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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: 262 - (22/10/02)

Booming economy
The Armenians are experiencing a boom in the economy, not before time. It is almost commensurate with that in its neighbours, Azerbaijan and Georgia. Their economies are growing in almost double figures this year. In Armenia's case GDP was rising by 9.7% year-on-year in the first seven months of 2002.
The role of industrial production was the locomotive here, rising by 11.9% in the same period. The foreign trade sector was given a huge boost, its turnover rising by 15.8% in the same period to US$761.8m, as exports jumped by 41% to US$265.2m and imports rose by 5.8% to US$496.6m, lowering the trade deficit by 55% compared with the same period in 2001 to US$132.3m.

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 a truncated passage 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 Holding, 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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ENERGY

Armenian energy company may export power to Iran 

Independent observers think Iran might be the destination for Armenian electricity, because the acting managing director of the Armenergo closed joint-stock company has been making frequent visits to Iran, Arminfo News Agency has reported.
The total sum of the deal should be US$77.4m, of which the Armenergo company will use US$32m to clear Armenia's debts for fuel for the Armenian Nuclear Station. Another US$6.7m will be used to purchase a new consignment of nuclear fuel. But Armenergo needed guarantees that these funds would be returned, and the government of the republic granted the property of the Sevan-Razdan Cascade as such. Payment is expected by 15th October of the current year, when the Armenian Nuclear Station will be shut down for scheduled preventive maintenance and refuelling.

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FOREIGN LOANS

Britain to allocate £4.5m for development of Armenian regions

The British government is to allocate £4.52m for drawing and implementing a development programme and reforming local bodies of power in the Armenian regions of Tavush and Gegharkunik, east and northeast of Yerevan.
The Armenian government press service told Mediamax News Agency that the British ambassador in Yerevan, Timothy Jones, had given this information at a meeting with Armenian Minister for Coordinating Territorial Administration and Production Infrastructures, Ovik Abramyan.
Ovik Abramyan spoke about his ministry's readiness to provide full assistance for the implementation of this programme.
The programme will be implemented in three stages over 54 months.

IMF gives Armenia US$27m for poverty reduction

The executive council of the International Monetary Fund (IMF) has decided to allocate to Armenia both the second and the third tranches under the Poverty Reduction and Growth Facility [PRGF] programme, Arminfo News Agency learnt from the IMF's Yerevan office. The total amount of both tranches is about 20m SDR (about US$27m). These credits will be transferred to a special account of the Armenian Central Bank in the near future. 
The allocation of the two tranches was expected in September 2001, but in line with the recommendation of the IMF mission, it was postponed because of the low tax collection rate which did not exceed 94 per cent last year. According to the IMF, in the last eight months the rate improved considerably. 
The PRGF credit was allocated to Armenia in May 2001. The total amount is 69m SDR, which is about US$87m. The credit was divided into seven tranches of approximately 10m SDR each, to be transferred every three month. Armenia received the first tranche, 10m SDR (US$12.6m) in June 2001.

Armenian finance minister: US to give US$80m in aid in 2003

The USA will give Armenia US$80m in financial assistance in 2003, Armenian Finance Minister, Vardan Khachatryan, told journalists on 3rd October, Arminfo News Agency has reported.

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FOREIGN ECONOMIC COOPERATION

Armenia sells cement giant to Belgian company

The major producer of cement in the South Caucasus, Ararat Tsement open-type joint-stock company, has been sold to the Belgian Roberto company by directly handing over the controlling package of shares owned by the state (317,003 shares), Arminfo News Agency has reported. Minister for Territorial Administration and Coordinating Production Infrastructures, Ovik Abramyan, has said that the transaction cost US$10m. Of this sum, only US$200,000 has been transferred into a special privatisation account of the government with the Armenian Central Bank. The lion's share - US$9.8m - will be transferred into the account of the Russian Itera oil and gas company to cover the plant's debts for consumed natural gas. A total of US$7.6m will be transferred to Itera accounts soon.
The Armenian government's main condition in the deal struck with the Belgian investor was the obligation to maintain current output. The Armenian Ministry of Trade and Economic Development reports that over the first five months of this year, the plant produced goods worth 948m drams (US$.7m). The capacity of the Ararat cement plant is 1.2m t of cement per year. Experts believe that the growth in capital construction in Armenia will make it possible to increase output by 20-30 per cent annually.

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MINERALS & METALS

Russian Aluminium close to Armenal's full ownership

The Armenian government has given tentative approval to a proposal by Russian Aluminium for the acquisition of 26 per cent of the Armenian-Russian foil plant, Armenal, First Deputy Minister of Trade and economic Development, Ashot Shakhnazaraian told reporters.
He stated that the terms of the deal were being discussed. The Armenian government and Russian Aluminium will then sign an agreement stipulating large investment, the amount of which was not disclosed. After the 26 per cent share package is sold Russian Aluminium will become the sole owner of the enterprise. 

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