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  • "Armenia enters the turmoil of loans"

    "Armenia enters the turmoil of loans"

    April 3 2015


    Year in and year out, Armenia is "buried" in debts. Armenia's foreign
    debt has reached 3.7 billion dollars. The government has again issued
    500 million dollar euro bonds, at 7.5%. This, in fact, is a new debt,
    part of which will be directed at repayment of a part of 700 million
    dollars loan received again through Eurobonds in 2013, and the other
    part will be directed to filling in the gap of the tax funds not
    collected in the budget. "Aravot" asked the World Bank Country Manager
    in Armenia Laura E. Bailey about how she will estimate the policy of
    the Government of Armenia, according to which, a new debt is involved
    to repay a part of the earlier debt, and whether Armenia's foreign
    debt is in the dangerous threshold. "You know what, the question about
    which is the general acceptable level of Armenia's foreign debt, it is
    not associated with numbers, but a matter of proportion, the
    proportion of this external debt is associated with general economic
    activity, in other words, a debt-to-GDP (gross domestic product)
    ratio. The matter is as follows: what for this debt money is used. Are
    these funds used to boost production and incomes and get out of the
    current difficult economic situation?" so commented Ms. Bailey to our
    question. As for the Eurobonds, Ms. Bailey said, "I personally do not
    have any opinion related to Eurobonds. We are working with the
    government in the framework of this comprehensive general program when
    it comes to funding loans and grants. The problem is as follows: on
    what the government will use the amounts for the debt received from
    Eurobonds or any other source. They use the Eurobonds for 2 purposes -
    apart of the loan will be used to pay off the former debts, and the
    other part will be used to fill the fiscal gap that will emerge this
    year due to weakened economy." When there are no means to service the
    debts, the economic growth is slowed down, as noted by the economists,
    the government has to issue bonds, of which the money received is
    directed at paying off the debt. Prior to asking our question to Ms.
    Bailey, regarding the projection of Armenia's economic growth, she
    told that it is revised. "Armenia's economic growth will be very,
    very, very little. It is possible to have a positive tendency - 0.8%.
    This positive tendency of 0.8% can become negative if significant
    shocks occur." The World Bank Country Manager in Armenia has said that
    possible shocks may occur as a result of downturn of general economic
    situation in Russia and Europe, but the greater part of effect of
    upheavals may occur due to downturn of Russia's economy. Again
    referring to the issuance of Eurobonds and disposition of the funds
    received from it, Ms. Bailey said to "Aravot," "I will allow that the
    Central Bank and the International Monetary Fund, who would discuss
    these issues with the government, focus on this issue so that they
    would turn their attention to this very issue. Anyway, we can say that
    the funds received from the Eurobonds are very important to be used in
    two ways: to stimulate economic activity in the country and to provide
    the revenues received from the sale of these bonds to assist the
    poorest and vulnerable segments of the population." In the interview
    with "Aravot", economic-affairs Commentator of "Haykakan Zhamanak"
    newspaper, Hayk Grigoryan, said that the government has issued and
    distributed 500 million dollars of Eurobonds, and contextually, it
    meant taking a loan. This 7.5% of loan, according to Gevorgyan, is one
    of Armenia's involved most expensive loan, if not the most expensive.
    "It is noteworthy that the percent of the loan taken in 2013 was 6.25
    percent. So, it turns out that we have taken a loan of 7.5% to pay off
    a part of the 6.25 per cent loan. This no way can be considered an
    effective use of the loan. We are simply entering a loan turmoil. That
    is to say we are getting to take more and more expensive loans to pay
    of the former cheaper loans." Gevorgyan also noted that the size of
    the debt is not a problem, the problem is in its use. "If this will
    result in technological boom in Armenia, then the size is not a
    problem, including the percentage, but our debts taken are simply
    evaporating. I will bring the Europe as an example, where the gas
    price is 2-3 times higher, but the cost of tomatoes grown in the
    greenhouse is twice cheaper than in Armenia". Hayk Grigoryan expressed
    concern that the funds received from the Eurobonds will be spent by
    the government in a way that a few years later we will have to take a
    new, more expensive loan to pay off this one. "If the government
    reduces senseless and huge expenses, the need to attract external debt
    will decrease significantly. And generally, should our government work
    efficiently, Armenia's economy would be much more advanced."


    Nelly BABAYAN
    http: http://en.aravot.am/2015/04/03/169580/



    From: Emil Lazarian | Ararat NewsPress
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