– Our country reports about fall in production, fall in export, but meanwhile double-digit economic growth. It turns out that the mentioned growth does not mean anything. What do you think about that?
– It’s time for the government to think seriously; such double-digit economic growth mark does not exist. The main “drivers” of the economy are agriculture, construction, mining and services. As for agriculture, we have the following situation. The regional chapters of the agriculture ministry are collecting information from their regions, are defining figures, for example writing 2.500 tons instead of the real 1.000 tons and are sending that information to the ministry, the ministry is working on that data and is sending to the statistical department. If we take the indexes of agriculture growth since 1990, it turns out that agriculture has grown by 170%. It will seem surprising if there are people that criticize such growth. Based on the real capacity of the produced agricultural products we may say that we are more developed than countries such as Greece and Portugal. It is time to quit helping us with food and the EU should make Armenia help others with food. They should be more serious. Those figures are overstated. Village community heads and the heads of regional (Marz) management boards are competing with each other just like back in the days of communism.
The same thing is happening in construction. Of course, there is a lot of construction going on; I’m not saying that it doesn’t exist. A lot of buildings are being built in the center of Yerevan. However, we don’t see any construction in the suburbs and out of Yerevan (except the earthquake zone). As for the center of Yerevan, they are constructing buildings there because the prices are much expensive there than in Marzes and suburbs. In other words, we shouldn’t get ahead of ourselves; the world is developing. In such conditions of money inflow the growth mark could cover maximum 18-20%.
The next “driver” of the economy is the field of services. In the beginning of 90s the privatizations project that we proposed was very effective. Small businesses were privatized and thus small businesses received, which helped citizens make money and run small businesses. They helped services develop, which is the main dynamics of economy. This is normal since the structure of employment should be like that of Western Europe, where the most part of employment is covered by the services sector.
This is not a real product. For instance, if we take the capacities of production, i.e. the capacities of shoes, lamps and other products that are produced now, we will see that the capacities of production are less now than that in 1993, furthermore, in 1990.
– Some people say that it does not matter which fields are developing and what is produced. They say that we should work in those fields where we are compatible. If we are competent in the field of agriculture, accordingly we should pay more attention to agriculture.
– As I said, the growth marks for agriculture are very overstated. Such growth does not exist. As for the field of production, it is worse even compared to the situation in 1993-1994. I’m not talking about the situation in 1995-1996, when production was really active and was growing. I don’t agree with those who say it does not matter.
The economy has its “fourth driver” as well. Armenia has mines of molybdenum and copper and prices have grown by 4-5 times, the prices for these two things are growing even faster than the prices of oil. The reason is the fact that there is a lack of these two things. Furthermore, it is in higher demand than energy. Of course, its capacities are growing, but please note that its capacities are still less than the capacities that we had at the beginning of 90s.
– Do you mean that the reason this field is growing is the fact that the prices are growing?
– Actually the growth would not occur on the basis of the growth of prices, if the real GDP is calculated right. Notwithstanding, the real GDP calculations are done with a variation of 5%. It means that the statistic services may be wrong by 5%; I mean that 5% out of the reported 11% may be this mistake.
I am not saying this to criticize the government, which is success in some fields (for instance, the field of services). I am saying that so that to understand that if one day we fall into a bad situation we know that the mentioned growth digits did not exist. God let us be far from such situations, but if we fall into such a situation in a couple of days we will see that we don’t have any food to survive.
– If the GDP is growing by two-digits, logically it means that as well as the tax incomes are growing by two-digits. If the growth figures are overstated, it means that the real growth capacity is less. How do they provide more tax inflows in the budgets?
– If you pay attention to the tax growth dynamics, you will see that in the period of 1993-1996 the expenses of the budget have grown up to $500 million from $50 million. The budget covers one billion now. It has grown by two times in ten years, while in three years only it has grown by ten times. The tax collection marks are showing that either the mentioned rapid growth does not exist or the capacity of shadow business is too much (businesses that don’t pay taxes).
– Do you mean that the tax collection growth tendency does not correspond with the economic growth tendency?
– These two factors are not interconnected with each other directly. Let’s take the information of 2004. The economic growth mark was 10.1%, as for the tax collection growth mark, it was 17.9%. If we take into account the fact that the inflation mark of 2004 was 7%, it is coming out that the real growth of tax collection capacities was by 1%.
