– What do you think about the reasons of the recent drastic appreciation of US dollar?
– To be honest, I don’t care about it because such short-term, processes cannot affect the macroeconomic situation. On the macroeconomic level, of course, some participants of the financial market and enterprises of the real sector may have losses or benefits. As for the reasons, I think you know what the reasons are. Usually such things happen always after elections, and those happen not only in our country. However, it is another issue whether the currency exchange rate processes are good for the economy in the long-term run. Here there are serious problems. We do not have the necessary tools and mechanisms enabling the Central Bank and government to manage the financial market effectively and form an effective exchange rate. First of all, we have problems from the point of view of developing the export directions.
– But this appreciation of dollar is not a short-term process and rumors say it will continue.
– I am happy for the depreciation of AMD because it can be good for our economic development. It is the government’s responsibility to take care of the social development projects following this process. In case of depreciation of the national currency there will be inflation because the share of consumer products import is huge in the economy. From this prospective the government has problems because they will have to do indexation of the real income of people. But ultimately the depreciation of the national currency is very beneficial for the economy. The problem is that in our economy the formation of prices is mostly influenced and directed by businesses that have privileged and priority positions in the market.
– Do you mean that the appreciation of dollar does not affect the price formation as much as the economic factors such as monopolies and their influence in the economy.
– Certainly. If you compare the exchange rate formation processes for dollar and euro, and if you see the margins of changes happening to those currencies, you will see that there is not and there cannot be any direct connection. Yes, our economy is dollarized – this is the first factor. Second, our economy is monopolized, and the third factor is the unequal tax policy, which does not let the prices be elastic. Generally this is a result of our economic administration. Thus, I would not advise anyone to take a small sector of the economy and criticize the administration of the Central Bank because they are not that guilty. They don’t have tools to prevent that from happening either. We have constitutionally obligated the Central bank to resist the inflation and form stabile prices. Such simple approach is too primitive in the modern world. Years ago we raised this issue to the extent of discussing it in the context of the Constitution. Now economy offers different models in the world, where the monetary policy should have more active participation in economic development. There are amateur decisions in this issue too because it is a tough thing to handle.
– What tools should the CB have that does not have now and what do you mean by saying “participation”?
– First of all we should have a development capital market, which should have developed financial mediation institutions and long-term financial resources, i.e. financial products in the market. The producers and consumers of financial products are usually the financial institutions, which do not exist in Armenia except for banking institutions. This is a complex system and in the situation we have the CB can do nothing but intervene in the currency exchange market and do some small actions such as providing pawnshop credits, repo transactions, increasing or decreasing the compulsory reserve funds, which in fact do not have much influence on the market. Thus, if the CB had a chance to form a large basket of capital in the market, control the amount of money through state obligations or trading, use effective tools of forecasting inflation processes and directions, there had to be a market-oriented tax administration and legislation. We had to have total competition in the market, which is the ground of all grounds of development. If there is no competition, there is nothing about market economy. If we do not have a market economy, which we in fact do not have, the other tools are becoming useless. In other words, currently we are in a deadlock situation and there is no way out of it if we do not make core and drastic changes in the entire economic system.
– Obviously the Armenian budget cannot have rapid growth in 2013. In addition, 2013 is going to be the most difficult year in terms of covering the foreign debt as we will have to pay half billion dollars. What will be the impact of that on the economy and budget expenses? Where will the state find that money from?
– I don’t think any problems in mid-term and even visible long-term prospective. The foreign debt of Armenia is not so big to cause such problems. There is a problem, which we see when comparing the capacity of foreign debt with the export, which makes us worry because not the foreign debt is huge, but it is the potential of the economy that cannot handle that debt. This means that during the past twenty years the government was bearing this foreign debt and did not have an adequate policy to handle it effectively. Foreign debt should have supported formation of institutions in Armenia during these years. Foreign debt should have solved these current problems, which were not able to be solved due to lack of own resources. Thus, foreign debt continues to grow but the problems continue being the same. If we continue collecting the foreign debt but fail to solve the current problems, one day we will appear in the situation where Greece was recently. Ultimately the foreign debt should serve for the purposes of developing the economy, activating economic relations and forming institutions in Armenia.
– But the representatives of the government say that some part of that foreign debt has been given to certain companies as credits.
– I will not speak about the micro level because the government knows it better. I am speaking about the results we have, and now in our country the level of poverty is 35%. During the recent years poverty was even growing. We have continues tendency of emigration and reduction of the purchasing power within the society. The formation of the pension fund is a problem that has not been solved either. I don’t understand either how those problems may be solved in these conditions.
– You spoke about a number of problems impeding the economic development. Are those a result of bad work of the government people or lack of wish to change on the part of the top authorities?
– Ultimately the last twenty years do not differ much from each other and it is difficult to separate the governments of those times and say which of those governments failed to do that or worked infectively. However, I assure you that during the past ten years the process of institutional changes in Armenia has become slower. The reason is the fact that in 90s the problems and tasks were simple and required simple solutions, but now the tasks are more complicated and require comprehensive solutions. Now the problems are more institutional and complex, thus they require a complex of solutions, including effective administration, which does not exist in our country. We don’t have the connection between the state and society, we don’t have the most important thing – reliable and attractive business environment, which would support the development of small and medium businesses, foreign investments and innovative development in general.
– On the other hand, according to the reports of the Moody’s and Doing Business international organizations, the business environment, free economy and other relative indicators are improving.
– You can say that too. But it is a fact that we continue being an extremely poor country, we have extremely humiliating environment for people, and these conditions require drastic changes and reforms, which are difficult to do. This is not our problem only, but this problem is common in all post-Soviet countries. As a good example I can bring Georgia’s example as they were able to solve many of their problems, however they still have problems to be solved too. It is not easy to solve those problems but if the authorities really wish, they can make the life much easier. We have lack of professionalism too. For a country in such situation a priority goal must be crisis management policy implementation. The way we have been behaving during the past 10-14 was like we were Finland or Belgium and could afford many things. We were working quietly, doing reforms step by step. It is twenty years that we are in an awful crisis, and still cannot find a way out and this circle is becoming narrower. In such situation we should have been able to find non-standard solutions and our priority goal should have been directed at our main resource, which is potential of the Diaspora. However, we failed to do so.