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armenia

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  ARMENIA

REPUBLICAN REFERENCE

Area (sq.km)
29,800

Population
3,336,100

Principal ethnic groups
Armenian 93.3%
Azeri 2.6%
Russian 2%

Capital
Yerevan

Currency
Dram

President
Robert Kocharian

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Background:
An Orthodox Christian country, Armenia was incorporated into Russia in 1828 and the USSR in 1920. Armenian leaders remain preoccupied by the long conflict with Azerbaijan over Nagorno-Karabakh, a primarily Armenian-populated exclave, assigned to Soviet Azerbaijan in the 1920s by Moscow. Armenia and Azerbaijan began fighting over the exclave in 1988; the struggle escalated after both countries attained independence from the Soviet Union in 1991. By May 1994, when a cease-fire took hold, Armenian forces held not only Nagorno-Karabakh but also a significant portion of Azerbaijan proper. The economies of both sides have been hurt by their inability to make substantial progress toward a peaceful resolution. 

Update No: 263 - (26/11/02)

The Armenian economy is booming, but at a slightly lower rate than forecast, namely at 7.2% this year, with 3% inflation.

IMF and World Bank to the fore
As a result of the boom, tax returns are rising rapidly, by 14% in 2002 and a prospective 13% in 2002-03. This has removed the objection to the disbursement of an IMF US$91m Poverty Reduction and Growth Facility (PRGF) credit. An additional US26m has been released.
The IMF has welcomed "some positive results" of recent government policies, exercised by Premier Andranik Markarian's cabinet in reform of governance, taxation and public utilities.
"The recent measures taken to improve the fiscal position and the performance of the energy sector and the formulation of an ambitious official economic programme for 2002-03 are especially welcome," IMF's Deputy Managing Director Eduardo Aninat, was quoted as saying. "Strong performance under the programme will be essential to address the key economic challenges facing Armenia and mobilise support for a successful poverty reduction strategy," he continued.
He also welcomed Armenia's relatively strong macroeconomic performance and continuing "sound monetary and exchange rate policies." Finance and Economy Minister Vartan Khachatrian said recently that increased revenues would reduce the government's dependence on external budgetary borrowing and allow it to bring the budget deficit down to 2.6% of gross domestic product in 2003.
The World Bank is also being supportive. The new Director of the South Caucasus Country Union in the World Bank's Europe and Central Asia Region, Dowett Coirolo, has made a visit to Armenia to familiarise herself with the problems of its economy. She met President Robert Kocharyan and noted that the World Bank is playing an important role in the reform process. Joint projects are under way.
She also met Premier Markarian and discussed the implementation of reforms and poverty reduction programmes, as well as the campaign against corruption. The state budget for 2003 will allow for a rise in social payments and salaries of public employees, who are inclined to go in for individual poverty reduction programmes of their own via backhanders.
The sale of power utilities to an inexperienced purchaser in recent weeks is regarded as a "fishy" deal by one diplomat. Tenders for public assets tend to have an absurdly truncated window for competition of a fortnight of so. The Armenian Electricity Network was the facility in question, being sold to a British Channel Islands-based firm, Midland Resources Holdings, which has little or no experience in the energy field and was the only foreign company to bid.
The deal puts a cloud over the fate of nearly US$40m in additional loans promised to Armenia by the World Bank.

Negotiations with Azerbaijan on hold
Both Armenia and Azerbaijan face presidential elections in 2003, in Armenia's case early in the year. The pre-election period is not a good one for negotiations over Nagorno-Karabakh, as Azeri President Keydar Aliyev acknowledged to his French interlocutor in the peace process, French Foreign Ministry Secretary-General Renaud Muselier, in Baku in October: "Our work on this issue might slow down," he told him.
It would certainly be in both sides interests to resume talks in late 2003. Armenia is especially burdened by the trade embargo by Azerbaijan and Turkey, costing it US$180m or so per annum in lost trade. 

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AVIATION

Armenian airlines concludes new agreement with KLM

The chief manager of the national carrier Armenian Airlines (AA), Arsen Avetisian, was recently in Amsterdam to sign an agreement with one of the leading Dutch air companies, KLM, on registration and providing services to Armenian Airlines' transit passengers, Armenpress News Agency has reported.
The press office of the Armenian Airlines said a passenger, bound from Yerevan to any corner of the world via Amsterdam, may continue his or her way by registering only once in the Armenian capital.
Another agreement between Armenian Airlines and Dutch KLM and North West companies on special tariffs for AA was prolonged. The parties also agreed that Armenian Airlines would pay its outstanding debts to Amsterdam airport through its Amsterdam-based agent.
Arsen Avetisian was also said to have met with representatives of several Dutch travel agencies to make arrangements for fostering arrival of tourists from Benelux countries to Armenia next summer. Armenian Airlines is set to start operating regular Yerevan-Amsterdam flights beginning from December 1st by A-320 airbus.

