IMF APPROVES INCREASE IN FINANCIAL SUPPORT TO ARMENIA TO US$822.7 MILLION

armradio.am
23.06.2009 11:21

The Executive Board of the International Monetary Fund (IMF) today
completed the first review of Armenia’s economic performance under
a Stand-By Arrangement (SBA) and approved an increase in the IMF’s
financial support to an amount equivalent to SDR 533.6 million
(about US$822.7 million; or 580 percent of Armenia’s quota). These
decisions enable the immediate release of SDR 102.7 million (about
US$158.3 million), bringing the total disbursed to SDR 264.2 million
(about US$400 million). The Board also granted a waiver of performance
criteria on net banking system credit to the government and the
program’s fiscal balance.

The revised arrangement will support the government’s economic
program amid a sharperthan- expected impact from the global financial
crisis. The 28-month SBA was approved on March 6.

The key objectives of the program are to help Armenia adjust to the
external shock, maintain confidence in the currency and the financial
system, and protect the poor. The sharp contraction in economic
activity, the fall in remittances, an increase in unemployment,
and difficult conditions in credit markets require an easing of
macroeconomic policies and the implementation of several measures to
stimulate domestic demand and create new jobs.

The main policies under the revised program are:

â~@¢ Mo netary conditions will be eased, including by widening
the range of central bank instruments to provide longer-term dram
liquidity to banks, and by increasing targeted onlending to small
and medium enterprises.

â~@¢ Fiscal policy will also be eased. Despite the fall in fiscal
revenue, the government will aim to maintain its overall expenditure at
a level close to the original 2009 budget, protecting social spending
while increasing expenditure on high-priority infrastructure projects,
financed in large part by bilateral donors.

â~@¢ Reforms will focus in particular on the continued strengthening
of financial sector supervision and improving tax administration.

â~@¢ Social safety nets will be enhanced by targeting social services
to the poor. Following the Executive Board’s discussion on Armenia,
Mr. Murilo Portugal, Deputy

Following the Executive Board’s discussion on Armenia, Mr. Murilo
Portugal, Deputy Managing Director and Acting Chair, noted:
"Since the approval of the stand-by arrangement in March 2009,
the external economic outlook has deteriorated significantly
for Armenia. Falling private transfers and capital inflows have
aggravated external imbalances and affected household incomes and
investor confidence. Construction activity, the main driver of growth
in previous years, has collapsed, and the economy is experiencing a
deep contraction.

"The additional financial assistance from the Fund will help cover
Armenia9 9s growing financing needs, while the recalibration of the
authorities’ economic program will help them better respond to the
deepening downturn.

The program envisages an easing of monetary and fiscal policy to
mitigate the severity of the crisis, while laying the ground for future
fiscal consolidation primarily through one-off investment expenditures
and measures to strengthen tax policy and administration. The
authorities remain firmly committed to achieving the program’s
objectives of adjusting to the changed external environment, supporting
confidence in the currency and the banking system, and protecting
the poor.

"Following the successful return to a flexible exchange rate, monetary
policy will focus on maintaining low inflation. With the fall in
inflation rates, the recent reductions of policy interest rates are
appropriate. In addition, the authorities are taking active measures to
provide liquidity to the banking system and help resume lending. Fiscal
policy will provide crucial support by accelerating growth-enhancing
investment in infrastructure and strengthening social safety nets.

"As external conditions improve in 2010, growth is expected to resume
gradually. The shortterm outlook remains, however, very challenging.

Continued reforms will be necessary to boost the medium-term growth
potential of the economy, including efforts to improve the business
climate, completion of the unfinished tax policy and tax administration
reform20agenda, and progress on financial sector reforms."