ARMENIAN OPPOSITION DEBT WARNING
Institute for War and Peace Reporting IWPR
March 8 2010
UK
But state says borrowing was needed to keep economy on an even keel.
Armenia’s opposition parties fear the government has taken on too much
debt in its efforts to support the economy through the global crisis.
Armenia has been hard hit by the downturn, and its economy shrank
by about 15 per cent in 2009. The government says the collapse would
have been still more dramatic had it not boosted spending by borrowing
so heavily.
"When business is playing a passive role in the economy, the state
must in turn take on the role of trying to maintain a level economy.
If we had not done this, the situation would be a lot worse,
qualitatively worse," said Finance Minister Tigran Davtyan.
Around 90 per cent of the state debt is external debt. By the end of
last year, the latter came to 36 per cent of gross domestic product,
or around 2.5 billion US dollars.
Some 43 per cent of this debt is owed to the World Bank, and around
20 per cent of it to Russia. The International Monetary Fund is also
a significant creditor. According to Dashnaktsutyun, an opposition
party, external debt will rise to 3.5 billion dollars by the end of
this year, and that will be 43 per cent of GDP.
Others are also forecasting an increasingly dangerous debt burden.
Aristomene Varudakis, head of the Yerevan office of the World Bank,
said by the end of 2011, external debt will equal 50 per cent of GDP,
up from just 13 per cent in 2008.
Criticism has grown in recent months over the swelling debt levels,
particularly a 500 million dollars credit from Russia which is not
priced as aid but as a commercial transaction.
"Our dangerous debts are commercial. The debts of the International
Monetary Fund and the World Bank are not big. You can take one
billion dollars in debt, but servicing this debt can cost a tenth of
the commercial debt that the state is taking out," Hrant Bagratyan,
a former prime minister turned opposition figure, said.
Although there are no official published figures, he is also critical
of how expensive debt servicing is set to become.
"In 2008, Armenia paid eight million dollars to service its external
debt, but in 2013 the sum to be paid will be 478 million dollars. That
means in a few years time we will be spending twice as much on
servicing debt as we spend on the army, which even now we can’t
maintain," he said.
The deputy head of the central bank, Vahce Gabrielyan, was one of
many officials who tried to calm the critics.
"It is probable that we will restructure our external debt, but
this does not mean we will end up with bad conditions or come under
political pressure," he said.
But Bagratyan was concerned about such "political pressure". He worried
that, having taken out these giant debts, Armenia might be forced to
make concessions – such as in its stand-off with Azerbaijan over the
status of Nagorny Karabakh – if it fails to be pay for them.
"The situation is just catastrophic. If this goes on, then in a year
we will ourselves be asking for a solution to the Karabakh problem
that we are currently rejecting," he said.
Independent analyst Samvel Avagyan, a columnist on Capital Daily,
a financial newspaper in Yerevan, said that a debt burden of a third
of GDP was probably not something to worry about.
"In our credit history there have been years that have been worse
when, as in 1999, the state debt of Armenia exceeded 50 per cent of
GDP. However, the current tendency is such that the level of state
debt in the future will inevitably exceed 50 per cent of GDP, and
possibly, even 60 per cent," he said.
Prime Minister Tigran Sargsyan declined to make any specific
predictions on the level of the debt, but said it was not a problem.
"The credits taken in 2009 can be divided into two… [The first] are
aimed at improving infrastructure and all their weight will fall on
the state budget. The second part the state has offered or will offer
as credit to entrepreneurs. In this case, the weight of repaying the
credit will fall on the businesses, despite the fact that they are
part of the state’s external debt," he said.
The criticism he faces, though, is not only connected to the volume
of the debt, but also to what it has been used for. Many economists –
such as analyst Avagyan – say it has been spent unwisely.
Avagyan said the money has been channelled either as credit via banks;
as direct credits to large companies; or as social payments to the
unemployed and pensioners. But he said many small businesses had been
unable to access this money from any of Armenia’s 20 commercial banks.
His opinion is widely held among economists, and even among government
supporters, such as Vardan Bostanjyan, a parliament deputy from
Prosperous Armenia, which is part of the government coalition.
"Among those to blame are the authorities themselves," he said.
But his criticism was not as fierce as that of Bagratyan, the former
prime minister, who was particularly unimpressed with the credits
given directly by the government to big companies – such as the 40
million dollars loaned to Armrosgazprom, the local arm of Russian
state gas company Gazprom.
And Ara Nranyan, an economist who is also a deputy for the opposition
Dashnaktsutyun party, said the government needed to consider new
measures to get results.
"Sadly, we have seen no actual steps to constructively change the
situation," he said.
"We have said many times that imports must be substituted with
locally-produced goods. What have we done for local producers or to
create jobs? Almost nothing. Those funds sourced from abroad must
be sent to those areas that will help the development of the real
economy and the creation of jobs," Nranyan said.
From: Emil Lazarian | Ararat NewsPress