Armenia’s new plan: an economic revolution or empty promises?

OC Media
March 2 2019

On 8 February, Armenian Prime Minister Nikol Pashinyan intro­duced the government’s ‘rev­o­lu­tion­ary economic programme’. The programme promised to create ‘radical economic growth’, but critics say it lacks substance, putting too much emphasis on the actions of the public.

On 14 February, the ‘rev­o­lu­tion­ary’ programme extolled by Pashinyan was adopted by Par­lia­ment in an 88-40 vote.

In his speech to Par­lia­ment, Pashinyan empha­sised the main points of the programme, with a focus on national unity and civil sol­i­dar­i­ty in addition to a public rejection of cor­rup­tion.

He also discussed the sep­a­ra­tion of politics from business, and the creation of favourable busi­ness­es con­di­tions, which would be achieved by steps such as elim­i­nat­ing arti­fi­cial monop­o­lies.

The five-year programme consists of seven pro­vi­sions, from improving the armed forces to strength­en­ing foreign policy, each with their own subpoints. Pro­vi­sions 4 and 5 provide the framework for the proposed economic rev­o­lu­tion.

Provision 4 addresses the government’s plan to eliminate cor­rup­tion. According to the text, ‘fighting cor­rup­tion is one of the key pri­or­i­ties of the gov­ern­ment. In that fight, the gov­ern­ment will be unyield­ing and intol­er­ant’.

The provision goes on to state that a pre­req­ui­site to ending cor­rup­tion is the estab­lish­ment of an inde­pen­dent judiciary that would exclude cor­rup­tion among judges. This system would not only be able to monitor cor­rup­tion in the state, but also examine cases related to cor­rup­tion.

Provision 5 elab­o­rates that the state and government’s role is to make the lives of the people better and create more favourable con­di­tions for their happiness. To this end, it says people should be more engaged in public life, via the economy, and be certain that they have a realistic oppor­tu­ni­ty to make changes.

A sub-point of this provision expands on this topic, stating that there is no leg­isla­tive obstacle in Armenia to solving inequal­i­ty. It is up to the government’s assertive­ness and political will to come up with a solution to this problem.

Since being unveiled, the programme has come under fire for its lack of concrete numbers and timelines, and for passing the buck to regular people.

Derenik Malkhasyan, a political com­men­ta­tor at Politica.am, told OC Media that Armenians expect the programme to improve their socio-economic situation. He said people want the gov­ern­ment programme to explain what positive changes will take place ‘in their lives, pockets, and refrig­er­a­tors’ — and when. In this respect, he said the programme cannot be called ‘rev­o­lu­tion­ary’, because as of yet, nothing has actually changed in people’s lives.

With the expec­ta­tion being that the gov­ern­ment would take charge, Malkhasyan said that many people ‘were taken aback’ by the idea that it would be up to them to create an economic rev­o­lu­tion by actively engaging in public life.

Nikol Pashinyan, who led the peaceful rev­o­lu­tion that toppled the gov­ern­ment of the Repub­li­can Party of Armenia, is now proposing an ‘economic rev­o­lu­tion’ in the country (Mari Nikuradze/OC Media)

According to him, a better precedent is the Georgian model, where former President Mikheil Saakashvili attracted invest­ments by effec­tive­ly managing tax priv­i­leges, elim­i­nat­ing business related red-tape, and by devel­op­ing infra­struc­ture.

Pashinyan’s gov­ern­ment, on the other hand, has argued that the Armenian public will bring about economic rev­o­lu­tion through the same unity that made a political rev­o­lu­tion a reality. As he said in his statement to Par­lia­ment on 14 February, ‘indi­vid­ual trans­for­ma­tion is a crucial factor for public trans­for­ma­tion’.

Hayk Konjoryan, an MP from Pashinya’s My Step bloc, denied claims that the gov­ern­ment was holding citizens primarily respon­si­ble for an economic rev­o­lu­tion. He cited Pashinyan as saying ‘the gov­ern­ment is respon­si­ble for taking steps one, two, three, four, and all the way to 100’ to reach the fore­cast­ed end — an economic rev­o­lu­tion in this case. Citizens would only be respon­si­ble for what comes after, he insisted.

According to Konjoryan, in the past, people were forced to believe they could not do anything and that their vote would not change anything. Now, it is the other way around, he said. The Prime Minister said that ‘the country and its power belong to its people and they should have a say’, Konjoryan explained.

The oppo­si­tion, the Bright Armenia and Pros­per­ous Armenia parties, hold a different view. They have vig­or­ous­ly crit­i­cised the programme for having no structure, for not meeting the chal­lenges the country faces, be they economic or social, and for not outlining mech­a­nisms and timelines to achieve any targets.

Bright Armenia MP Gevorg Gorgisyan said in a debate that they had not seen any targeted steps towards the objec­tives so far. According to him, the programme does not outline any steps, such as a framework for citizens to start busi­ness­es.

‘Abstract concepts do not make an economic rev­o­lu­tion’, Gorgisyan said during the debate. According to him, citizens expect ‘concrete actions’, which require political will, resis­tance, and knowledge.