When discussing the issue of tax collection growth you should take into account the fact that if the economic growth mark is 1%, tax collection growth should be in the range of 2-2.5%. There are two reasons that describe this outcome. First, according to different estimations, the half of our economy is shadowed and is not taxed, thus accordingly the tax collection capacity may grow even if the economy is regressing. Second, the tax income capacity includes the inflation as well. As for the inflation connected with dram, it is a serious problem now even if its prices are growing.
– Now let’s speak about the inflation issue as well. The CB has defined a strategic mark of inflation as 3%, which shouldn’t be more than the prescribed mark. Notwithstanding, according to the official information, the inflation mark of the last twelve months is more that 6%. Do you think that the most essential problem now is keeping low level of inflation? Do you think that the information of the state statistic services is right?
– In 90s we defined that the function of controlling inflation tendencies should be given to the CB, and later we made legal amendments and that function was given to the CB to perform solely. The reason was the fact that the authorities were trying to stabilize the situation (to stabilize does not mean to exclude inflation) so that people can make investments in the environment of the mentioned system of prices and thus start make savings and develop. I am glad that we have passed that phase. In spite of that, after passing that phase I don’t understand why the CB still bears responsibility for controlling inflation. It is not government and for fulfilling its responsibility it is using strong tools such as regulating the capacities of dram, thus affecting businesses. The more it tries to regulate it in parallel with development, the more it will serve an obstacle for the government. This function should be simply taken from the CB.
Second, the information that describes inflation is not true. The goods that are used among the 470 goods and services in the basket of products contain units, which were not included in the list before. For instance, mobiles phone and Internet. These are products and services that have become very important part of IT in these 3-4 years. The prices for Internet services are calculated since last year, while it is used for more than ten years. Besides that, almost the prices for ground transportation services are not included in the list because of the fact that the lines were taken out, etc.
Otherwise, the cadastre says that the prices for real estate property have grown, but those prices still are not included in the list. They have found an original answer to this question; they say that they have taken into account the prices for renting apartments. This is not serious. We should take into account the fact that in the recent years USD gas grown by 18-20%. Several years ago Armenia was not considered an expensive country to spend dollars, but now it is and is approaching the status of Moscow, where prices are very expensive.
There are products that are not calculated in a duly manner. For instance, the two factories of cement are getting aid in parallel with the growth of the gas prices, but it is not shown in the index of prices. Aid is money that is paid by the state; it is added to the existing market prices.
– Mr. Bagratyan, if everything is not so well as it is explained by the statistic and other relevant bodies, how can we understand it? Do they cheat people or they understand the problem in deep?
– From the political point, all what has happened is the following. In fact, the existing authorities are free of opposition. This is their tragedy and usually, as a rule, this is what collapses the rule. There must be a mutual contact between the authorities and people. The opposition is the operator, the connecting point of that contact. Due to the fact that this contact does not exist the authorities don’t get information from people. They don’t know what is really happening in the economy. Of course, there are positive developments in the economy, but still the economy is too far from being the one that they present us in their figures. This fact is seen more clearly connected with the CB, which was given a full legislative power, and the field has appeared in an uncontrollable and weak management situation. This is the reason why the problems in the economy are not given with professional solutions. When the parliament was appointing the board of the CB and the permanent growth of AMD was a reality already, neither of the MPs asked serious and issue-based questions. The proposed candidates were being approved in their positions. And now we see the results. It is not clear whether the authorities are able to criticize their past performance and find new solutions to work it out or not. We don’t have any based reasons to present the economy in bright colors and be happy for that. It is a very good factor that money comes to our country, but we are not ready for that and instead of using it effectively it has become a problem for us. What are we going to do tomorrow since we have many problems? Nothing; the contact does not exist any more. When the opposition does not work the information that comes is not true. Otherwise, there may be someone in the opposition, whose point does not differ from that of the authorities. All authorities want to have such opposition. I believe that there are people in the authorities that are really concerned and understand the real situation well. It is very important to understand that we are being faced with new challenges and we should be ready, but not organize press-conferences that don’t say anything and publish such figures.
– Generally, which are the priority economic fields to you that may help the economy grow well if developed?
– When speaking about the economic policy I remembered the mentioned document as of May, 1992. As I said, the reformations were divided in three phases. We are entering the phase of development now. The society has developed enough and is ready to invest money to provide development. Accordingly, we should ask ourselves which the main priority fields are to develop. What should we do? I will try to speak about the main ten issues that we have.
