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THERE SHOULD BE LESS BIG MONEY AND MORE SMALL LOANS
by David Stepanyan
arminfo
Wednesday, May 11, 19:49
Interview with Tatul Manaseryan, Head of the "Alternative" Research
Center, Doctor of Science, Economics
What is your forecast of Armenia's economy considering its current
state?
Being not the supporter of pessimistic predictions even in case of
the worst scenarios of the economy development, I am sure that the
potential of the Armenian economy development has not been exhausted.
For this reason, even taking into account the present state of the
Armenian economy, I would not make pessimistic predictions regarding
its future. It is especially relevant taking into consideration
the potential of the Armenian Diaspora. I am sure, a more specific
prediction of possible scenarios of our economy development requires
inventory of the economic potential of Armenia and Diaspora. I think
that progress of the economic development of the republic is possible,
and the available resources, first of all the human ones, should be
correctly used for that.
How effective will be Diaspora's financial resources if the owners
of those capitals lack special guaranties such as involvement of
Diaspora representative into the political life of Armenia?
These two factors are more than interrelated. But before speaking
of the political guarantees of the Diaspora, we should first think
about mutual trust between Armenia and Diaspora. Some pre-conditions
are needed for that. Today in Armenia we feel big deficit of
professionalism. In certain circles there is no desire to drive it out
from the deadlock. Professionals appear only when they are in demand,
I say it as a professor. But in Armenia people enter the university
just to get a diploma but not knowledge, as they don't know where to
use the knowledge. In the government they are well aware of that. For
this reason, they can find the needed funds if they want to resolve
this problem. I think we have to start just from that.
On April 8 President of Armenia declared that any innovative production
set up in the country and contributing to import-substitution will
get tax privileges such as exemption of profit tax for 3-4 years,
grace period for VAT and others. How real is it?
Anyway, like an economist, I can just welcome the president's statement
about the necessity to grant some economic entities a remission of
taxation. I hope very much that in the near future it will affect
our laws, which will make it possible to implement it in fact.
Being the author of the project on creation of free economic zones
in Armenia, which was submitted to the government 15 years ago,
I should say that if there are no tax privileges, no individual
will be interested in our economy development. I mean first of all
our highland and border regions, where there are problems with the
infrastructure and others. That's why such a statement may positively
affect business-atmosphere even in the moral sense.
At the same time I am well aware that international financial
organizations and the IMF, first of all, will come out against
introduction of such privileges in the republic. But it is very much
important that creation of such an atmosphere stimulates development
of the real sector of economy, which will make it possible to get
profits which will be later taxed.
IMF Resident Representative in Armenia Guillermo Tolosa has lately
called inexpedient provision of tax privileges to IT-enterprise no
to face new risks in fulfillment of the fiscal plan which is already
at a low level in Armenia. Isn't IMF interested in development of
competitive sector in Armenia?
I don't think so. However, I do not think either that we have taken
any serious attempts to present the true situation of the Armenian
economy to financial organizations. It is necessary to explain
to international financial experts that like loan providers they
themselves are concerned about development of the Armenian economy.
That is paradoxical, but over the last 20 years we had no normal
minister responsible for economy, which would explain the core of such
programmes to our western partners. This is first of all our fault,
but not that of the IMF or the WB.
Over the last years the government seemed to have successfully
fulfilled at least its external lending commitments. However, today's
state of economy, in particular, small and medium-sized business,
does not allow the guarantor of these loans - the government - to
fulfill those commitments, does it?
It is important that, first of all, unlike the cabinet of ministers
President Serzh Sargsyan is aware of that fact though he is not an
economist. The recipes of economy regulation offered by the West are
rather outdated. It is paradoxical that these recipes are inefficient
even for the countries that offer them. I think we have already
approached the hot point when the country's total debt reaches 50%
of GDP. The "father" of economic security Academician Glazyev says
that if the external and internal debts reach 25% each, half of the
GDP will be used to serve the external debt, which threatens to the
country's national security.
It seems to me strange that everyone in Armenia speaks of possible
growth of the external debt to 50% of GDP and prefers not speaking
of the internal debt. Armenia tripled the external debt over the last
year. As of Jan 1 2009 the external debt totaled 1.5 bln dollars and
reached 4.5 bln dollars till late 2010. Nevertheless, there are no
results in the country. It is not clear what those borrowing were
spent on. The results from the effective use of these funds were to
help usserve the external debt, but this is not felt so far. It is
not so important how much we borrow as what we spend on. There is
absolutely no information what those billions were spent on. The
government permanently provided loans to some companies, but there
were no billions.
Debates related efficiency of inflation restriction by monetary methods
continue in Armenia. Nevertheless, inflation increases. What do you
think about the CB's monetary policy?
