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ARMENIA


  
  



Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 2,797 2,367 2,100 139
         
GNI per capita
 US $ 950 790 570 143
Ranking is given out of 208 nations - (data from the World Bank)

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


 


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.


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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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