– Mr. Bagratyan, there are opinions that the world will undergo the second wave of the global economic crisis, which may be even more powerful. What expectations do you have in this regard? What impact will it have on Armenia?
– The world has entered the phase of long-term concerns, which will last 15-20 years. Therefore we don’t have the quiet world anymore to speak about the wave of crisis. In general 2011 was not a bad year for the world. The world economic growth of the year is not analyzed yet but it will reach 3,7-4,2%. The growth rates of China is known – 9,2%, India – 7%, Russia – 4%. The year was principally good for the West as well. The economic growth of the US will soon reach 2,5%, Germany – 3%. There is a problem in the European Zone. The economic growth of France will be 1,5%, Italy’s – 0,5%. Greece had a 5% slump. But one thing is clear for sure. The world debt by the end of the world amounted to 70 trillion USD and the state debt already reaches 50 trillion USD.
– What is the main issue of the world crisis under these circumstances?
– The world must be able to resolve the problem of the debt. Unfortunately, the practice of Greece and the recent statement of the IMF president Christine Laggarde show that the key way of overcoming the debts is to cut the expenses. This is a momentous policy in economy. Here there are a few elements of monetary policies. Everybody sees the main lever in the budgetary policy. The cut of expenses means regulating the curve of gross demand. Now the main emphasis is put on cutting expenses.
– Is it because of state expenses that the world undergoes financial economic difficulties?
– Here economics is divided into two groups. We have spoken about the economic team of the IMF. I personally don’t think it’s a solution because the cut of state expenses will cause the lingering of the world GDP rates. There is already such a motive. Last year the world grew by 5,1% and this year – by 1%. Recently Laggarde requested extra 500 billion USD. I don’t think this is the right solution.
– You have become the author of a new theory in economics – mega-economics. Does it offer a more efficient solution?
– The main problem of the world is the following… A joint market of goods and services is established. But the currency is not unanimous. They use the Euro, USD or the currencies of other developed countries. Their emission is not controlled by the world. Under these circumstances when the USD remains the currency of the US, Euro – Europe, I don’t think that the cut of expenses will resolve the current problems. I think the main solution for the world would be the increase of the deficit. For instance, let’s take the budget deficit. The budget deficit of the US is 8,3%, Armenia’s deficit is over twice lower. It means we cannot return to Keynes’ theory. There is no intermediary linkage between the deficit and interest rates of refinancing. We often see that the budget deficit is much more than the general deficit. For example, the budgetary deficit of Greece in 2011 amounted to 9,5% in relation to the GDP. The inflation was 2,5%. In its turn unemployment doesn’t have a direct link with the inflation. What I’m saying is a completely new system. Keynes’ theory is macroeconomics. Before him there was no microeconomics. In 1929-31 after the crisis Keynes said that by regulating the supply, by cutting the expenses or increasing the expenses of the people, we can ensure that there is no crisis. Now it’s clear that over time this was wrong. Keynes is not wrong. It’s a matter of time that goes by and new ideas are needed now. Economics is not like arithmetic. In economics numbers may be different depending on time. Monetarists followed Keynes, who saw a direct link between economy between the budget deficit and inflation. Today there is no direct link anymore. And this has its explanation because during the times of the monetarists 20 years before in the world economy there is no market of joint services and goods. The completion of that is the establishment of the World Trade Organization, which currently includes 98,5% of the world countries. And now there is a new trend. We see that the percentage of government securities in direct communication with the level of unemployment. The unemployment rate seriously affects the fact that the progressive tax system is not smooth. These are the new economic patterns, and so I collect these regularities, accumulate those, and these will be published as a book, named the Theory of Mega-economics. Mega-economics finds its place next to micro and macro economics. I urge all of this theory is that macroeconomic policy cannot be without something new to see, and just reducing the budget deficit does not always lead to low inflation. The Central Bank controls the money base by more or less trying to reduce inflation, but we see nothing in it that eventually closed the year 7. 7% inflation, the budget was 4-4,5% last year to 8.2% of the site is written in a small number of CB 2011 in December 2010 to December of this trick of the year, average inflation is 7.7 percent.
– You have brought up the experience of the world. What is the situation like in Armenia?
– Whatever was done in 2011 was 90% wrong. We don’t have any essential results. Let’s start from the numbers. For 2011 they have showed 5,9% activation index. 70% of this is a bluff and 20% of that is the lie of macroeconomics. It is said that agriculture grew by 14,1%. That is a lie. According to various data, the Armenia population reduced by 30-100 thousand people. In this case, there couldn’t possible inflation of 7,7%. Do you remember that a few months ago I suggested that you check the figures of grapes? The government’s reaction on that was 0.
– Industry also grew by 14,1%.
