Eurasianet Organization
June 28 2004
NEW ARMENIAN ECONOMIC PLAN TARGETS POVERTY
Haroutiun Khachatrian: 6/28/04
As Armenia’s economy continues to post record growth, the government
has announced an ambitious campaign to tackle the poverty that has
marred living conditions in the country since the collapse of the
Soviet Union. The government’s change in tactics comes as the
opposition continues to campaign for the removal of President Robert
Kocharian from office.
For the past few years, Armenia has had one of the best performing
economies in the former Soviet Union. Annual economic growth has
averaged over 10 percent. Price liberalization and privatization
programs and the accession of Armenia to the World Trade Organization
in 2003 have all contributed to the surge. Foreign direct investment
has increased by 74.5 percent since 2003, according to the National
Statistics Service, with much of that coming from the far-flung
Armenian Diaspora. Last year, the European Bank for Reconstruction
and Development cited Armenia as the most likely candidate among the
former Soviet Union for accession to the European Union.
But while Armenia’s economic reform program has won raves from
international finance institutions, the benefits have not been
equally shared. Nearly half of Armenia’s population of roughly 3.2
million people lives beneath the poverty line. A slight increase in
unemployment in 2003 gave Armenia a 10.1 percent jobless rate,
according to government data, and annual per capita income is less
than $600. Only half of Yerevan’s residents have running water 24
hours per day, and electricity and phone service are sporadic at
best. Outside the Armenian capital, infrastructure has crumbled still
further since Soviet times with barely functional roads, derelict
schools and a battered health care system.
“The government has a good national perspective. But they seem to
have problems persuading outsiders that the same kind of reforms are
needed outside Yerevan,” said the International Monetary Fund’s
Armenia representative, James McHugh.
With the announcement that the World Bank, Armenia’s largest
creditor, will focus its future assistance to the country on poverty
reduction efforts, that scenario could be set to change. The Bank is
expected to extend $250 million for work on rural schools, roads and
irrigation by November 2004, Finance and Economy Minister Vartan
Khachatrian told journalists earlier this month. The funds come on
top of an additional $35 million in Bank funds for support of
Armenia’s public utilities, agricultural sector and civil service.
Announcing the program, Kahchatrian declared that the structural
reforms necessitated by Armenia’s transition to a free market economy
were “almost complete,” prompting the government to focus instead on
a 12-year plan for slashing poverty levels. Since 1993, Armenia has
received more than $1 billion in loans from international financial
institutions and foreign governments for currency stabilization,
privatization, earthquake reconstruction projects and support for
such high-priority economic sectors as energy, agriculture and
transportation.
The government also hopes to secure additional funds from the US
Millennium Challenge Account (MCA) program for rural revitalization
schemes similar to those targeted by the World Bank. Prime Minister
Andranik Markarian told reporters on June 16 that Armenia would
present a series of proposed projects ranging from school
construction to repair of irrigation networks and roads to the MCA
for approval by the end of July. Under the MCA financing rules,
participant countries must do their own evaluations of funding needs
and detail how they would spend any received aid. Armenian government
estimates for funds to be requested have ranged from $500 million to
$700 million, with some $100 million expected for 2004. Approval for
the funds is subject to MCA countries’ progress on democratic reform
and defense of human rights.
Securing these funds could prove increasingly important for President
Robert Kocharian’s government if Armenia’s political opposition gains
broader popular support. A harsh government crackdown in mid-April on
street protests in Yerevan that called for Kocharian’s resignation
has slashed attendance at the rallies, but the opposition shows
little sign of giving up its struggle. On June 21, Viktor Dallakian,
a leader of the opposition alliance Artarutiun, told RFE/RL that the
group was considering a national petition drive for Kocharian’s
removal from office.
While the government in Yerevan has displayed little consternation at
such threats, it is quick to point out the economic successes of its
reform programs to international organizations as a counter-balance
to criticism of its human rights record.
Government forecasts put expected annual GDP growth for 2005 – 2007
at 6-7 percent. That is a significant slow-down from 2003, when
Armenia’s economy grew by 13.9 percent, but still higher than
Armenia’s neighbor – and growing competitor for international
assistance – Georgia, which registered only 5 percent economic growth
in 2003. Reflecting the slower growth rate, inflation is expected to
hold steady at around 3 percent, according to government figures.
But some representatives of international finance organizations
caution that economic reforms in Armenia are far from complete. Among
the tasks targeted by the International Monetary Fund is an overhaul
of the tax system, including the elimination of so-called presumptive
taxes, which target mostly cash-based businesses, such as consumer
services, and do not reflect the actual income of the taxpayer. “Of
course, we do not expect that due to this program Armenia will become
a really European economy with a modern tax system,” said the IMF’s
Armenia representative James McHugh, “but we are confident that it
will take a major step in the direction of eliminating ad hoc taxes.”
For now, political discussions on Armenia’s economic reform strategy
are largely limited to the government’s policy statements. The
opposition has focused on removing Robert Kocharian from office
rather than arguing for an alternative economic reform plan. Hrant
Bagratian, the former prime minister largely credited with
jumpstarting Armenia’s economic reform process in the 1990s, is among
the few people criticizing the government’s poverty reduction vision.
In a June 16 interview with the daily/weekly Noyan Tapan, Bagratian
termed premature Khachatrian’s statement that structural economic
reforms are now complete. Instead, Bagratian targeted the national
pension system, judicial system and the management of state-run
companies as among the areas still left untouched by reform.
Meanwhile, despite glowing marks for Armenia’s economic reform
programs, the country’s search for international assistance is facing
increased competition from neighbor Georgia, where an ambitious
anti-corruption campaign recently brought in $1 billion from
international donors, including the European Union. In a June 15
article, EU officials told Radio Free Europe/Radio Liberty that,
despite Armenia’s inclusion in a program designed to bolster regional
trade ties, the country’s attractiveness for additional aid programs
has been marred by its ongoing dispute with Azerbaijan over the
disputed enclave of Nagorno-Karabakh.
Editor’s Note: Haroutiun Khachatrian is a Yerevan-based writer
specializing in economic and political affairs.