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Books on Armenia
REPUBLICAN REFERENCE
Area (sq.km)
29,800
Population
2,991,360
Principal ethnic groups
Armenian 93.3%
Azeri 2.6%
Russian 2%
Capital
Yerevan
Currency
Dram
President
Robert Kocharian
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Update No: 310 - (26/10/06)
Coming to terms with your neighbours
The Armenians are fearful of the fall-out from the crisis in relations between
Georgia and Russia that could destabilize the entire Caucasus. Moscow has
imposed a trade embargo on Georgia that could have devastating effects on its
neighbours.
The Armenians know about that because they have been suffering from a trade
embargo themselves for seventeen years imposed by the Azeris and the Turks as a
result of the war over Nagorno-Karabakh, which they had the cheek to win in the
early 1990s. It has taken them a long time to adapt; in fact they never really
have.
Their economy is still very poor. But at least they haven't fallen out with the
Russians. The Russians will not be depriving them of gas this winter, unlike the
Georgians.
But they really need to do a deal with the Azeris, whose economy is growing by
phenomenal amounts, 35% this year and an estimated 30% next, after 26% growth
last year, on the back of an oil and gas boom. An enormous new market is
emerging on their doorstep from which they are totally excluded.
An opportunity for the successor to President Kocharian
The real drag on negotiations with Baku is President Robert Kocharian, a
hard-liner on the issue of Nagorno-Karabakh, of which he was president during
the war with Azerbaijan in the early 1990s. He is a hard man generally who runs
a tight regime.
He refuses even to contemplate the surrender of the 20% of Azeri territory that
the Armenians occupy, as a result of a war that created one and a half million
Azeri refugees.
There is one gleam of hope - that he is adamant that he will step down in 2008,
when his second term expires. It would be contrary to the constitution for him
to stand for a third term; and he is going to abide by it, conscious no doubt
that Putin is determined to do the same in Russia. Being ruler in a country in
transition is no joke. They are still young enough, in their early fifties, to
look for new fields to conquer, moreover with excellent contacts on the way.
Any successor to Kocharian should consider not just the huge upside of doing a
deal with Baku, but the manifold downside of not doing one. Azeri President
Ilham Aliyev has declared it his intention, if successful negotiations are not
conducted soon, to build up his country's armed forces with the use of some of
its prodigious oil and gas receipts. The Turks would help with training; and
they are a formidable military power, with access to NATO training manuals and
the like. It would be most unwise to discount this threat.
Aliyev has all the confidence that comes from presiding over an economic
miracle, while, only two years into it, he can look forward to many years in his
job, certain of re-election. When the Armenians won last time, they had a lot of
help from the Russians, who were not yet bogged down in Chechnya, whereas the
Azeri economy was a basket-case. Next time it could be very different.
Apart from anything else the Armenians' own economy is in deep trouble. It badly
needs the boost it would be given by the lifting of the embargo. Kocharian, a
military man, doesn't seem to grasp this or doesn't care. It is time to make
peace, not war.
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The following is a most perceptive article on the tribulations of the Armenian
economy, with implications for other economies around the world in trouble from
having too high an exchange-rate:-
Grigor Badalyan: The "Dutch disease" of the Armenian economy:
diagnosis and treatment
The AMD (Armenian currency) appreciation in the last two years has long
ceased to be just a topic of narrowly professional interest: for economists and
economy-related government executives only. Today, it is a topic for all people
in Armenia - from top officials down to shopkeepers. However, collective
brain-storming brings little clarity to the matter: if you read what media write
and listen to what politicians say about the matter, you may get an impression
that what they are talking about is not the specific macroeconomics of a small
country but something from astrology, magic and sorcery.
The most probable reason is that most of the discussants are ignorant of
macroeconomics - be they journalists trying to quickly cope with the subject
they have known nothing about before, or parliamentarians crying about some
global plot and blaming executives, or top government officials appearing at
briefings with the hackneyed monetarist mantras they in the IMF and WB have
successfully used - for many decades already - for hypnotizing the world
community.
Probably, some people think that the present-day Armenian economy is some
anomaly - when statistics keep reporting an economic magic (that's exactly how
they in the world call over 10% GDP growth), while specific people and specific
companies are finding it increasingly hard to make both ends meet.
