Vestnik Kavkaza, Russia
Aug 13 2012
Armenia needs a massive loan
Author: Susanna Petrosyan, Yerevan, exclusively to VK
This year, positive trends began to appear in the Armenian economy.
According to official figures, in the first six months of the year the
economic growth amounted to 7.8%, industrial growth – to 13%, growth
in agriculture – to 8.1%, and growth in services – to 12%. The index
of economic activity grew by 7.4% in January-May 2012 compared to same
period last year and appeared to be higher than projected.
Let us note that economic growth of 4.2% and inflation of 4.5% are
planned in the state budget for 2012. The current rates are certainly
better than during the so-called crisis in 2010 and 2011, not to
mention the year of 2009, when the fall in GDP was recorded at 14%. In
2010 and 2011, respectively, the growth rates of about 2.6% and 4.5%
were recorded. The inflation rate has also decreased; in 2010 and
early 2011 it reached a record of 8-10%. According to the recorded
rates, inflation for January-July this year, compared to the same
period last year, was 2.2%, and the monthly rate in July was a
deflation of 1.5%.
“According to our estimates, this year the inflation rate by the end
of the year will be recorded at slightly less than 4% if any other
developments do not occur in the world market”, – Vache Gabrielian,
Minister of Finance, said.
For the first time in the last two years, the decline in prices of
1.5% is registered in the consumer market of Armenia in July. Food
prices fell by 2.8%, the prices of non-food products – by 0.4%, the
tariffs for services – by 0.1%. According to the National Statistical
Service of Armenia, during 2010-2011, consumer prices in Armenia
increased by more than 10%. There are increases of prices of almost
everything: food, beverages, cigarettes, fuel, and services. In 2011,
the food went up by 11.5%.
Tigran Davtyan, Minister of Economy, assured that Armenia’s economic
rates recorded in the first half of this year are positive and inspire
hope that this positive trend will continue until the end of the year.
Despite this positive trend, however, many shortcomings of the
Armenian economy continue to expose it to `corrosion’.
There is still a considerable difference between the volumes of
exports and imports in favor of the latter. However, the government
has promised to restore the industrial potential in order to increase
exports, but money for this will come to the state budget only in
2013. As part of the implementation of this idea, the Government
approved the strategy of export-oriented industrial policy.
More than 50%, and according to some reports, more than 70% of the
economy remains in the “shadow”: external transfers to individuals
grew by 8.7%. Meanwhile, according to some experts, the transfers are
another serious problem of the Armenian economy, which allows keeping
the demand at a high level and causes the development of monopolies,
to the detriment of small and medium businesses.
Another big problem is the outflow of capital from Armenia. “Capital
flight is much more serious threat to the economy than the problem of
small and medium-sized businesses. The exported capital could be used
for the benefit of our economy. In calculating the amount of capital
flight, there are certain difficulties. According to my calculations,
this figure is close to the volume of transfers, that is, to 1 billion
U.S. dollars “, – Tatul Manaseryan, the head of the research center
“Alternative”, Doctor of Economics, says.
It is possible that the presence of these and other problems has
caused the fact that the Armenian leadership is seeking a new loan.
Today in Armenia, one of the most actively discussed topics, besides
the intention of “Gazprom” to raise gas prices for Armenia, is the
information about the attempts of the Armenian government to raise new
loans amounting to one billion dollars. However, the information is
not officially confirmed, but it is also not disproved.
Director of the Caucasus Institute Alexander Iskandaryan believes that
Armenia feels “investment hunger”: “Since 2008, that is, with the
beginning of the economic crisis in Armenia, the country has a lot of
problems with money, that is, with the money that can cause the
development of the economy. Accordingly, unless a loan is granted, the
ratio of government debt to GDP in Armenia will increase. ”
“The negative balance of payments is growing. The statements of export
growth are lies, as well as the statements about the growth of GDP,
because you can publish all sorts of data, taking into consideration
the CTP and health insurance of the officials; there is not any real
growth, it’s just a soap bubble. The official declarations that the
ratio of external debt to GDP is about 40% are also not true. Today,
Armenia’s foreign debt amounts to 7.3 billion dollars, i. e. more than
70% of GDP. And if Armenia does not find significant financial
resources, it will be in the position of Greece as early as in 2013 “,
– Grant Bagratyan, the former prime minister (1992-1996), Doctor of
Economics, says.
According to him, the loan of $ 1 billion will delay the Greek
scenario in Armenia for two years, that is default in Armenia will not
occur in 2013, but, for example, in 2015. “Armenia should not rely on
a loan at all. It is only necessary to stop the export of capital
carried out by Armenian oligarchs. We do not need loans. Armenia is
insolvent. Our state is a bankrupt, but capital is still exported from
this state, and this should be seriously considered,” – the former
prime minister says.
According to some reports, the negotiations for a loan of the
before-mentioned amount have been held between Yerevan and Moscow for
several months. Yerevan has urgently appealed for help to Moscow,
after the refuse of the European Union to provide financial aid to
Armenia. In May, EU officials said that the EU will consider the
request after the Armenian presidential elections scheduled for
February 2013.
The loan which is the subject of the negotiations is not privileged.
This is a loan with a floating interest rate which is quite close to
the interest rates of commercial loans. On the other hand, on the
basis of the foregoing, the Government of Armenia is forced to obtain
these funds in order to stabilize the economy and to avoid a possible
next round of social tensions on the eve of presidential elections; it
could become a serious obstacle for the authorities to ensure the
desired outcome of the vote for them. This proves once again that the
majority of the processes taking place in Armenia in economic,
environmental or social field are related to the policy; in this case
the issue is related to the upcoming presidential election.
Probably today few people care about the questions about the terms of
the returning of the loan and about the servicing of the loan even of
half a billion dollars, taking into account its volume equal to half
the state budget, is a considerable additional burden on the budget
and a major obstacle to economic development of the country. The
position of Russia remains unclear; it is not known when and if it
would provide loans to Armenia.
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