ARKA News Agency – Exclusive Interview
March 14 2005
T.SARGSYAN: GOVERNMENT SHOULD IMPLEMENT AMBITIOUS PROGRAMS ON ECONOMY
REFORMATION
Exclusive interview of Tigran SARGSYAN, Chair of the Central Bank of
Armenia, to ARKA News Agency.
ARKA- Mr. Sargsyan, I’d like to congratulate you on your reelection
as head of the Central Bank of Armenia. What the Bank has managed to
do for past seven years of your staying in office?
T.Sargsyan- We has managed to recover bank system, create new market
infrastructures and lessen inflation. Considering this aspect,
Armenia is reckoned the country achieving the best result in the
frames of International Monetary Fund. Macroeconomic stability has
also been reached and bank crises avoided. New instruments for
consumers – plastic cards, micro-credits and consumer credits – have
been put into operation as well.
ARKA- What has not been done for the same period?
T.Sargsyan- Effective contacts between bank service and real economy
have failed to be established. We haven’t managed to lessen
dollarization and ensure rapid growth of the country’s financial
resources accumulation in financial institutions, to implement
hypothecary reform, to establish normal relations with media outlets,
i.e. with the people conveying information from those realizing
policy to this policy consumers. Mentality is also failed to be
changed because of above-mentioned processes.
ARKA- What is the most important failure? In particular, why
effective mechanism of ties with the media has not been created?
T.Sargsyan-This is rather political issue, as it is important what
reforms are being implemented in Armenia and what is public
perception of them, are there leaders in economic area supporting
ideas of forming financial and economic system and what is mass media
and public reaction to these reforms. To implement these reforms, not
only a clear realization of what you want and not only will are
needed, but also supporters. It is remarkable that the essence of
economic reforms is that the number of supporters should increase at
each stage. This indicators show success or failure of the reforms,
as the essence of the reforms on transition to market relations is in
ensuring of citizens involvement in economic processes. If we fail to
ensure that, they’ll become bitter enemies to these reforms and will
demand to restore the old system, where they hadn’t make economic
decisions and take care of their own future and everything can be
demanded from the government. The key problem is that we have no
clear leaders today supporting economic and financial reforms, and
there is no public support for these reforms. This is a serious
problem. Today’s democratic institutions are being used by political
activists for harvesting favors from their constituents instead of
being used to disseminate advanced ideas. As a result, they are
behind of people, not ahead of them. Cheap populism is increasingly
becoming widespread and pushing our country back, instead of moving
ahead. This is fundamental and conceptual problem we faced today. As
a result, reforms implementation problem is pushed to one side and
the media doesn’t engage in that. It became clear after analysis that
financial and economic press is also using populist methods
presenting only criticism of what is being done. There are absolutely
no articles having clear stance on what needs to be done, how it to
be done and indications of decision-makers’ mistakes in the press. If
so, professionals won’t appear in media outlets, as there is no
demand for them. On the other hand, the people writing populist
articles are in demand today. It hobbles reforms and our country’s
movement forward.
ARKA- Where is the way out of this situation? Does CB set any
objective in this area?
T.Sargsyan- First of all, the way out is in ambitious programs on
reforming economy. The community has to realize that there are such
ambitious programs aimed at involving people in the economic programs
to be implemented in Armenia. These reforms should enable everyone to
make economic decisions, to determine its economic welfare and plan
own future independently. That’s essence. If we accumulate critical
potential necessary in this sphere, it would be a guarantee of our
success. How to achieve that? That’s the main problem, and
professional researchers-journalists writing about financial economic
reforms should be concerned about that. They should highlight such
issues. What the CB done in this direction? We have organized courses
on providing economic knowledge to the journalists highlighting
economic issues. We have held a series of meetings with the media
representatives, to know their stance and the problems concerning
them and, in turn, present them the CB position. This is very
important moment, which will get three time greater attention and
resources than before to give proper impetuses to the society and
receive adequate reaction.
ARKA- What will be the CB objectives for the next seven years?
T.Sargsyan- First of all, ambitious programs focused on the republic
financial system reformation. We will be ahead of all other
transition-period countries on paces of financial system reformation.
That will guarantee the country economic prosperity, as Armenia isn’t
rich in natural resources, has no other capacity but intellectual, on
which it can orient. And what for intellectual capacity, it can be
completely realized only in the event of intensification of all the
processes in reformation area. The goals we set are to speed up
ambitious programs implementation and increase their volumes. These
programs implementation envisages intensification of fundament on our
country’s macroeconomic stability. We have to ensure low inflation
and, at the same time, favorable environment for economic growth.
When we say economic growth, we mean the economy oriented on people’s
intellectual capacity, not the country industrialization. The second
direction is the country’s financial stability. A new concept of
financial stability is planned to be put into practice in the CB. New
parameters will be applied in conducting monitoring and regulating
financial stability. It means the parameters to be taken into account
for stability estimation go out of the bank system frames. At the
same time, it is planned to conduct other economic indicators
monitoring and regulate them at macroeconomic level using the levers
the CB possesses. And the third direction is to make closer ties with
real sectors. The CB will publish ratings of economic activeness and
citizens’ economic expectations, which, as a whole, will show
`temperature’ in economy. We’ll complete this work by the end of the
year and economic activeness index will be published for the first
time. We will conduct ratings of the enterprises wanting to use the
instruments offered by the CB and commercial banks for analysis and
to discover opportunities in real sector as well as estimation of
risks and spurring the enterprises transparent functioning. Those
enterprises having the CB rating will be given access to cheap credit
resources and other kind of money attraction. The next direction is
intensification of reforming the hypothec credit area, primary market
development stimulation, credits standardization in primary market
and secondary market development stimulation. Hypothec crediting
contains consider capacity for stable economic growth. Along with
that, intensification of work on pension reforms and applying new
approaches on turning to accumulative pension system, when private
accumulative funds will operate in our market, are planning.
