SLUMP HITS ARMENIA DESPITE ITS ISOLATION
MARC CHAMPION
Wall Street Journal
19181383.html?mod=googlenews_wsj
May 4 2009
YEREVAN, Armenia — Most countries hammered by the financial crisis
ran into trouble because their banks crumbled, their exports collapsed
or they ran up too much debt.
Armenia, a landlocked nation of three million in the Caucasus, has
a different problem. Fiscally prudent and too isolated to be hit by
early fallout from the crisis, the country is proving there is no haven
from the downturn: The economy has been hit hard as Armenians who live
abroad send less money home. Now, some expatriates are returning and
looking for jobs, presenting new problems for the economy, but also
new possibilities.
Armenia’s banks were too small and local to get caught in the subprime
meltdown, and were banned by regulators from making the risky
foreign-currency loans that have damaged economies across Eastern
Europe. Exports have declined, but they were never a big part of
the economy.
"Here you have an economy that was well-managed with a banking sector
that was not exposed," says Aristomene Varou-dakis, Armenia country
manager for the World Bank. Yet gross domestic product fell 6.1% in the
first quarter from a year earlier, after growing 7% last year, he says.
Samvel Harutyunian is one reason why. Last June, the 37-year-old driver
moved from Yerevan to Moscow, lured by higher pay that he hoped would
give his own family enough to live on and still send some home.
He made good money — around $2,500 a month — selling Turkish clothing
at a market in Moscow’s Sokolniki district, he says, though life
wasn’t easy. He, his wife, Angela, and their two children lived with
her parents and their family — 10 people crammed into a two-bedroom
Moscow apartment.
By September, though, the market in Sokolniki had closed as the
economic crisis and falling oil prices pushed Russian consumers
to close their wallets. Mr. Harutyunian went home, and now works
part-time as a driver for an American family.
Just how many of Armenia’s expats are returning home as their host
countries suffer in the downturn isn’t known, Economy Minister
Nerses Yeritsyan said in an interview. But he expects the number to
be substantial. These returnees will add to unemployment lines and
government social-security bills. Meanwhile, the $2.5 billion-plus
a year in remittances that make up about a fifth of Armenia’s GDP —
up to 80% of them from Russia — are down 25% this year.
The fall in remittances has had a big impact on Armenia’s economy. The
majority of the money went to investment in housing, fueling a
construction bubble that has now burst. Yerevan is filled with
half-finished construction sites.
With low public-debt levels at just 15% of GDP, Armenia has plenty
of room to borrow in response to the crisis, says Mr. Varoudakis. It
is drawing $540 million from the International Monetary Fund, $550
million from the World Bank and an expected $500 million from its
ally Russia. Russian companies control or operate much of Armenia’s
infrastructure, including railways, gas pipelines, a nuclear power
plant and mobile telecoms.
Exports have been hit amid tumbling prices for Armenia’s copper
production. But last year, exports accounted for only about 10% of
Armenia’s GDP, compared with 47% for export-dependent Germany. The
small size of the export sector is mainly a function of politics —
two of Armenia’s borders, with Turkey and Azerbaijan, are closed
because of a continuing territorial dispute over Nagorno-Karabakh,
an ethnic-Armenian enclave in Azerbaijan.
In October, Armenia set up a Ministry of Diaspora modeled after the
Irish government’s diaspora service, among others. About six million
ethnic Armenians are estimated by diaspora organizations to live
abroad. The country is trying to leverage the wealth and experience
of Armenians abroad, says Diaspora Minister Hranush Hakobyan.
The ministry is hosting four conferences this year to bring together
Armenian architects — who met in Yerevan late last month — lawyers,
bankers and doctors — hoping to encourage both investment in the
country and the transfer of technology and knowledge. Among its
goals: to help turn Armenia into a center of medical services for
the Caucasus region.
"We don’t export so many final-production goods, but we do export
our people," says Mr. Yeritsyan, the economy minister.
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