The International Monetary Fund (IMF) has increased financial support to Armenia up to 823 million USD. IMF Resident Representative in Armenia Nienke Oomes reported yesterday.
She said that the IMF Executive Board came to an agreement with the policy of the RA government, which includes the following three directions – moderation of loan policy and cut of social sector expenses. She mentioned that approximately 240 million USD of this money has been allocated already and 160 million USD will be allotted by the end of this week and the total amount will amount to nearly 400 million USD. “Since the approval of the stand-by arrangement in March 2009, the external economic outlook has deteriorated significantly for Armenia,” the fund’s deputy managing director, Murilo Portugal, explained in a statement. “The additional financial assistance from the Fund will help cover Armenia’s growing financing needs, while the recalibration of the authorities’ economic program will help them better respond to the deepening downturn,” said Portugal. He added that the revised government program envisages an easing of the authorities’ fiscal and monetary policies aimed at stimulating the Armenian economy. Why did the International Monetary Fund decide to increase the loan to Armenia from 567 million to 827 million dollars? Recall, that the decision of the increase was made on Monday by the Executive board of the Fund. As it was found out the IMF was hoping for better rates in Armenia and also was hoping that the initial money will be sufficient to maintain the normal social and economic situation in the country, however, the figures for 5 months (economic downturn by 15.7%) forced the Fund to increase the loan. According to the IMF representative, about 250 million of this sum has already been allocated; other 158 will be listed before the end of the week. The decision not to transfer the second portion of the loan to the Central Bank but directly to the government was made. Under the agreement, the money will be directed to the budget – for the payment of social spending, pensions and wages. According to Oomes, without such assistance, the Armenian government would have to reduce budget expenditure, which means that pensions and wages would not be paid in time. Therefore, the IMF has decided to allocate additional funds. The IMF “good” forecast is determined by some increases in prices for oil and copper. The Fund believes that Armenia is so tied to Russia that the country has to wait for the oil to go up to encourage Russia a little. “And when it is pleasurable for Russia, then it will be pleasurable for Armenia to”, states the IMF. When this happens, Nienke Oomes does not know. But she knows that in the next few years, Armenia’s external debt relative to the GDP will rise from the current 18% to 46% in 2011. The most important is that it must be less than 50 percent, said Ms. Oomes, because it is controlled. But the inflation in Armenia is quite low – only 3 percent. And the Central Bank of Armenia has not used the credit of the IMF in March to buy back the dollars from the market. For this, Mrs. Oomes thanks the Central Bank. Actually, the policy of the IMF towards Armenia is very interesting. As it turned out, the IMF loans will not be directed to the small and midsize businesses, as mistakenly written by our site but they are to replenish the reserves of the Central Bank. They just fill up and all. Well, and another 312 million dollars the IMF has decided to give directly to the government to be able to cover the cost of wages and pensions. Answering a question on loan terms, Nienke Oomes noted that it is quite short – for 5 years, in addition during the first 3.5 years, the government will not repay the loan. The interest rate within 3 years will grow from 1.5% to 3.5% in 2011. Despite the fact that such a large loan is issued for such a short period of time, the IMF is confident that Armenia will be able to repay it. “If we note that Armenia is not able pay off not only our, but also the loans from the World Bank and Russia, then we will take other measures – we will hold consultations with the government, we will revise the terms of the loan, issue a new one, in general, we will see, until we do not have confidence that Armenia will repay the credit”, said Nienke Oomes. The IMF representative stated that the Armenian government is unable to pay the salaries and pensions to its citizens, which is the reason why the IMF decided to allocate additional 312 million dollars, in addition, contradictory to its rules, it allocates the money not to the Central Bank but to the government to repay the debts on pensions and salaries. She pointed out that the increased financial support to Armenia is supposed to prevent the Government from cutting down its expenditures, which may worsen the situation amid the crisis. The funds will help Armenia resist the crisis, restore the population’s confidence in the national currency and protect the socially vulnerable sections of the population. Oomes said that Armenia and the IMF arranged about macroeconomic policy, particularly about mitigating the macroeconomic and fiscal policy and about reforms. She pointed out that some of the funds will be used to replenish the reserves of the Central Bank of Armenia. First, Nienke Oomes made a sensation on the External debt of Armenia. She stated that according to the IMF calculations, the external debt of Armenian in the Armenia GDP will reach 46 percent. In other words, the half of the Armenian GDP has to be pain in the form of debt. It seems that 50 percent is the limit, after which a country is announced bankrupt, which is the reason why the IMF is satisfied with only 46 percent. Recall that the figure now is 18 percent. According to the Permanent Representative of IMF in Armenia Nienke Oomes, the reduction in the sphere of construction had a serious impact on the economic indicators in the country. This was due to the decrease of transfers from Russia by 40% – before, the construction works in Armenia, according to the IMF, were mainly done due to transfers. “For such a small country like Armenia, the suspension of construction work on a pair of objects may have an impact on macroeconomic indicators”, – said Ms. Oomes. Reduction in private transfers from Russia drove GDP down as well. At the same time, the IMF resident representative pointed out the recent increase in copper and oil prices as a positive factor able to have favorable impact on Russia and then Armenia and intensify the inflow of transfers and investments in construction sector. Oomes said they are glad that according to forecasts inflation in Armenia is still low and according to forecasts for this December against December 2008 it will not exceed 3.5%. “Armenia will record an average inflation rate of 3% in 2009 against 2008,” Nienke Oomes said.