The government’s position needs to be modified
By Mher Ohanian

Yerkir
July 15, 2005

One of the obvious developments in the reforms of the Armenian
economy is that the state is gradually driven out from the economic
domain. Meanwhile, the liberal model of the economy whereby the state
is completely driven out of economic processes can have catastrophic
results in terms of the development of the country’s competitive
potential.

The experience of the countries that experienced drastic economic
growth in the past several decades shows that in the context of
extremely harsh economic competition in the international markets,
one can only enter those markets as a competitive partner with
active assistance from the state. This excludes the absolutization
of horizontal economic coordination.

Free trade is not for the weak

The notion of freedom of trade in international economic relations
actively supported by international financial institutions and
multi-national corporations is a myth. Free trade is the best way
of realization of the monopoly of the strongest while the novices
and the weak are forced to perform secondary functions serving as
suppliers of raw materials, energy and human resources and knowledge.

In this context, adherence to the principles of free trade and
joining various international agreements without having a national
strategy can in the long run force a country to become a permanently
third-world coutnry.

It has been several years since Armenia joined the World Trade
Organization. Since then Armenia has not experienced any increase
in the competitiveness of exported goods or any improvement of their
quality. The share of high technologies exported from Armenia in the
overall volume of exports remains very small (only 0.5%).

The international experience shows that the liberal free trade, if not
anchored on principles of mutual benefit and justice, can turn into
one-sided imposition hindering the domestic producers from entering
external markets and even forcing them out of the domestic market.

This situation can be observed in some sectors of the Armenian
economy. Liberal free trade puts the countries that have modern
technologies and thus smaller production costs in an advantageous
position. The liberal model of economic policies leaves no space for
either direct or indirect support of high tech production.

On the other hand, the regulation of the exchange rate of the
Armenian dram by the Central Bank as a result of cooperation with
international financial organizations and its continuous “stability”
(more precisely hyper-appreciation of the Armenian dram) continuously
increases the negative balance of foreign trade thus causing obstacles
for improvement of the competitiveness of the domestic economy and
limiting exports.