Diagnosis
However, we see no paradox in all that we see: this situation has long been
scientifically described and can be found in any macroeconomic text-book termed
as "Dutch Disease" - the negative long-term impact a disproportional
explosion in one economy sector has on the other ones. You could see such a
situation in the Netherlands in the 1960s: the active development of oil-gas
deposits on the Northern Sea shelf boosted an explosive growth in fuel exports
and put the other economy sectors - industry, agriculture, tourism - on the
verge of collapse.
Almost the same is going on in the Armenian economy, today: an export-oriented
explosive growth in the industrial sector (let's call it provocateur-sector) is
provoking a mass inflow of currency. Without state interference, the national
currency rate is beginning to grow. As a result, profitability is declining, and
the national producers working outside the provocateur-sector are beginning to
lose their price competitiveness. This situation is hitting not only at the
exporters of finished products but also at the companies selling goods
exclusively inside the country: their products will be gradually replaced by
cheaper counterparts from abroad.
Declining output in processing sectors will logically bring to dropping
budgetary revenues, growing unemployment, stagnating productions, etc..
Only the provocateur-sector companies and importers will benefit from this
situation, but, in the long run, they too would see their profitability curbed
by steadily climbing exchange rate.
That's exactly what we could see in Russia in 1988: a currency corridor policy
made it unprofitable for local oil companies to sell their oil abroad - their
costs in "expensive" RUR were bigger than their profits in US$.
And now, let's look at the Armenian economy and try to draw parallels. In
Armenia the provocateur-sector is construction (all-time high 42% real growth
last year). De facto, this sector is export-oriented as the key buyers are
residents of foreign states who pay for realty in foreign currency.
Besides the autochthonous, "normal" growth in the Diaspora's demand
for realty, there is an additional demand, caused by the war in Lebanon, the
expectations of the US military operation in Iran, the tensions in Georgia and
other factors. Consequently, the Armenians living in those countries are
beginning to increasingly often consider repatriation as a way to ensure their
personal security.
The growing demand for realty is generating big foreign currency inflows, which,
in their turn, are raising the demand for AMD. Since the AMD supply is not
changing, this tendency is inevitably leading to sharp AMD appreciation.
The rest happens according to the above scenario: output declines in all
export-oriented sectors, in agriculture and also in the industries working for
the home market. Today, not only information technologies - proclaimed by the
government as a priority sector - but also light and food industries and
services are faced with a growing snowball of problems.
For example, if, as a result of continuing national currency growth, the price
difference between Kotayk and Budweiser beers grows smaller or disappears at
all, the native consumer will certainly prefer the famous western brand. Or,
sooner or later, if not now, the rest in native Tsaghkadzor or Sevan will become
more expensive than the rest in Egypt, Bulgaria or Turkey, not mentioning
Georgia. And this problem is equally topical for all home producers: exporters
and home market-oriented companies. Already today, we can see this happening:
the export is falling, the trade gap has swollen to all time high 30% of GDP,
almost all industries and services are on decline (including the high-tech
sector so much cherished by the people and the government) - and all this
because of the rapid growth of one sector - construction.
Aggregately, this has resulted in an 11% economic growth in the past months of
this year. We can't help being glad at the "quantity" of this growth,
but, on the other hand, we can't help being concerned for its
"quality" and internal structure: the economic blossom of not so very
promising sector leads to the economic fading of the sectors our nation relies
on.
1. We should liquidate the CB monopoly over deep macroeconomic analysis. In
fact, they in the CE have in hand all the facts and can see the most
comprehensive picture of the economy, and any opponents trying to dispute with
them are doomed to failure because of being less informed. So, it is necessary
to recruit (or hire) an independent group of researchers who would give an
unbiased assessment of the existing monetary policy in the light of the Armenian
people's strategic goals for ensuring the long-term development of promising
economy sectors.
2. It is necessary to work out a complex of measures to cool the overheat
construction industry. This policy can be carried out by purely fiscal means:
for example, by increasing the taxes on the sale of primary housing, on land, on
the sale of land for construction, etc. The general logic is - to artificially
increase the construction costs for decreasing the potential demand.
3. It is expedient to enrol representatives of all native sectors into an action
group so they can thoroughly examine the problem and inform the public, the
parliament and the president of the private sector's single position on the
matter.
******
There is another article on the whole question of governance and related matters
that deserves reading for those interested in Armenia:-
World Bank survey shows improved governance in Armenia
By Emil Danielyan
Armenia has made progress in curbing corruption and improving the rule of law in
the past eight years, but it is still governed worse than most countries of the
world, according to a World Bank survey released on September 15th.
