Vestnil=k Kavkaza, Russia
Jan 9 2015

Armenia: Economic Results and Pessimistic Expectations

8 January 2015 – 10:34am

Susanna Petrosyan, Yerevan. Specially for Vestnik Kavkaza

2014 was a disaster for the Armenian economy. Financial problems have
been added to many unresolved socio-economic ones. At the end of last
year, in just a few days the national currency devalued by 10%, its
ratio to the US dollar before was 410 drams. Although the Central Bank
managed to stop the fall of the dram, due to currency interventions,
the tendency of a rising price of the US dollar started to be observed
already in early January.

According to official statistics, the economy grew by 3-3.5% over 11
months of 2014, instead of the planned 5.2%. According to the former
chairman of the Central Bank, Bagrat Asatryan, this figure is quite
acceptable for countries with a normal level of economic development,
but in Armenia, with its numerous problems, growth of 3-3.5% will be
felt only by very limited stratum of people. “In the economies of
countries like Armenia, six percent is the limit after which broad
social strata begin to feel the economic growth,” says Asatryan.

Moreover, after assessing the economic growth it turns out that the
largest share is represented not by the industry, but by services and
trade. This correlation perfectly reflects the current situation in
the Armenian economy, where production plays an undistinguished role,
while imports exceed exports threefold.

Low rates of exports have become one of the most serious problems of
the Armenian economy, which some experts already call “sick”. The
negative trade balance has an important place in the overall number of
characteristics of a “sick” economy, such as lack of a competitive
business environment, development of big business at the expense of
small and medium-sized business, a once-and-for-all established
monopoly setup, and a reduction of the volume of transfers from
Russia, so important for Armenia.

According to a National Assembly deputy from the “Prosperous Armenia”
faction, Mikael Melkumyan, the presence of serious domestic production
could have become the most significant element in ensuring economic
security and, consequently, the ability to resist the influence of
external factors.

Another central problem of the economy, which, as well as the low
level of exports, makes Armenia vulnerable to external challenges, has
been a sharp reduction of investments, in fact, their absence. Zero
capital inflow suggests problems will not only appear today but also
in the future.

According to some experts, the 2014 economic year has been the most
difficult in comparison with all the years of independence. Meanwhile,
the problems of the past year created a base for a more complicated
2015. Since, in parallel to the slowdown of economic growth, the
social situation of the population is also becoming worse. “The
situation does not inspire any optimism for 2015 and 2016, as there
will not be any growth of transfers from Russia, the situation with
investments is deplorable, one can say, they almost do not exist, one
may even observe an outflow of capital,” said Bagrat Asatryan.

According to the ex-prime minister Hrant Bagratyan, the standard of
people’s living has fallen sharply, and the country will be able to
reach the level of 2013-2014 only by 2017. “Today Armenia lives 30%
worse than it lived yesterday, and, from this point of view, already
2015 will be difficult. It seems to everyone that the ratio of the US
dollar to the dram will return to 410 drams, but it will not,”
forecasts Bagratyan.

According to specialists, the rise of the price for the US dollar will
lead to an increase of services for gas. For instance, since
calculations of “Gazprom-Armenia” are based on the US dollar, which
the company uses for purchases of gas abroad, in the case of a rise in
price for the US dollar, the gas shall rise in price as well,
respectively.

Summing up the results of this year, Prime Minister Hovik Abrahamyan
assured that the government has the capacity and experience to ensure
that the search for solutions to the problems faced by the country and
the people are to be continued in 2015. He also expressed the hope
that the government will be able to solve the problem of poverty and
to create jobs. However, will the authorities have enough power to
change the existing economic situation with monopolies, investment
climate and to create real competition in business, to overcome
unequal treatment of business representatives by officials and to
reduce the so-called “shadow” economy? Since, indeed, the current
model, based not on market rules, but on deals and on mutual agreement
between businessmen and, in the first place, importers and government
officials, has exhausted itself.