– Industry growth has come from the mining industry, increased electricity production, which went to mining. But in this case the economic value has not increased. 6% increase in insurance services, it is in GDP methodology insurance is considered to be the product of this cost is not possible to falsify the numbers when we take them out of the industry, where pre-registered 37% growth, and the insurance is, we can see that zero. The GDP for the parallel account of the national income, they see that there is a value-added growth, but the other bluff happened last October. They told us that the economic activity rate of 3% compared to October last year is now on the edited version of a 4.1, 2.4 in November, now – 3.1. What is the truth? 20 days ago announced that inflation is 4.8%, and I reacted. But isn’t the average annual inflation 7.7? This is now what we have left. They digested 4.8 percent in December. Last year they announced that the GDP growth is 2.6% to 2.1%, after they wrote, the World Bank’s estimation is 1%. Now let’s wait and see what the 5.9 percent will become in 3 or 4 months on the World Bank website. I address my words to the RPA. Dear friends, your economic teams remind me of a cat. No matter how you throw them they still land on their feet. Beware not to get burned. I am afraid you may burn down the country with yourselves. Don’t you need accurate numbers? I am addressing the RPA chair. Who needs this bluff? How much was the GDP growth last year? Nobody knows the answer. Two years ago the slump was 14,5%. Open the same website; by the USD it is 32%. How much longer can we play like this?
– If we don’t count mining what kind of GDP will we have?
– Exports at current prices amounted to 1.3 billion dollar instead of the 1 billion of the last year. When we cut the inflated price of mining, devaluation of the USD from 1,3 billion then the number is less than 1 billion. There is no real export growth if our population was reduced to 14% more for agricultural produce, cannot be stored tomato. Do you want to say that the commodity resources are added? We understand that products produced and sold. The population is reduced. The price was about 8% growth in the numbers or GDP and average wages increased by 5.9%, prices 7.7%, 1.8% of people, even their numbers are bad, but why do we we have 2% of the poor live, when 6% more goods and services we produce, and our feeder mouth is 2% lower in this case. Simple logic would say that we are in 2010 compared to 2011 is 8% better were living. I would like to invite attention to these numbers for. Friends, let’s stop this game.
– When speaking of adverse economic conditions the relevant bodies bring up the global economic crisis.
– The crisis has nothing to do with it. I compare their numbers; their numbers do not hold inside. With regard to the crisis, responsible manner, declare that the 208 in 14.5 percent of fall 2009, in the end we won the 4th place with us bad been in Estonia, Latvia and Ukraine is the world’s decline was 1.7 percent.
– However, in 2012. State budget expenditures on the social dimension were preserved, even pensions increased by 10 percent.
– The budget of 911 billion in revenues, which in 2011 from the 852 billion is 6.9 percent and reach 5.5% of the deficit. And if anything decreased, inflation at the expense of 852 to 898 billion would be that the increased only to 11 – when the economic growth of 4.2%. But if there is an increase of 4.2 percent, not 11 billion budget increase should be compared, but rather a result of the specific share of GDP will come, 15% of total tax revenue. They say 10 percent pension increases are planned in 5.5% Inflation, which they very well know that food prices will be 12-14% pension from a man who accepts food and utility service to the inflation rate is another thing. Yes, there are things that drop the price such as the Internet or TV, but it has some connection with the pensioner, pensioner. Except food otherwise take some time to say that the normal inflation rate is at least 4 or what chapter it is commendable that the pensions are paid 10 percent or added. Look at 2007 and 2008 in your program. Where they should be double raise? And these people want the choice to go for this cynicism. I am ready to apologize if my statement is wrong.
– Recently the government seemingly agreed with the 100 steps that you suggested. According to your thesis the mines are supposed to be sold. Are you satisfied now?
– Oh this step reminds me of the joke of the Armenian radio. Yes new changes were proposed to the law on natural resource use and environmental law in December. The fees are included and royalties are set. So the earth crust is sold to the producer. But first, why the royalties include only the metal mining? The second thing is that mine is the mine operating company pays a price based on its profitability, divided by 8 number with the price of the miner’s profitability. I call this number the Armenian "p.” As a result, the global price of raw materials makes only 2 or 3 percent of the budget. It is no coincidence that, as we saw above, this "innovation" of the revenues is not increased to the mining industry revenues even less. In Libya Khadaffi brings in to budget 92% of the budget in the form of royalties. In Armenia it is 2%. I leave the conclusions to you.
– What is your opinion about the statement of the minister of economy of RA Tigran Davtyan, by which he said that migration is not his sector?
– At the beginning of my lectures of macroeconomics class I explain my 18-year-old students that the number one news for the state is population, second – territory and third – GDP. Moreover, the first is more important because in the long run the change of the first one causes the change of the two. Perhaps because of the fact that we didn’t understand these simple things we have lost 90% of our territory during 1500 years. So the types of the minister you pointed out fail for 1500 years and still remain on the surface of the water.