The bank's 2006 Worldwide Governance Indicators report, which draws on extensive
research conducted by other organizations, shows a marked improvement in the
quality of governance in Armenia, putting it well above the ex-Soviet average.
Its authors rated more than 200 countries on six components
Armenia ranked 88th out of 146 nations that were rated in Transparency
International's 2005 Corruption Perceptions Index (CPI) -- down from 82nd place
it occupied in the previous global survey conducted by the Berlin-based watchdog
in 2004.
The only governance-related area in Armenia where the World Bank found a
negative trend since 1998 is "voice and accountability," which has to
do, among other things, with respect of human and civil rights, including the
citizens' constitutional right to elect and change government, of good
governance such as the rule of law, political stability and the scale of
government corruption. Accordingly, each country was assigned six
"percentile ranks" indicating the percentage of nations faring worse
in a particular area.
Armenia's average rating is 41 per cent, meaning that World Bank experts believe
that almost 60 per cent of the world's countries boast better governance. This
represents an improvement over a 29 per cent rank it received in a similar
survey released in 1998. It is also substantially higher than the ratings given
to most other members of the Commonwealth of Independent States. The average CIS
rank is a modest 24 per cent.
According to the report, the Armenian authorities have made greatest headway in
the "regulatory quality" category that gauges the extent and
efficiency of government intervention in the economy. It also shows serious
improvements in "political stability" in Armenia and the
"effectiveness" of its government.
Furthermore, the report suggests that there has been a decrease in the scale of
corruption in the country by noting what it regards a considerable upsurge in
government efforts to combat graft. Still, it says "control of
corruption" remains better in two-thirds of the other countries surveyed.
World Bank officials have long pressed the authorities in Yerevan to take
meaningful action against bribery and other corrupt practices which they believe
hamper Armenia's economic development. The bank was instrumental in the Armenian
government's launch of a comprehensive anti-corruption programme nearly three
years ago. Local and international anti-graft watchdogs say, however, that the
situation has hardly improved since then, seriously questioning the government's
commitment to tackling the problem.
WORLD AUDIT
Our own worldaudit.org has just come out with the most recent placings in
the world democracy rankings. This is an assessment based on Human Rights,
Political Rights, Public Corruption and Free Speech. Armenia is placed at 105
out of 150 nations with populations exceeding one million which puts in firmly
in the Fourth Division (undemocratic states), but with the exception of the
three Baltic states, it does put Armenia ahead of all other FSU republics
including Russia itself (114).
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ECONOMY
World Bank notes slowdown in economic reforms
Economic reforms in Armenia have been slowing down in recent years, although the
country continues to occupy a leading position in the region, Simeon Djankov,
director of the World Bank's policy, analysis and monitoring unit, said during
the presentation of an annual report compiled by the World Bank and the
International Finance Corporation (IFC) at the Entrepreneurship-2007 conference
in Yerevan on October 3rd, reported Interfax News Agency.
Armenia ranked 34th among 175 countries, ahead of Georgia, Azerbaijan, Russia
and other Commonwealth of Independent States countries. Djankov noted, however,
that "reforms in Armenia are proceeding very slowly and are not very
significant, while Georgia has completed an impressive jump, and if such rates
continue, Georgia will surpass Armenia next year." Among positive steps,
Djankov said the registration of new companies has been united in the tax
agencies and social insurance funds and the procedure for setting up a company
has been reduced by one day. The process of receiving permission for the
activities of construction activities has also been reduced and the procedure
for transferring real estate rights has been simplified, he said.
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FOREIGN COOPERATION
Russia, Armenia sign cooperation agreement
Prosecutors General of Russia and Armenia, Yury Chaika, and Agvan Ovsepian, have
signed an agreement aimed at bolstering cooperation between their agencies in a
wide variety of areas, Interfax News Agency reported.
In the document, the Russian and Armenian Prosecutor General's Offices pledged
to exchange experience and information, support international treaties and
cooperate in a wide range of spheres, including the extradition of criminals and
the fight against money laundering. Armenia and Russia have embarked on
readmission project elaboration; Russian Immigration Control Agency's Deputy
Chief, Leonid Tantsorov, was cited by Interfax as saying. Armenian Migration
Agency Official, Gagik Yeganyan, said that readmission agreements are planned to
be signed with ten European countries soon. Armenia has already signed
readmission agreements with Switzerland and France.
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