As you know Armenia has a structure, which should be in charge of raising the competitiveness of the country. The foundation is called that way – National Competition Foundation. A few people can only tell what this foundation does to make the country competitive. The only project that was completed was the “wings of Tatev” ropeway, which despite the fact of being the longest in the world, still recedes the beautiful body parts of Kim Kardashian. Let us hope that this is temporary as in the case of Kim the years may change the body and perhaps some time we will have a moment when we tell foreigners that we are Armenian they wouldn’t ask whether we know Kardashian. Of course the age can affect the ropeway as well, which suddenly stopped way before being properly operated. But this is a technical matter that can be resolved especially for an office, the director of which makes several million AMD and whose goal is to increase the competitiveness level of the Armenian economy and the country in the world. There is still the need to make efforts to reach that point. However, prior to that nothing hinders the board of trustees to periodically meet, exchange opinions about the international and local developments and as they say become proud of itself. Thus, yesterday in the government the 19th session of the board of trustees of the National Competitiveness Foundation took place, which was facilitated by Prime Minister of Armenia and the director of the board of directors of the foundation Tigran Sargsyan. Addressing the meeting, Prime Minister Tigran Sargsyan touched upon Armenia’s key economic indicators by noting that some 7,7 % growth was recorded in the month of January which is inspires hope for the future: “We have 5,7% growth in industry, construction is on the upgrade which is crucial in that last year’s fall is left behind. The trade turnover is at the same level, there is a small growth. We can boast a significant growth in the tertiary sector – 24.3% – which is mainly due the introduction of the system of mandatory insurance in the country. Commodity circulation went up 2.3% as compared to 2010, and it is important that exports continue to grow with quite a high pace: it was up 21 % in the same period amid a 2% decrease in imports. Power generation went up 20 %. 4.5 % rise was stated in monthly wages with the latter coming up to AMD 105 thousand on an average. Note that they stand at 82 thousand in the public sector and 131 thousand in the private one,” said Sargsyan. And so just like this, he had mentioned only positive developments. A person from the side may think that in Armenia everything is charming. However, there is nobody from the side except for the new member of the Board of Trustees Raul de Lutzenberger who is the head of EU delegation to Armenia. In other words he is one of us or one of them since he is a member of the board. Let us acknowledge that the Prime Minister has also spoken about the issues. So he didn’t claim that everything is ideal. The following two priority tasks have been singled by the Prime Minister for the year 2011: control over inflation and development of agriculture: “Inflation has to be reduced twice from the current 12 % down to 6 % by this yearend. Large-scale projects are underway in the farming sector, and we expect to boast a minimum of 10% rise in this field which can help cope with high inflation since the stated mark of 12% was largely due to last year’s 13.5% fall in agriculture. A new project is being launched in cooperation with the World Bank which seeks to push ahead with the movement of cooperatives by introducing updated management schemes, identifying new pasture areas, providing livestock, organizing refrigerating facilities and subsidizing the procurements of agricultural machinery in 55 communities. We have set a 10% growth target in agriculture for 2011.” After an exchange of opinions on global economic developments, the Board of Trustees went on to discuss the Fund’s financial report for 2010, as well as its strategy, budget and program of activities for the year 2011. In this context, meeting touched upon the prospects of implementing projects in the field of tourism and nuclear medicine. The concept of the Fund’s program of higher education to be launched in 2011 was discussed and concretized. President Serzh Sargsyan has given the government the assignment to reduce inflation several days ago. It seems that all’s Armenia left to do is overcome inflation. After that Armenia will enter the phase of economic development. But the fact of trying to fight inflation blocks the extreme expression of optimism on part of the government. The thing is that the steps of tempering inflation as a rule ban the economic growth. When they fight inflation with anti-budgetary policy it means that the state is reducing the expenses and “grabs” it from the economy. Unlike the government, which may apply untraditional methods (for example, defining the top limit of prices) the Central Bank has a few resources of finding inflation (despite it legislative power to provide stability of prices). “The CB has only two tools to deter inflation in the form of refinancing percentage and norms of mandatory reserving. No CB in the world has any other function of precluding inflation,” mentioned the head of the monetary-credit department of the CB Artur Stepanyan. It means that from the one hand the CB increases the refinancing interest rates (increases the value of money), on the other hand it makes the banks to direct a part of monetary resources towards mandatory reserving by creating a deficit of money. Last time the CB increased the refinancing interest rate on March 4 by 0.5% by defining it 8.25%. The CB management doesn’t exclude that the monetary policy of the CB may become restricted. It will depend on inflation developments. Many of the economists think that this policy will not much affect inflation rates but that it will harm the economic activeness because loan provision of businesses will decrease. The CB doesn’t agree with this observation. Stepanyan from the CB mentioned that this policy will mainly cause the deterrence of consumption loans and the increase of AMD deposits. And in the current year there will not be essential changes in business crediting. The justification is that unlike consumption credits business loans are mainly given in currency. The trade banks are not that optimistic though and are showing signs of worry. For example, the executive director of Converse Bank Tigran Davtyan mentioned during his yesterday’s press conference that the restriction of monetary policy may increase the interest rates of credits and slow down the growth of credit portfolios of commercial banks. He mentioned that almost all the banks have the issue of dram consumption and super consumption of currency because 70-75% of involved means are in currency.
The CB has increased the capacity of reserves in drams recruited from dollar resources, which makes banks direct a part of the resources in drams to reserves and as a result of that try to attract more drams. What can banks do in this situation? They will have to either increase the interest rates of the borrowings given in the national currency or cut down their profits on the account of the low-profit interest rates, which is hardly possible. This means that the consumer credits will become more expensive. For consumers this is the same as inflation.
In other words, we should understand that two good things at one time are not possible and if the government fights against inflation, it means it will result in a deficit of money, in the form of increase of credit interest rates. People have offered another method of fighting against inflation, which would not have such negative results. They offered to fight monopolies, as a result of which they would be deprived of their super-profits and competition would be free. The head of the CB’s monetary policy department thinks that the role of the oligarchic system in the current situation with inflation is exaggerated. He says that the composition of the economy of Armenia has not been changed much during the past years, and even in conditions of oligopolies, monopolies and competition the inflation level was low. “This inflation growth was a result of the influence of external environment and the weather conditions resulting in deficit in agriculture,” he said.
Of course there is some part of the truth in what he says, however it is not excluded that our monopolies have become greedier. Anyway, if officials are trying to justify the presence of oligarchs, it means that we will not see a serious struggle against the oligarchic system on part of this government.