Armenia: Time to Change the Pace
Armenia has made great progress since independence – thanks to the
efforts of successive governments. Long gone are the days of severe
energy shortages, high inflation and persistent economic contraction.
Gone are the days when Armenians could not find what they needed in
shops, or lost their savings in banks. Gone, too, are the recent days
when some believed the global crisis would cripple Armenia’s economy
for years. Now, a new government is inheriting a growing economy that
provides better-paying jobs, better infrastructure, and stable prices,
a country with a wide variety of products and services, and a sound
financial system for saving and borrowing.
Nevertheless, the new government will also face significant
challenges, as unemployment, poverty, and emigration are still too
high. Armenians are renowned as well-educated and entrepreneurial, and
have done very well in other countries where they have emigrated. This
success abroad raises a key question: what could be done better at
home, so that more Armenians can do very well inside Armenia?
Armenia’s isolated geographical situation represents a critical
handicap, especially given the small domestic market. Overcoming this
must be a priority. Geography can’t be changed, but its effects can be
mitigated: history has shown repeatedly that geography and geopolitics
do not condemn countries to economic mediocrity. Armenia’s isolation
demands better policies: free trade agreements, infrastructure
upgrades, an improved aviation framework, and further diplomatic
efforts to establish ties with neighbors are all part of the needed
mix.
Armenia has come a long way in carrying out reforms that other
successful transition countries have undertaken. Inefficient state
firms have long been privatized, guaranteeing better services and more
reasonable prices. Costly and inefficient subsidies have been
eliminated, and targeted protections for the most vulnerable put in
place. Foreign trade has been liberalized: consumers have access to
inexpensive and varied goods and services, and producers have access
to materials for further processing and production in Armenia.
Well-managed monetary policy has helped to keep inflation low. Fiscal
policy has helped stabilize the economy when Armenia has confronted
shocks, and public debt is sustainable. Pension reforms will support
the dignity of old age in Armenia while reducing fiscal risks
associated with pension spending. New legislation has helped to grow a
functioning market economy.
However, the agenda is not yet finished. Further, ambitious measures
are needed to support private investment as the primary engine of
economic growth. In particular, more needs to be done to protect
investors’ rights to have a fair chance to earn profits. It is still
common for well-connected parties to have privileged market position,
or for profits to be wrongfully lost. Until a more decisive approach
and proper incentives for risk-taking are well established, there will
not be enough investment, jobs, or hope in Armenia’s future.
Also, the state needs to be more effective. It lacks sufficient
resources to materially improve services like health, education, roads
and energy generation. The government needs to do more to collect
taxes: some, such as excises, are low by international comparison, and
tax collections from some firms and sectors are also too low. The
government also needs to do more to ensure that its spending is
efficient, transparent, and gets to the right places. It also needs to
continue to ensure that public resources are not used to rescue
private firms that have been poorly managed.
A new government, with fresh political capital and a horizon free of
elections, needs to take action to advance this agenda. We think the
gradualist approach has run its course. Unless changes are deep and
swift, the positive results that Armenians desire will also be gradual
in coming, if they come at all. Decisive changes, made quickly and
comprehensively, should persuade Armenians and others abroad that
society rewards those who work hard, think big and take chances, not
those whose best asset is a privileged connection. Armenian workers,
managers, students and pensioners – all Armenians – should perceive that
the game is fair, open and reaching for best solutions for ordinary
Armenians; they should be able to trust that the state is a partner
and not an adversary or a protector of vested interests.
Such dramatic changes don’t come about as a result of passionate
rhetoric, or of slow and incremental policy change; they require a
transformational strategy with clear, irrevocable signs that some
behaviors will not be welcome anymore in Armenian society. And they
can unleash the Armenian people’s full potential.
Armenia can shift gears and speed up the pace to a better future. The
people are ready to fasten their seat belts. Now it’s time for the
government to act.
Mark Horton, IMF Mission Chief to Armenia
Guillermo Tolosa, IMF Resident Representative in Armenia
12:41 15/05/2013
Story from Lragir.am News:
http://www.lragir.am/index/eng/0/economy/view/29884