EurasiaNet, NY
July 29 2005

WESTERN DONORS LAUD ECONOMIC GROWTH IN ARMENIA
Emil Danielyan 7/29/05

Armenia’s continuing robust economic growth is winning accolades from
Western donors. A consensus is building among economic experts that
the tiny South Caucasus state is finally emerging from its
post-Soviet doldrums.

Officials from the International Monetary Fund (IMF) and other donor
organizations now believe that decade-long growth in Armenia has
produced a sizable reduction in poverty. “Armenia is on a promising
path toward sustained high growth and the alleviation of poverty,”
Agustin Carstens, the IMF’s deputy managing director, said at the end
of a mid-July visit to Yerevan. In May, the IMF expressed its approva
of Armenia’s economic directionl by offering a three-year,
$34-million loan agreement.

According to official statistics, Armenia’s Gross Domestic Product
rose by 10.2 percent in the first half of this year. The GDP growth
has averaged 11 percent during the previous four years. Carstens
strongly endorsed the Armenian government’s economic strategy. “The
IMF stands ready to continue to assist Armenia with policy and
technical advice, as well as financial support in implementing its
reform agenda,” he said, adding that the Armenian economy is
expanding so fast that it now runs the risk of “overheating.”

Brian Kearney, who runs a US government-funded project to reform
Armenia’s social security system, said economic growth has had a
visible impact on living standards, adding that it has also lifted
the public mood. “There is a new buoyancy and a new confidence that
wasn’t here five years ago. It might seem a small thing but, for me,
just the change in people’s demeanor and approach to life is
remarkable.”

“Five years ago it was very much hanging on,” Kearney added. “Now I
see people striding forward.”

Household income surveys regularly conducted by the Armenian
government show that the proportion of Armenians living below the
official poverty line shrunk from 55 percent in 1999 to just below 43
percent in 2003. The poverty rate would stand at 32 percent if it
were calculated using World Bank methodology that uses consumption
expenditures, as opposed to income. Each income survey is based on
data collected from about 5,000 households. Officials say the results
of similar research conducted last year and to be released this fall
will show a further drop in poverty.

“There are very few countries that have achieved such important
progress in such a short period of time,” the IMF’s Carstens said.

However, some economic analysts view official figures with
skepticism. For instance, many analysts believe the official poverty
line of about 13,000 drams ($30) per month is set too low given the
rising cost of living. The National Statistical Service of Armenia
(NSSA) estimated in a 2003 report that the average Armenian family
spent two thirds of its income on food — a telling indicator of
persisting hardship. “The consumption of high-priced food products
such as meat products, milk products, fruits and eggs is very low,”
the report said. The government agency also asserted that many
Armenians still cannot afford adequate healthcare as “only one in
three persons with health problems applied to a doctor for medical
care.”

There is also a mounting income gap dividing the rich and poor, as
well as Yerevan residents from those living elsewhere. Many rural
areas have hardly seen any development since the economic collapse of
1992-1993, when Armenia’s GDP shrunk by half due to the outbreak of
wars in Nagorno-Karabakh and elsewhere in the South Caucasus. The
social polarization reflects a highly uneven distribution of benefits
of economic growth, some experts contend. The gap is widened further
by widespread tax evasion among the wealthiest citizens. The Armenian
government’s tax revenues are on track to rise by about 30 percent
this year, but they will still make up a very modest 16 percent of
the GDP.

More importantly, the rate of job creation has lagged behind the
economic expansion, failing to alleviate the country’s number one
social problem — unemployment. The official unemployment rate,
measured by the Armenian Ministry of Labor, stands at just over 10
percent. But the real figure is probably much higher, many economists
estimate. The NSSA, for example, puts the unemployment rate at a
staggering 30 percent, citing a 2003 labor force survey.

Nevertheless, anecdotal evidence of increased prosperity is strong.
This includes skyrocketing real estate prices, a growing number of
cars, shops and other small businesses as well as a construction boom
in central Yerevan. Economists still cannot explain what exactly has
driven economic growth over the past decade. First-half growth in
2005 appears to be connected with a 43 percent surge in the
construction sector. Another important factor is cash remittances
from hundreds of thousands of Armenians working abroad. The Armenian
Central Bank says remittances jumped by 50 percent to $750 million in
2004.

In addition, merchants have adapted to the continuing economic
blockades by Azerbaijan and Turkey and the resulting high
transportation costs. According to official statistics, the tiny
landlocked country has doubled its GDP and tripled exports since the
late 1990s. “In five years time people will reflect well when they
look back at what has been done over the past five years,” Kearney
said.

Editor’s Note: Emil Danielyan is a Yerevan-based journalist and
political analyst.

From: Emil Lazarian | Ararat NewsPress