WE AND GLOBAL CRISES
Lilit Poghosyan

Hayots Ashkhar Daily
15 Oct 2008
Armenia

Economic Growth To Slow Down

Member of RPA parliamentary faction Artak Davtyan touches upon the
recession in the USA and its impact on Armenia.

"To what extent is Armenia’s financial market and economy, in general,
vulnerable or indifferent towards those "global challenges"?"

"Of course we can’t say that all this will not have any impact on
Armenia’s economy, even if we are not integrated into the world
economy and even if Armenia doesn’t have any market of capital or
market of securities.

We can point out many other objective circumstances, but one thing
is clear, if the whole world faces problems linked with consumption
it will lead to the reduction of consumption volumes in Armenia
as well. The consumers will have to refuse certain attributes of
well-to-do, such as buying a flat or a car, or expensive voyages.

On the one hand it will lead to the reduction of prices in the product
and service markets. The volume of the money-transfers to Armenia
will also reduce or at best it will remain on the same level. And it
is not a secret for anyone that the flow of the money-transfers to
Armenia is the main source of the growth of our economy.

On the other hand we will have problems with exporting. If the prices
fall in the world mark et our main exporting branches, firstly mining
industry will suffer losses.

As regards importing we have already said that the prices of oil,
grain have abruptly reduced, for example oil price has two times
reduced, one tone of grain has reduced from 1200 dollars to 300
dollars. Naturally these are the factors that will definitely have
impact on the volume of our GDP. In terms of value that index will
drop and finally the pace of the economic growth will reduce."

"Will the budget executive suffer? Will the government need to review
its "affectionate programs" on the social expenses, including pension,
the salary of the pedagogues?"

"When we say gross domestic product we must consider one thing – what
components does it include? There are different methods of reckoning.
But the method of reckoning is not important here. Anyway it is the
new value created during the year. The process of the reduction of
prices that take place in the world market will naturally have bad
impact on the GDP.

Of course the committee of state incomes can use certain levers to
ensure the entries of the budget. As a result in my view the specific
weight of the taxes in the GDP will raise. The best thing for the
population, the consumers will be the reduction of the prices of
consumer goods, food. Today the prices of fuel, petrol has reduced."

"But there is no s ign of price reduction in the food market, on the
contrary, the prices of some products go higher and higher?"

"It will take time. The prices of food will definitely reduce. While
the importing companies order grain, or food while they transfer the
money and transport all this to Armenia, it takes some months. At
the moment they realize those products, which they have purchased
by higher prices. But the fact that the prices will drop is beyond a
shadow of a doubt. In this regard the consumer will definitely benefit.

As regards the budget I must repeat that I don’t think we will have
any problems linked with budget entries. The problem is that one
of the priorities of the government – the continual growth of the
economy is jeopardized."

"From this point of view, which sphere of economy do you think is
the most vulnerable?"

"Mainly those spheres, which require long-term investments, especially
the sphere of construction. As you know the economic growth of the
recent years owed the sphere of construction. So in this regard we
will definitely suffer serious losses.

The volume of the construction, which is realized by the financial
means allocated from the state budget, will maintain, but because in
our reality most part of the construction is realized by the private
investors, companies, and individuals, here we will definitely face
problems. At best the e xisting volumes will sustain.

Especially because the majority of our people can’t afford buying flats
or realizing any deals linked with real estate and it is natural that
mostly Armenians from Diaspora buy these flats. So it is normal that
in this sphere as well we will record reduction of selling. Because
if there is no demand, of course the sphere suffers losses.

In general, there will be no sphere that will not bear the fruits
of the processes that take place in the world market. Moreover
unfavorable conditions are created for entrepreneurship. This is the
greatest risk."

"Does the state have the possibility to counteract the before mentioned
negative manifestations, or it is unavoidable?"

"If only the big countries; the United States, the developed European
countries allocate huge financial means, make injections of billion
dollars in the financial market, to save the banks from financial
crash, but Armenia doesn’t have this possibility. In this regard it
is very important for the state not to prevent the entrepreneurs from
working, if it can’t help them. The conversation is not only about
tax administration.

There are lots of inspection organizations that simply hinder the
economic activity of the entrepreneurs. More than ten inspection
organizations regularly conduct check-ups in enterprises. What do
these people do?

During the past years they have conducted thousands o f check-ups
just see how many of them have been held to answer and to what extent
have the losses of the budget been compensated. Is the quantity of
the check-ups and the results adequate?

Entrepreneurship in Armenia should not only be beneficial but also
with regulated and clear mechanisms. Otherwise the organization of
3 persons will have to keep 10 accountants to be able to match its
documents with the existing legal and normative requirements.

All the before mentioned obstacles must be eradicated and the state
has lots of work to do in this respect."