Provision 5.1 of the government’s programme states that one of the key factors hindering Armenia’s devel­op­ment has been an absence of fairness, man­i­fest­ed in the existence and impunity of a priv­i­leged class. To fix this issue, the gov­ern­ment expressed a will to ensure a fair and trans­par­ent business envi­ron­ment.

Pashinyan’s proposals include easing the ‘unbear­able loan loads’ on agri­cul­tur­al workers and requiring shops to print cash receipts. However, these policies do not affect everyone equally.

Smbat (not his real name) has run a small shop in downtown Yerevan for close to 15 years. He knows all of his main customers by face, and therefore, has rarely printed cash receipts.

‘If I expose all my turnover, I will even­tu­al­ly end up with nothing,’ he told OC Media.

Smbat ques­tioned why the gov­ern­ment did not start enacting this policy for big busi­ness­es. According to him, once he sees measures being taken towards forcing ‘the sharks’ to follow the law, he will be ‘first’ to expose his actual turnover and pay all his taxes accord­ing­ly.

Until then, Smbat says that if the gov­ern­ment is ‘dishonest’ they should ‘not expect us to be honest,’ adding that ‘selective equality is not a good thing’.

Smbat has also ques­tioned how small busi­ness­es are expected to expand when interest rates for loans have ‘hit the ceiling’ and are now unrea­son­ably high. According to him, if any small busi­ness­es want to grow — he himself wants to be a super­mar­ket owner one day — they need a large amount of capital that can only be granted through loans.

He said favourable business con­di­tions are only becoming more favourable for those who had already had an advantage in the first place, once again, big busi­ness­es.

‘How can they expect someone like me to pay all the crazy taxes, pay employees, repay loans, and still benefit? When they say favourable con­di­tions for someone like me, I auto­mat­i­cal­ly think they will ease the interest rates at least. Instead, it’s going the other way around,’ he told OC Media.

Like Smbat, Khachik, a father of three, hoped to start a business following Pashinyan’s appeals. A Nagorno-Karabakh war veteran, who, as a result of a grenade explosion, was clas­si­fied as having a dis­abil­i­ty. Khachik told OC Media that from the very first day, he supported the rev­o­lu­tion and Pashinyan’s gov­ern­ment.

Thousands came to the streets in April 2018 in support of Pashinyan's ‘Velvet Rev­o­lu­tion’. (Mania Israyelyan / OC Media)

Jubilant crowds cel­e­brat­ed in Yerevan’s Republic Square after Pashinyan’s appoint­ment as PM on 8 May, ending two decades of Repub­li­can Party (Armine Avetisyan /OC Media)

Following Pashinyan’s appeal ‘to come into the forefront and become a taxpayer’, Khachik decided to become an entre­pre­neur and turned down his social welfare pension, around ֏36,000 ($75) per month. ‘I want to work legally, I want to pay taxes and con­tribute to the country’s pros­per­i­ty’, he told OC Media.

Khachik’s first idea was to import tan­ger­ines from Georgia and sell them in the market. However, to his deep dis­ap­point­ment, he found that at the border, fruit smugglers have ‘crooked deals’ that allow them to bypass customs. Therefore, while tan­ger­ines will cost him ֏250 ($0.50) per kilo, the above-mentioned dealers can sell them for ֏150 ($0.30). After learning of this, he gave up the idea and began looking at how to start an agribusi­ness.

In order to start this small-scale project, Khachik needed a loan from the bank. Though he ‘knocked on the doors of all the banks’, he was rejected every­where because he was not a reg­is­tered employee with a stable income that would guarantee he could repay the loan.

‘Indeed, there is no monopoly now, but neither is there a fair and equal envi­ron­ment’, he said, adding that the prime minister has repeat­ed­ly encour­aged regular people to start busi­ness­es and make invest­ments.

Khachik has frozen his business plans for now and is waiting until the law comes ‘to apply to everyone’. He still believes in the new gov­ern­ment, however, and ‘expects changes soon’.

Andranik Tevanyan, director of the Polite­con­o­my Research Institute, a local think-tank, told OC Media that he did not believe the gov­ern­ment programme would bring ‘rev­o­lu­tion­ary GDP growth’.

Political scientist and economist Andranik Tevanyan said the gov­ern­ment wasn't clear on it's GDP growth targets. (Andranik Tevanyan / Facebook)

He said that while bank interest rates were the respon­si­bil­i­ty of the Central Bank, not the gov­ern­ment, there were actions the gov­ern­ment could take to help small busi­ness­es.

Though the gov­ern­ment envisaged a tax exemption for small social enter­pris­es with an annual turnover of less than ֏24 million ($50,000), Tevanyan said this was not enough for most small busi­ness­es. According to him, the gov­ern­ment could create a better envi­ron­ment for business by increas­ing the turnover threshold to ֏150–֏200 million ($300,000–$400,000).

As for what it means to create a ‘favorable envi­ron­ment’, Tevanyan said the phrasing was very vague, and that those who wrote it do not them­selves under­stand what it means.

He added that there are no details or tools and mech­a­nisms as to how they are going to create such an envi­ron­ment. Overall, Tevanyan said the programme was just another wish, with nothing to back it up.

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