I am severe about many elements of the Central Bank's policy. However,
one should be fair. Let's suppose that the Central Bank wages the
most efficient monetary policy amid such side effects as monopoly,
oligopoly and others that determine the real price-making.
What can the CB do with such prices? It is evident that someone tries
to conceal the real situation in economy and finance and dump the
difficulties on the Central Bank. However, everyone is well aware
that no monetary policy is able to stop inflation in such conditions.
I think that the tax and customs bodies, the State Commission for
Economic Competition do not properly fulfill their functions.
Therefore, it is not fair laying the whole burden on the Central Bank.
It is not a secret either that "cheap" national currency boosts
export. However, in the case of Armenia it will not happen because
import-substituting policy does not mean an automatic stimulation
of export. These are two different things. No one in Armenia has
understood yet the importance of regulating foreign economic ties. I
have written an exception report to the president and the government
wherein I highlight the necessity of setting up a state structure to
regulate foreign economic ties. Open economy having ties with national
economies of other countries is a necessity. Armenia has not even a
concept of organizing these ties.
We have arrived at the everlasting question. Is it possible to limit
the economy monopolization in the country in conditions of the monopoly
"knitted" with the authorities?
It is evident that someone tries to conceal the real situation in
economy and finance and dump the difficulties on the Central Bank.
However, everyone is well aware that no monetary policy is able to
stop inflation in condition of oligarchic economy.
The president suggested preferential lending of the agrarian sector,
serious reform of the economy sector and hinted at return to the real
rate of the national dram. Are these traditional half-way measures
to reanimate economy or the authorities have already understood that
it is too little too late?
We will keep on taking half-way measures for economy recovery until
the government stops imitating teeming activity and starts really
working. Those in ministerial seats fail to carry out the elementary
directives adopted in 2008. This government has implemented not a
single provision of the president's pre-election program. Therefore,
the president should not ask, the way he has recently done, but
demand the results from the economy minister, for instance, who has
been failing the finance sphere for two years. You should have a
full idea of what you do and what resources you have got, but our
ministers have no idea of this.
It is necessary to carry out detailed inventory of all resources of
Armenia. For instance, none of the science and education ministers has
ever paid attention to the number of unemployed, who have graduated
from the universities at the expense of the state. As a professor,
I deliver lectures and train future unemployed; moreover, I do this
at the expense of the state. This is nonsense, and the responsible
officials should count how many specialists the state really needs,
and not screw around.
It is necessary to carry out inventory of the natural resources,
estimate the mineral resources, finance and industry. Only after that
one can understand what competitive advantages based on the available
resources Armenia will have and what the country wants from the
international organizations, Diaspora, etc. Only after a comparison
we will have the real program of economic development. The ingenious
is always simple, and no formulae or models of Western countries
will help Armenia. All this has not been done over the 20 years of
independence, because our officials prefer pretending to work rather
than really working.
The president has recently suggested inherently burdening the
commercial banks with preferential lending to the agrarian sector.
Are Armenian banks having surplus liquidity able to promote the
agrarian or any other sector that is deteriorating first of all
because of the government's incompetence?
The agrarian sector financing is just a method of saving the country
from drowning. The question how to do that is still open. I do not
compare Armenia with the EU or USA. I compare it, for instance,
with Kazakhstan, a country we have much to learn from. The agrarian
sector is being industrialized in Kazakhstan. That country wages a
real innovative policy and promotes SME. It sets a specific task to
increase the share of SME in GDP by the specific period of time. I am
ready to support any of the Armenian president's latest initiatives,
but the president cannot modernize the entire economy alone. I have
no idea what our economists do. In addition, the agrarian sector needs
not only big bank loans but also micro-crediting, which is effectively
practiced in many countries in the CIS, including in Russia. Thus,
there are less big money and more smalls-size loans. This is what we
should lay emphasis on.
In the agricultural sector these loans can be successfully disbursed
only when the government makes sure what particularly must be developed
in Armenia first of all. The matter is not the number of the issued
loans, for banks do not lend their own funds for such purposes.
They use resources raised by the government from other countries and
financial organizations. As regards the agrarian sector, commercial
banks have to come out as agents of the government which has the
right to define the rules of the game.
It is inadmissible, for instance, to get a loan for instance from KfW
at symbolic 0.75% and allow banks to on-lend at 24%. I think that if
return of loans faces a risk, not commercial banks but the government
will be responsible for that. That is, making no charity commercial
banks must lend on conditions acceptable for the government. For
instance, at 10% maximum interest and have profits and make these
long money perform.
All this sound good, but is it possible in conditions when the Central
Bank's refinancing rate fluctuates at some 8.5%?
