IMF completes 5th review under PRGF for Armenia… (press release), Spain
May 4 2004

IMF Completes Fifth Review Under PRGF for the Republic of Armenia,
Approves Request for Extension of the Arrangement Through December

The Executive Board of the International Monetary Fund (IMF) today
completed the fifth review of the Republic of Armenia’s economic
performance under a three-year Poverty Reduction and Growth Facility
(PRGF) arrangement, and approved a request for the extension of the
arrangement by seven months to December 31, 2004. The completion of
the review enables Armenia to draw an amount equivalent to SDR 10
million (about US$15 million).

Armenia’s PRGF arrangement for the equivalent of SDR 69 million
(about US$100 million) was approved on May 21, 2001 (see Press
Release No. 01/25). So far, the equivalent of SDR 50 million (about
US$73 million) have been disbursed.

The PRGF is the IMF’s concessional facility for low-income countries.
PRGF-supported programs are based on country-owned poverty reduction
strategies adopted in a participatory process involving civil society
and development partners, and articulated in a Poverty Reduction
Strategy Paper, or PRSP. This is intended to ensure that each
PRGF-supported program is consistent with a comprehensive framework
for macroeconomic, structural, and social policies, to foster growth
and reduce poverty. PRGF loans carry an annual interest rate of 0.5
percent, and are repayable over 10 years with a 5 ½-year grace period
on principal payments.

Following the Executive Board discussion, Agustín Carstens, Deputy
Managing Director and Acting Chair, said:

“The Armenian authorities should be commended for the satisfactory
implementation of macroeconomic policies and structural measures
under the PRGF-supported program. These policies have contributed to
an improved business environment and a strong economic performance in

“Raising revenues and reforming tax and customs administration remain
critical objectives in the period immediately ahead. The recent
reduction in VAT exemptions and reform of the profit tax are welcomed
steps in this regard, but further efforts are needed to improve the
tax system and generate resources for poverty reduction. In
particular, it will be important to improve the transparency of tax
and customs operations, ensure the equal treatment of taxpayers, and
implement risk-based audit systems. Additional steps are needed in
the medium term to strengthen the overall coherence of the tax system
and the management of the tax and customs agencies.

“Recent increases in bread and utility prices pose the risk of
rekindling inflationary expectations, and the central bank will need
to maintain a tight monetary policy to bring inflation down to its
goal of 3 percent by end-2004. To further develop Armenia’s financial
system, it will be important to build capacity and promote sound
corporate governance in the banking system, and strengthen the legal
framework and the judiciary.

“The recent process of fiscal decentralization has the potential to
improve the quality and efficiency of services delivered by
state-owned noncommercial organizations in the health, water, and
education sectors. Complementary capacity building initiatives and a
properly functioning reporting framework remain essential to ensure
transparency and accountability in the operations of these entities.

“Other structural reforms will be important to sustain growth and
reduce poverty in the medium term. The anti-corruption strategy needs
to be implemented forcefully and in consultation with civil society.
The authorities are encouraged to move forward with their plans to
reform the energy and water sectors, including establishing market
rules for electricity trading, and liquidating the state-owned
company Armenergo,” Mr. Carstens said.

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