The first priority issue is to have a good technology of investing money. I have noted above how we can transform the money that we receive into a source of development. Accordingly, the system of the Central Bank and the government should be revised, I mean their rights and responsibilities, and more responsibilities should be given to the government.
Please note that some nature mine products such as molybdenum and copper have become so expensive that have almost reached the price of oil. We should have specific royalties to transform this money together with the money that we receive into a source that may provide development for the society generally.
Now it has become possible to solve problems in the framework of state-private sector, business-citizen relationships such as problems that concern new quality production (new atomic station, HES, railway that may connect with the South, tunnels, etc.) and new services.
It is time to stop giving privileges to foreign investors. We should give equal rights to the foreign and domestic investors. After this phase of inflow of capital, there will be a phase of outflow of capital. By the way, from the point of productive capital the outflow capacity is more than the inflow already.
Businessmen are working in Armenia, making money and are taking their businesses and money out of Armenia without paying taxes. Such examples are widespread. The next issue is founding a market for corporative stocks. I think that what happened in the past six years is not good for us. We had a stock market; it is another issue it worked well or not, but anyway we had it. Later it was closed without any explanations and its functions were given to the CB. Neither of the serious companies in Armenia sells stocks in stock markets (if there are exceptions please forgive me). When we speak about Armenia in abroad, economists ask a question, they ask us whether we can give them correlation dynamics of the Armenian stock market during the last period or the previous year. In such cases, we have to confess that there isn’t such a thing in Armenia. To this note, they usually reply that it means that our country does not have a market economy.
The third issue that we have to take into consideration is making a total reformation of the educational system. It is time to stop the method of organizing centralized entrance examinations. Ministers are speaking about fair examinations, but it is time to stop playing those tricks. They should decide during the session exams who should receive financial support from the government to study and who should not. This should be done in fair conditions and thus the market will regulate the prices for education. The examinations will define the low and high payment rates. Universities will define their limits and there will not be any understandings such as “state universities”. The educational system must be totally decentralized. Everyday life should decide which professions are in high demand and not the officials. As we see, when there are disturbances, officials always take bribe.
We should finish the reformations in the field of health care. When the state provides money for treatments in hospital the state should not give that money directly to hospitals, but rather to citizens. After that, citizens can decide whom to pay that money. This process can be organized via specific medical vouchers. Besides that, the field of science and culture must be reformed as well. The state should provide money to support programs. Theatres and small institutions, with some exceptions, should be privatized. Their own councils of scientists and culture specialists should decide how to distribute budget resources and whom to give titles themselves. We should cease with the practice of giving state honor titles to artists.
It is very important as well to make serious reformations in the field of justice. The existing situation in the system of Justice is very poor and shameful. The new Constitution did not solve any problems; the only change is the fact that the general judge is not appointed by the president, but is elected by the Justice council from its members. I think that for making a deep reformation of the judicial field it is very important to have an alternative court. For instance, that court may be formed with foreign judges. Founding alternative courts is the only way to create competition between the courts and cut off corruption. In parallel with that process we may continue reforming the field of justice and in 20-30 years we may already dissolve the alternative courts.
Next, we should revise the functions of the customs body. It is time for the state to give licenses to private companies via competition. The state should not be a monopolist in that field. Often the customs department serves more as a political tool than a state-economic institution.
We should revise the institution of state servants. We should cut of the personnel and increase salaries by 5-6 times. It is not so difficult to do that. It is easy to find resources to pay their money, even it can be done in the way I mentioned above. We should understand that the state is less important than the private sector, since currently state servants feel that they get less money and are lower than people that work in the private sector. From the point of quality the best example is the situation in the field of Mass Media. Accordingly, the situation in private newspapers is better than in the governmental ones.
The police structure, power structures and defense structure need to be reformed too. First of all I mean the transparency of expenses in those fields. The problem of transparency of expenses concerns the budget generally. The state department of purchase does not work effectively. Either we should found a new more serious agency, or regulate the purchase activities of ministries through law.
Besides that, the bank-related activities that are done by ministries should be revised and controlled.
It is very important to reform the system of social security (insurance and stipend funds). We have to open two separate lines (state and private) and insure people’s savings.
– Doesn’t the adoption of a social security card system help solve that problem?
– The system of social cards has not brought to any results like that. I think that social card had to become an economic identification for citizens, but it does not serve for that purpose at all. Currently the state is using those cards as an extra tool to control, nevertheless, social cards should express the economic status of citizens.