In Russia the accounting rate was temporarily increased and then
reduced again. Increase of the refinancing rate helps waging a policy
of sterilization of money the regulating body takes out of circulation
to restrain inflation rates. However, the Central Bank is unable to
control inflation independently given the extra-monopolization of
the domestic market and economy of Armenia in general.
by David Stepanyan
arminfo
Wednesday, May 11, 19:49
Interview with Tatul Manaseryan, Head of the "Alternative" Research
Center, Doctor of Science, Economics
What is your forecast of Armenia's economy considering its current
state?
Being not the supporter of pessimistic predictions even in case of
the worst scenarios of the economy development, I am sure that the
potential of the Armenian economy development has not been exhausted.
For this reason, even taking into account the present state of the
Armenian economy, I would not make pessimistic predictions regarding
its future. It is especially relevant taking into consideration
the potential of the Armenian Diaspora. I am sure, a more specific
prediction of possible scenarios of our economy development requires
inventory of the economic potential of Armenia and Diaspora. I think
that progress of the economic development of the republic is possible,
and the available resources, first of all the human ones, should be
correctly used for that.
How effective will be Diaspora's financial resources if the owners
of those capitals lack special guaranties such as involvement of
Diaspora representative into the political life of Armenia?
These two factors are more than interrelated. But before speaking
of the political guarantees of the Diaspora, we should first think
about mutual trust between Armenia and Diaspora. Some pre-conditions
are needed for that. Today in Armenia we feel big deficit of
professionalism. In certain circles there is no desire to drive it out
from the deadlock. Professionals appear only when they are in demand,
I say it as a professor. But in Armenia people enter the university
just to get a diploma but not knowledge, as they don't know where to
use the knowledge. In the government they are well aware of that. For
this reason, they can find the needed funds if they want to resolve
this problem. I think we have to start just from that.
On April 8 President of Armenia declared that any innovative production
set up in the country and contributing to import-substitution will
get tax privileges such as exemption of profit tax for 3-4 years,
grace period for VAT and others. How real is it?
Anyway, like an economist, I can just welcome the president's statement
about the necessity to grant some economic entities a remission of
taxation. I hope very much that in the near future it will affect
our laws, which will make it possible to implement it in fact.
Being the author of the project on creation of free economic zones
in Armenia, which was submitted to the government 15 years ago,
I should say that if there are no tax privileges, no individual
will be interested in our economy development. I mean first of all
our highland and border regions, where there are problems with the
infrastructure and others. That's why such a statement may positively
affect business-atmosphere even in the moral sense.
At the same time I am well aware that international financial
organizations and the IMF, first of all, will come out against
introduction of such privileges in the republic. But it is very much
important that creation of such an atmosphere stimulates development
of the real sector of economy, which will make it possible to get
profits which will be later taxed.
IMF Resident Representative in Armenia Guillermo Tolosa has lately
called inexpedient provision of tax privileges to IT-enterprise no
to face new risks in fulfillment of the fiscal plan which is already
at a low level in Armenia. Isn't IMF interested in development of
competitive sector in Armenia?
I don't think so. However, I do not think either that we have taken
any serious attempts to present the true situation of the Armenian
economy to financial organizations. It is necessary to explain
to international financial experts that like loan providers they
themselves are concerned about development of the Armenian economy.
That is paradoxical, but over the last 20 years we had no normal
minister responsible for economy, which would explain the core of such
programmes to our western partners. This is first of all our fault,
but not that of the IMF or the WB.
Over the last years the government seemed to have successfully
fulfilled at least its external lending commitments. However, today's
state of economy, in particular, small and medium-sized business,
does not allow the guarantor of these loans - the government - to
fulfill those commitments, does it?
It is important that, first of all, unlike the cabinet of ministers
President Serzh Sargsyan is aware of that fact though he is not an
economist. The recipes of economy regulation offered by the West are
rather outdated. It is paradoxical that these recipes are inefficient
even for the countries that offer them. I think we have already
approached the hot point when the country's total debt reaches 50%
of GDP. The "father" of economic security Academician Glazyev says
that if the external and internal debts reach 25% each, half of the
GDP will be used to serve the external debt, which threatens to the
country's national security.
It seems to me strange that everyone in Armenia speaks of possible
growth of the external debt to 50% of GDP and prefers not speaking
of the internal debt. Armenia tripled the external debt over the last
year. As of Jan 1 2009 the external debt totaled 1.5 bln dollars and
reached 4.5 bln dollars till late 2010. Nevertheless, there are no
results in the country. It is not clear what those borrowing were
spent on. The results from the effective use of these funds were to
help usserve the external debt, but this is not felt so far. It is
not so important how much we borrow as what we spend on. There is
absolutely no information what those billions were spent on. The
government permanently provided loans to some companies, but there
were no billions.
Debates related efficiency of inflation restriction by monetary methods
continue in Armenia. Nevertheless, inflation increases. What do you
think about the CB's monetary policy?
I am severe about many elements of the Central Bank's policy. However,
one should be fair. Let's suppose that the Central Bank wages the
most efficient monetary policy amid such side effects as monopoly,
oligopoly and others that determine the real price-making.
