It turns out that there are certain “recipes” and “medicines” to cure the “illness” of Armenian economy, however there are factors preventing the “treatment”.
Recently Grigor Badalyan, a specialist of “Akos” research center, came up with recommendations and explanations about the mentioned process in the web page of “Regnum”. The article is long, thus we will try to discuss only several parts of that article.
Mr. Badalyan says that at first, it may seem that the process is economic anomaly. “The statistics does not stop reporting about economic miracles (this is how growth that covers 10% of GDP is called), however, businesses and people have many difficulties”, says Mr. Badalyan.
He says that it is not a paradox. The problem is the fact that the mentioned process is “Dutch sickness”. In the 60s Holland started actively producing oil and gas. The exporting capacities of oil and energetic resources grew rapidly, which prevented the development of other economic fields such as reproduction, agriculture and tourism.
G. Badalyan thinks that the current situation is much like the one mentioned above. When an economic field is growing rapidly and thus the export capacities are growing a lot, the national currency grows too, which affects the other economic fields if the government does not interfere. In such conditions the given developing field and importers benefit much, but the others lose.
According to Mr. Badalyan, the mentioned developing field in Armenia is construction, which growth rate covers 40%. “Please note that in fact construction is an exporting field since most of the buyers are residents of other countries, who bring foreign currency with them”, says Mr. Badalyan. The latter thinks that the mentioned money is transferred to Armenia and causes demand to the national currency in the market. “As the AMD capacity in the market stays the same in the market, its price is growing”. As a result of the mentioned factor the production capacities are falling. “If the price difference between “Kotayk” and “Budweiser” beer brands disappears, consumers will prefer buying the famous brand”, says Mr. Badalyan and adds that for instance it is cheaper to have a rest in Egypt, Bulgaria or Turkey than in Tsakhkadzor and Sevan.
“We are happy to see the economic growth; however, we are concerned about the downfall of other fields and the quality and structure of the growth. The rapid growth in a field that is not a strategic economic field may affect the other fields that have a higher chance for development in the 21 century”, says G. Badalyan. The latter thinks that if the problem is not worked out, the economy will stagnate.
Nevertheless, G. Badalyan thinks that there are solutions. First, he thinks that the role of the government is very important and asks whether the government should follow the processes and not interfere (just watch) or should solve the problems that the market is not able to solve itself. He thinks that the second version is better and in that framework he has criticized the international institutions. Concerning the advocates of the first version G. Badalyan says, “…they are usually concentrated in the International Monetary Foundation (IMF), World Bank (WB) and other institutions, which are trying to help stagnated economies develop”. The specialist says that the actions of the IMF and WB are preventing the economy from development and brings an example: all the countries that have agreed their policy with the WB and IMF soon found themselves economic crisis sooner or later (Argentina, Russia (1998), Thailand (1997)). As for the countries that didn’t accept the help of the mentioned institutions could work it out on their own, for instance Thailand – it could overcome those difficulties and provide growth during the term of prime minister Mohathir Mohammad”.
Mohammad says that it is a pity, but the Armenian Central Bank is under the influence of the mentioned institutions: “The followers of that theory are like deeply religious people and in order to cure “the sickness” (inflation B.T.) they may give up and agree to take the life of the patient”.
The most convenient exchange rate for the domestic producers and exporters is 500-550 AMD for one USD. It can be done through both monetary tools (interest rate, etc.) and budget fiscal policy (for instance, go against the development in the field of construction through increasing taxes).
However, the analyst thinks that the most convenient and adequate method is to increase the capacity of Armenian dram in circulation, i.e. the CB should buy the foreign currency that comes from abroad, which will help change the exchange rate to a neutral level for buyers. This method has been discussed much. Specialists say that that may lead to inflation. Mr. Badalyan does not agree with that point and thinks that the representatives of the IMF just want to “frighten” us with their experience in developing countries. “Their statements remind me about a joke: the best method against dandruff is cutting the head. Yes, in that case there will not be inflation, but there will not be a good economy either”.
G. Badalyan thinks that the exchange rate growth has nothing to do with the high amount of supply, but the increase of producers’ expenses (increase of gas, energy, communication and other prices). In such conditions the CB cannot resist inflation.
Badalyan thinks that for the purpose of protecting our domestic producers we should follow the example of China, i.e. we should keep fixed and artificially low exchange rates, since the policy of floating rates can be success only in developed countries such as the U.S.A., Japan and European countries. “We wonder whether the policy that is successful in China, Malaysia and India may not be successful in Armenia as well. Does the government think that its development potential can be compared to Switzerland, Japan or Kuwait?” says G. Badalyan.
Badalyan believes that the mentioned policy will help not only the domestic producers, but will also give an opportunity to the CB to increase the foreign currency reserves of the CB. What prevents the CB from revising its policy? Mr. Badalyan says that maybe the problem does not lie in the economic field, but rather the CB is pressured by international institutions. Mr. Badalyan said that most of our foreign debt was due to the WB and IMF, and as well as the fact that upon giving money they state their own principles and regulations and said: “It is no secret that those institutions sometimes go too far and even the budgets of some countries are approved in the boards of those organizations. In addition, the CB policy is not difficult that much for them to manipulate. Taking into account the fact that Russia had to consider the policy of the mentioned organization, it is easy for those “agents of globalization” to have an influence on Armenia”, says Mr. Badalyan.
He thinks it’s highly possible that Armenian high-ranking officials may have made an agreement on the contract with the WB and IMF, which are suspicious about the economic interests and privileges of Armenia and thus now they can’t go back.
It turns out that these two institutions collaborating with Armenia in fact are undermining the Armenian economy. Why do they need that? G. Badalyan tried to answer to this question too: “The former representatives of those institutions have written books, where they openly confess that their goal is not to integrate the “developing” countries with the “golden billion”, but do their best not to allow that happen since the West has its interests”.
We don’t know whether this argument is justified or not, but our country is slowly becoming a “flourishing” state that does not produce anything and lives on the money that it receives from abroad. As for the international institutions, they have a positive attitude towards that policy. They are successful in everything. Here we Armenians have one more reason to be proud of our independence.