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ENERGY

US is not against Iran-Armenia gas pipeline 

The USA is not applying pressure to prevent the construction of the Iran-Armenia gas pipeline, the press secretary of the Armenian Foreign Ministry, Dzyunik Agadzhanyan said, Mediamax News Agency has reported.
Replying to questions from the Iravunk paper, Agadzhanyan said that "some time ago the USA was actually against the implementation of this project."
However, in her words, the US side subsequently accepted Armenia's arguments that the construction of the Iran-Armenia gas pipeline should be understood within the context of maintaining Armenia's energy security.

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FINANCIAL NEWS

Izmirlian Foundation reaffirms decision to commit US$2m for Armenian SME

The Izmirlian Foundation (IF) has reaffirmed its decision to offer direct medium and long-term financing to Armenian small and medium-sized enterprises (SMEs) as a joint co-financier in cooperation with the Black Sea Trade and Development Bank (BSTDB), Armenpress News Agency has reported.
The technical assistance will be provided by the Netherlands Management Cooperation. The Izmirlian Foundation and the BSTDB will each commit a US$2m credit through a "BSTDB-IF SME Credit Line Control Unit," to be established in Armenia with the special purpose of administering credit lines to local SMEs.
The project constitutes the BSTDB's first investment in Armenia and will contribute to the development of the SME sector, which is a prime operational focus of BSTDB in Armenia.
The IF has already been active in the SME sector in Armenia for several years. The loan facility aims to support SMEs in their effort to improve quality of work and production capacity that would create greater business opportunities and boost economic initiative in such important sectors as manufacturing, services, transportation and food processing. Offering technical assistance of high expertise and sharing best operational practice will also have a sound impact on investment climate in Armenia.
The Izmirlian Foundation is a philanthropic organisation created in 1994 to assist Armenian communities worldwide with an emphasis on needs existing in Armenia. It has contributed generously to various projects in Armenia in the fields of education and health. In 1999 it launched, together with Eurasia Foundation, a loan programme for SME business enterprises in Armenia.

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FOOD & DRINK

Creation of Areni wine producers association

Some 10 Armenian wineries, which all produce the famous Areni brand have expressed a strong interest in setting up an Association of Areni Producers to seek a government decision that will establish, either by a decision or a law, standards for production of that wine type, New Europe has reported.
Head of Vedi Alco Co, the biggest producer of Areni, Manvel Ghazarian, emphasised that the new association's key goal would be to protect the interest of consumers. According to Armenpress, the company's head stressed that the local market is filled with forged Areni wines.
Ghazarain also said that the US Department of Agriculture (USDA) Marketing Assistance Project has pledged assistance to found the Association. Vedi Alco produces one million bottles of wine annually and eight million bottles of strong alcoholic drinks, mainly vodka, in the same period.

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FOREIGN LOANS

World Bank delays US$20m credit to Armenia 

The World Bank will not make the first US$20m disbursement of the Fifth Structural Adjustment Credit (SAC V) to Armenia this year as earlier planned for "technical reasons," Armenia's Finance and Economy Minister Vardan Khachatryan told reporters on 1st November, Prime-TASS News Agency has reported.
The receipt of the US$40m SAC V credit, split into two equal tranches, is factored in the country's 2003 budget, Khachatryan said.
He went on to say that a World Bank delegation is now in Armenia to hold talks with the government regarding the disbursement of a "floating" SAC IV tranche and the first SAC V disbursement. The minister said the World Bank was expected to make the final decision on the "floating" tranche shortly. 
Armenia received the first US$14,377,000 disbursement of the SAC IV credit in June 2001. The second US$15m tranche was disbursed in January 2002.
Armenia joined the World Bank in 1992. Since then the World Bank has provided US$697.15m to Armenia for 28 programmes.

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MINERALS & METALS

Metallurgical plant in Kapan set for privatisation 

A state-run ore mining and processing plant in the southern town of Kapan has been standing idle since late October after its 700 workers went on strike demanding their delayed wages for several months. Though the plant's chief manager has promised to pay two months wages soon, the workers would not resume work, Armenpress News Agency has reported.
Governor of Syunik province, Edik Barseghian, argues that the only way out is to privatise the plant. Armenian finance and economy minister, Vartan Khachatrian, is said to have assured the governor in a telephone conversation that the plant would be sold to a private company before the end of November. Workers will be paid their delayed wages from the raised proceeds.
Deputy trade and economic development minister, Ashot Shahnazarian, voiced the same viewpoint when meeting recently with the workers.

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