What can the CB do with such prices? It is evident that someone tries
to conceal the real situation in economy and finance and dump the
difficulties on the Central Bank. However, everyone is well aware
that no monetary policy is able to stop inflation in such conditions.
I think that the tax and customs bodies, the State Commission for
Economic Competition do not properly fulfill their functions.
Therefore, it is not fair laying the whole burden on the Central Bank.
It is not a secret either that "cheap" national currency boosts
export. However, in the case of Armenia it will not happen because
import-substituting policy does not mean an automatic stimulation
of export. These are two different things. No one in Armenia has
understood yet the importance of regulating foreign economic ties. I
have written an exception report to the president and the government
wherein I highlight the necessity of setting up a state structure to
regulate foreign economic ties. Open economy having ties with national
economies of other countries is a necessity. Armenia has not even a
concept of organizing these ties.
We have arrived at the everlasting question. Is it possible to limit
the economy monopolization in the country in conditions of the monopoly
"knitted" with the authorities?
It is evident that someone tries to conceal the real situation in
economy and finance and dump the difficulties on the Central Bank.
However, everyone is well aware that no monetary policy is able to
stop inflation in condition of oligarchic economy.
The president suggested preferential lending of the agrarian sector,
serious reform of the economy sector and hinted at return to the real
rate of the national dram. Are these traditional half-way measures
to reanimate economy or the authorities have already understood that
it is too little too late?
We will keep on taking half-way measures for economy recovery until
the government stops imitating teeming activity and starts really
working. Those in ministerial seats fail to carry out the elementary
directives adopted in 2008. This government has implemented not a
single provision of the president's pre-election program. Therefore,
the president should not ask, the way he has recently done, but
demand the results from the economy minister, for instance, who has
been failing the finance sphere for two years. You should have a
full idea of what you do and what resources you have got, but our
ministers have no idea of this.
It is necessary to carry out detailed inventory of all resources of
Armenia. For instance, none of the science and education ministers has
ever paid attention to the number of unemployed, who have graduated
from the universities at the expense of the state. As a professor,
I deliver lectures and train future unemployed; moreover, I do this
at the expense of the state. This is nonsense, and the responsible
officials should count how many specialists the state really needs,
and not screw around.
It is necessary to carry out inventory of the natural resources,
estimate the mineral resources, finance and industry. Only after that
one can understand what competitive advantages based on the available
resources Armenia will have and what the country wants from the
international organizations, Diaspora, etc. Only after a comparison
we will have the real program of economic development. The ingenious
is always simple, and no formulae or models of Western countries
will help Armenia. All this has not been done over the 20 years of
independence, because our officials prefer pretending to work rather
than really working.
The president has recently suggested inherently burdening the
commercial banks with preferential lending to the agrarian sector.
Are Armenian banks having surplus liquidity able to promote the
agrarian or any other sector that is deteriorating first of all
because of the government's incompetence?
The agrarian sector financing is just a method of saving the country
from drowning. The question how to do that is still open. I do not
compare Armenia with the EU or USA. I compare it, for instance,
with Kazakhstan, a country we have much to learn from. The agrarian
sector is being industrialized in Kazakhstan. That country wages a
real innovative policy and promotes SME. It sets a specific task to
increase the share of SME in GDP by the specific period of time. I am
ready to support any of the Armenian president's latest initiatives,
but the president cannot modernize the entire economy alone. I have
no idea what our economists do. In addition, the agrarian sector needs
not only big bank loans but also micro-crediting, which is effectively
practiced in many countries in the CIS, including in Russia. Thus,
there are less big money and more smalls-size loans. This is what we
should lay emphasis on.
In the agricultural sector these loans can be successfully disbursed
only when the government makes sure what particularly must be developed
in Armenia first of all. The matter is not the number of the issued
loans, for banks do not lend their own funds for such purposes.
They use resources raised by the government from other countries and
financial organizations. As regards the agrarian sector, commercial
banks have to come out as agents of the government which has the
right to define the rules of the game.
It is inadmissible, for instance, to get a loan for instance from KfW
at symbolic 0.75% and allow banks to on-lend at 24%. I think that if
return of loans faces a risk, not commercial banks but the government
will be responsible for that. That is, making no charity commercial
banks must lend on conditions acceptable for the government. For
instance, at 10% maximum interest and have profits and make these
long money perform.
All this sound good, but is it possible in conditions when the Central
Bank's refinancing rate fluctuates at some 8.5%?
In Russia the accounting rate was temporarily increased and then
reduced again. Increase of the refinancing rate helps waging a policy
of sterilization of money the regulating body takes out of circulation
to restrain inflation rates. However, the Central Bank is unable to
control inflation independently given the extra-monopolization of
the domestic market and economy of Armenia in general.