Transition to accumulative system also contains capacity for stable
economic growth. Another direction is corporative papers work in the
market. One of major faults of our financial market is lack of
corporative precious papers market, because we have no corporations,
no open joint stock companies, and this problem should be solved as
soon as possible. We are behind these processes, which are going on
in real sector. That’s why financial system is becoming very
vulnerable and risky. Besides, there is no insurance market in
Armenia. The World Bank and International Monetary Fund mission that
was in Armenia last week recorded in its report that the republic’s
insurance market is one of the smallest insurance markets in the
world. Normal correlation among money, currency and capital markets
will be ensured. If these markets won’t conform to real sector
requirements, it will inevitably lead to crisis while grounds for
crisis are laid here. It is obvious that risks emerging in financial,
insurance and capital markets are interconnected. That’s why a common
approach is needed to gauge these risks as well as common methods of
their estimation and regulation and common risk supervising body. It
is also necessary to think about Armenia’s regional development.
There are many serious disproportions in it hobbling the republic’s
economic growth and posing threat for stable economic growth. The
government will work out its financial development regional program.
It is necessary to adopt programs stimulating crediting in border and
mountainous regions and decentralization financial flows from
Yerevan. It means development of infrastructures in regions will
speed up and expenses transactions and operations connected with
services in regions will lessen and, as a result, interest and
credits rates will lessen as well. Summarizing that, I can say that
the state should ensure macroeconomic stability, create effective
protection of property rights and contracts execution as well as to
provide effective state services and implement ambitious programs,
stimulating sustainable economic growth.
ARKA- Does it means that the CB will become the main economic
institution in the country for coming seven years, as all the
objectives and areas you mentioned go out of bank system boundaries?
T.Sargsyan – I’d like to note that above-mentioned programs were in
the CB focus for previous years and we have already put forward quite
ambitious projects on these issues, including pension and hypothec
reforms, and on Armenian financial sector development prospects. This
work will be continued as it doesn’t beyond our authority. Besides
ensuring low inflation, we are also responsible for the country’s
financial stability. Taking into account the lack of proper
infrastructures, it is clear that financial stability is under threat
now and the Bank can face criticism because of failure to inform
about that in time and make due proposals despite of being the state
financial agent. As the state financial agent, we are now working out
proper concepts and proposals and presenting them for discussions.
The work will be continued.
ARKA- Will the total capital normative increased for banks
functioning in Armenia?
T.Sargsyan – The Central Bank does not consider increase of
requirements on minimal amount of the capital as end in itself. It
means we should move forward taking into consideration to what
economic consequences our any decision leads. At this stage,
management corporative culture planting in commercial banks is a
principal issue to us. We intends to come up with legislative
initiatives this year and submit a package to the government wit
description of steps to be taken to bring to life concept of
corporative management in Armenia and, first of all, at commercial
banks. The fate of capitalization requirements enlargement issue will
depend on how much we`ll accomplish in the culture implantation and
on consequences of that. Corporative management concept is considered
a top-priority issue at this stage. It is envisaged that the concept
logic contains rational element – if banks work on corporative
principles, they are opened for the community and for new investors
and if the corporative system starts functioning, the banks become
more transparent and conflict between interests of owners and those
of mercenary professional management appears as well as interest to
bank capital rises thanks to attraction of new investors. This will
help banks to have comparative advantages in competitive environment.
ARKA- Are banks ready to adopt the corporative management concept?
T.Sargsyan – We have already reached consensus on the majority of the
issues. There is still some discord on two or three points, but this
is a normal thing, at it is impossible to have unanimous opinion on
all points.
ARKA note: Armenian National Assembly reelected Tigran Sargsyan as
CBA Chairman for the second seven-year term on March 2, 2005. As many
as 92 MPs participated in the vote, of which 86 cast their vote for
his candidacy. Tigran Sargsyan was born on January 29, 1960 in
Kirovakan (at present Vanadzor), Armenia. From 1980 to 1983 he
attended Leningrad’s Financial and Economic Institute after
Voznesenski. From 1983-1987 – postgraduate education ended in
obtaining PhD degree. From 1987 to 1990 worked as the Chief of
Department for Foreign Economic Relations of Scientific Researches
Institute of Economic Planning in Armenia. From 1988-1993 worked at
the post of Chairman of republican Council of Young Specialists and
Scientists. From 1990 to 1995 – a member of Supreme Council of the
Republic of Armenia and the Chair of Standing Commission for
Financial, Credit and Budget Affairs. From 1995 to 1998 – Director of
Scientific Researches Institute of Social Reforms. From 1995 to 1998
– the Chairman of Armenian Banks Association. Since March 3, 1998,
Sargsyan has occupied the post of CBA Chairman. Non-partisan.
Married. Has two children. M.V.–0–