation