WORLD BANK URGES ‘SECOND GENERATION REFORMS’ IN ARMENIA
By Shakeh Avoyan

Radio Liberty, Czech Rep.
March 20 2007

In order to sustain its robust economic growth, Armenia needs to
embark on "second generation reforms" that would result in better
governance, fair competition and more developed financial services,
a senior economist from the World Bank said on Tuesday.

Presenting a World Bank study that refers to the Armenian economy as
the "Caucasian Tiger," Saumya Mitra lavished praise on the country’s
"strong" reform record and macroeconomic performance of the past
decade. He said Armenia has qualified for the title after several
consecutive years of double-digit growth which, according to official
figures, has considerably reduced poverty.

"What is impressive about the Armenian tiger is that the growth is
not based on oil or any one resource. It has been a fairly balanced
growth," Mitra told reporters in Yerevan.

But citing the study’s findings, Mitra cautioned that continued growth
requires deeper structural and institutional reforms.

"Successful economies require conditions where any entrepreneur can
enter a market and leave a market," he said. "Here there are some
formal and informal barriers — some put up by oligarchs, some put
up by political and economic interests — that prevent level and
fair competition."

"The [state] competition commission is weak and not able to enforce
adequate competition rules," he added.

That some areas of economic activity in Armenia are effectively
monopolized by wealthy businessmen close to the government is a widely
recognized fact. That is particularly true for lucrative imports of
fuel, wheat, sugar and other commodities.

Mitra made no mention of the commodity imports, pointed instead to
an equally serious lack of competition in civil aviation. He said the
Armenian government has failed to liberalize it and is keeping prices
of air transport artificially high in order to benefit the Armavia
national airline. "Not many people realize that aviation services
are actually quite expensive in Armenia, both for passengers and
cargo freight," he said. "This is the result of special privileges for
Armavia … for which the consumers of Armenia pay but the shareholders
of Armenia benefit."

The World Bank study blames the de facto aviation monopoly for the
fact that freight shipped by air to and from the landlocked country,
blockaded by two of its neighbors, fell by more than two thirds
between 1997 and 2003. Armavia is owned by Mikhail Baghdasarov,
an ethnic Armenian citizen of Russia who is thought to be close to
Defense Minister Serzh Sarkisian.

Among other obstacles to Armenia’s sustainable development identified
by the study are the high cost and poor quality of telecommunication
as well as underdeveloped financial services such as bank lending and
insurance. World Bank economists also pointed to serious problems
with rule of law and widespread corruption in the Armenian tax and
customs agencies.