ARMENIAN PREMIER OUTLINES GOVERNMENT’S ECONOMIC POLICIES

Public Television of Armenia
March 13 2009

Armenian Prime Minister Tigran Sargsyan has spoken about the
country’s economic situation given the depreciation of the national
currency dram. In an interview with journalists broadcast by Armenian
Public TV on 13 March, Sargsyan said that uncertainty emerge in the
global economy and this means that "we should be ready for several
scenarios". Sargsyan also responded to criticism of government over
allegations that Turkish businessmen might get shares in the future
Armenian nuclear power plant. The following is an excerpt of report
by Armenian Public TV on 13 March; subheadings inserted editorially:

[Prime Minister Tigran Sargsyan addressing four journalists] First of
all, I would like to thank you for coming to the government office
today, and I am going to discuss with you today issues of concern
for our citizens.

On pessimistic scenarios

[Anna Israyelyan, pro-opposition daily Aravot] Mr Prime Minister,
during the latest government session you said that no organization
can make precise forecasts regarding the future and that uncertainty
is extremely great at this moment. Would you accept that the
forecasts that you made during the past months did not correspond
to reality? Your forecasts referred to how the crisis would impact
Armenia’s economy, I do not want to quote all of them, but you even
supposed that our economy might become more attractive for investments,
finally you predicted 9-per-cent economic growth for 2009 and so on.

[Sargsyan] I will divide your question into two parts. The first
part refers to what should be the behaviour of the government when
projects are developed, which on the one hand, must help economic
entities overcome difficulties. The second part of the question is
what were our forecasts of macroeconomic indices, and what are our
forecasts regarding the future at the moment. The first part is the
following: we should have a clear position, clear aims, we should
believe in our goals and we should communicate this belief to the
public and economic entities. If we do not believe in our programmes,
we will not be able to carry out those.

[Passage omitted: Sargsyan says that the belief principle refers not
only to government but to any economic entity and citizen]

[Sargsyan] This is the first part. The second part refers to the
forecasts. Unfortunately, the events are developing according to the
pessimistic scenario. The forecasts, that we should ensure high growth
rates in 2009 as well, are reviewed in the course of months. This
means that the indexes are much worse than we predicted last summer
[summer 2008], when we drafted the budget for 2009, including [those
forecast by] international organizations.

Much more pessimistic scenarios are becoming reality at present. It is
impossible to make precise forecasts at present, because the global
economy has turned out to be in a situation where international
organizations – the World Bank and the International Monetary Fund –
have changed their forecasts of 2009 indices four times within the
last three months. That is currently factors that essentially increase
uncertainty emerge in the global economy and this means that we should
be ready for several scenarios.

At the same time I would like to speak about the following: did we
predict that there would be such negative phenomena? Yes, we predicted
those, and we clearly said this in a statement on 12 November [2008]
when I presented to the attention of the parliament our complex
programme of anti-crisis measures. The programme was then approved by
the government on 4 December [2008] as a precise schedule of measures,
with deadlines and responsible sides, and these measures were included
in the 2009 government action plan.

[Passage omitted: new owners of privatized enterprises failed to manage
the enterprises properly due to lack of knowledge and investments and
break of the supply chain from the former Soviet Union countries,
the state has prepared cooperation projects with small businesses
instead of plans to make these businesses national property]

[Yuri Manvelyan, Tert.am] Mr Prime Minister, panic rose in the
market of essential goods – vegetable oil, sugar, petrol, flour –
in the evening of 3 March [when Armenian national currency dram
depreciated by about 20 per cent]. The same thing was not the case
in the market of non-essential goods. To what extent is it connected
with the monopoly in the market of essential goods? Is it possible
to do anything in order to change this monopoly situation?

[Sargsyan] I will answer the two questions. The first one, is it
possible to carry out such measures in a way that no boom takes
place? The second one, what we need to do so that competition develops
in Armenia and the competition field improves, and there be no misuse
of monopolies. The change which took place on 3 March probably causes
concerns of citizens, and among some citizens – probably moods of a
boom. This is characteristic not only of Armenia. Such moods shape in
all counties where such events take place. Those are smaller or greater
in some countries, but even in developed countries stores get emptied
of essential and other goods in one hour due to negative expectations.

We had made preparations to minimize all risks that could have
manifested themselves. I believe that the boom ended in two-three
days and a balanced situation in the goods market emerged – much
earlier in the financial market, and then in goods market. Forming
an anti-monopoly field is a very topical issue for us. There are
objective and subjective reasons why this issue is topical in Armenia,
why the index of elasticity of prices is very rigid – that is, prices
react to changes of reduction trends with difficulty and react very
quickly to changes leading to price hikes.

Of course, the best way is improvement of the competition field. We
have planned to carry out a number of measures in this regard,
and the first most important measure are tax reforms, establishing
equal conditions, making the law applicable with regard to everyone
on the basis of equality. This is our strategy. I believe all agree
to this strategy and we should manage to make radical changes in the
tax sphere in the coming two years so that this fundamental issue is
completely solved. Of course there are objective factors that pose
restrictions, that is our economic system is still minor in sizes,
the communications have not developed yet.

Unfortunately, the major route for the import and export of goods
is through Georgia. There are serious problems in Georgia connected
with organization of transportation of these goods. We have always
been drawing attention of our Georgian partners to these problems,
because getting goods from any part of the world to Poti or Batumi
ports is much more cheaper than transport those to Armenia. It is
both more difficult and expensive. Naturally, this creates serious
obstacles for small and medium businesses. Small and medium businesses
are not able to make such expenses overcome these complexities.

Naturally, big businesses manage to solve this issue and later
get comparative advantages in the domestic market but misuse this
advantage. Naturally, the role and significance of the economic
competition commission should be reinforced and this provision is
mentioned in the government’s anti-crisis programme. We are ready
to discuss any suggestion which would increase the authority and
capacities of this commission to fight this evil.

[Passage omitted: more on the need of reforms]

[Sargsyan] Our tax reforms are aimed, first, at ensuring the
equality in the sphere of taxes for big businesses. All major
entrepreneurs should work in an open and transparent way and their
financial statements should be accessible for the public. The major
entrepreneurs should take major tax load, especially at this stage. Our
second important principle is that we should create a more favourable
administrative environment as a result of these reforms for small and
medium businesses. We implemented this. We adopted numerous laws,
which substantially eased the [tax] load, for small and medium
businesses in the first place.

[Passage omitted: examples to changes in tax law; steps to protect
rights of consumers]

[Anna Israyelyan] Anyway, the former chairman of the Central Bank,
Bagrat Asatryan, has told a news conference that he believes the
income section of the 2009 budget has already not been fulfilled. This
means that the tax entities have been assigned a plan, and they will
start to collect missing funds in every possible way; and the only
way to do so is supposedly an increased pressure on small and medium
businesses. Can you give a guarantee that it will not happen this way?

On government aims

[Sargsyan] I told what our aims are – first, on big businesses, and
ensuring equal competition rules there, and establishing liberal
administration rules for small businesses. Second, collection of
taxes at any cost is impermissible. We will not take such a step. Our
principle of tax collection is following: our target index, which is
clear stated in our programmes, is that taxes make 17.4 per cent of
the gross domestic product [GDP]. That is, we need to collect as much
taxes as depending on our economy’s production. The tax collection
is conditioned by this index, and not by the indexes which forecast
high economic growth in 2009.

[Passage omitted: the Central Bank has always adhered to floating
rate policy]

[Avanesov] Mr Prime Minister, at present banks are closing or
going bankrupt in the world, and we want to establish a bank – the
Pan-Armenian Bank.

[Sargsyan] The parliament has already adopted the law on establishment
of the Pan-Armenian Bank, the law has come into effect; the Central
Bank is already carrying out relevant measures in line with this law
so that the Pan-Armenian Bank can start operating.

[Passage omitted: the Armenian government has received loans from the
World Bank, the European Bank for Reconstruction and Development,
the International Monetary Fund and the Asian Bank that will help
mitigate consequences of the economic crisis.]

[Manvelyan] I would like to return to the criticism aimed at the
government and you personally. For instance recently there were reports
about your resignation. Who are interested in this and what is the aim?

[Passage omitted: Sargsyan says that his family is interested in his
resignation first]

[Sargsyan] If I answer seriously – it is clear that is a political
tool frequently used as a way of struggle, and we need to treat such
criticism calmly.

[Passage omitted: the government considers opposition’s suggestions
in its projects; the government needs to open new jobs and pay social
benefits in time, as well as to promote small and medium businesses]

[Avanesov] Mr Prime Minister, this year’s state budget was approved at
the exchange rate of 305 drams per dollar, and it [the exchange rate]
is now at another level. What are the inflation risks of this and to
what extent can this influence the state budget?

[Sargsyan] The Central Bank made its forecasts, taking into account
macroeconomic indexes of inflation in 2009. The Central Bank takes
into account both economic growth indexes and changes in the exchange
rate and also the change in [utility] rates, which was already
announced. Taking into consideration all factors, the Central Bank
forecast that the inflation will be about eight per cent in the end
of the year. At present we are guided by these assessments.

[Israyelyan] Mr Prime Minister, if up to the present you had a critic
in the [ruling] coalition – the Prosperous Armenia party, which
expressed its criticism from time to time. I suppose that now you
have a second critic – I mean the Armenian Revolutionary Federation –
Dashnaktsutyun, which has strongly expressed its disagreement with you
on the invitation to the Turkish side to participate in the nuclear
power plant [operation]. One can suppose that you touched their dear
feelings, and all this will take a long time. Are you ready to increase
the number of you critics by another one?

On Armenian-Turkish relations

[Sargsyan] First, I would like to mention that during our discussion
yesterday [13 March] we came to a comprehensive agreement regarding
the overwhelming majority of issues. We reacted only positively to all
questions voiced by our partners. It is not about disagreeing on all
issues. Second, I think there is a misperception here. You are right,
this is a sensitive issue for our colleagues, the Armenian-Turkish
relations, but the misperception is that the authorities have not
made any invitation to Turkey to participate in the operation of the
nuclear power plant. There is a misperception here. This issue has
a different aspect.

We suppose that certain percentage of shares of the power plant,
the one that is being built now, may be offered on open market. In
this case, it is not excluded that everyone who are interested in
this project can purchase the shares, including, and I am sure that
there is big interest both in Turkey and Greece, and we cannot rule
out that investors from there will be interested and will purchase the
shares. However, this idea is still at the discussion stage and such a
decision has not yet been made. What part of shares will participants
of this project get?

[Israyelyan] Do you have information that Turkey is interested or do
you suppose that it might be interested?

[Sargsyan] We have such signals that the energy sector is of
big interest for the Turkish private sector which work with their
Armenian counterparts, from the union of businessmen. You know that
our union of businessmen has relations with the Turkish partners,
also with the Turkish Confederation of Labour. This is because we
have quite serious reserves in the energy sector, we can be a serious
exporter of electric power and it is understandable that our neighbour
states have interests in this sector. We have of course received such
signals and this is not a secret. The private sector has an interest
in participating in such initiatives.