– Mr. Bagratyan, during the past 10 years the Euro was devaluated very rapidly. Do you think that is a result of international crisis or local factor?
– The rate is being shifted in the whole world. In Armenia this process is expressed in a more condensed way. Before explaining the Euro devaluation let us remember the devaluation of the USD during the past 3-4 years. The CB used to say that the AMD is being revaluated compared to the USD because the labor productivity was increasing in Armenia. Later everyone realized that the reason was the inflow of monetary transfers to Armenia from abroad. Now the AMD is being revaluated compared to the Euro. There are two reasons here. First the Euro was devaluated 10-12% during the past several weeks. 1,30 USD is given to 1 Euro. A month ago the rate was 1,60 per Euro. There is a simple reason why the USD is being revaluated in the international market because of the international economic crisis. The crisis includes the US. Because of this crisis the demand of the USD in the stock market has increased. Besides that the revaluation of the USD causes price slump of oil. This is of course a factor, which is independent from us. But there is also a factor, which depends on us. There is a serious slump of demand to Euro in Armenia. As a result the price of Euro is decreased. The explanation of the CB, according to which Armenia is not involved in the international crisis, is totally stupid. But in general, does the CB or government of Armenia any connection with world processes?
– But what is happening in the world?
– What’s happening in the world shows what an incompetent president means. This time I mean the US president George W. Bush. During the past 7-8 years (after Clinton) the US economy had been ruined. He tried to overcome the crisis caused by the war in Iraq and Afghanistan through artificially stimulating construction in his country. It would be enough to say that in 2000 two million people would take mortgage debts from the bank; in 2006 the number reached 8 million. 20 years ago nearly half of the US population used to rent houses. Now the majority has houses. The banks would accept mortgage by relying on the purchased houses. This wasn’t reliable. By offering these credits the banks would insure their stocks in other banks and insurance funds, etc. Even a theory was created the risk must me minimized at the expense of stocks. But the problem wouldn’t be solved that way. The Federal Reserve System would give money to banks at 1.5-2% during the recent years. The whole market was rinsed in money and conduced to the devaluation of the USD in world. And now is the turn of those stocks. The banks didn’t know what to do with those stocks. But some day the banks should have to return the money borrowed for construction. It turned out that many of them don’t have money to pay back. Others realized that it is the right time not to pay back. They were saying sell the houses in mortgage. Thus, the supply of the houses essentially exceeded the demand of houses. Of course the construction activated the growth of other sectors of the economy; however they didn’t create new sectors for consumption. So this policy didn’t help the people to make more money to pay back their debts. It seemed that many of the banks didn’t mind that either. And many of them declared insolvency. Two things are specific in the US banks – the managers and owners of the banks are totally different. The issue became so serious that many of the staffs of certain banks refused to save the bank. By having 25% of the world economy, 12% of the world trade the US has over 50% of the world stocks. And now the solution was to buy those stocks at 700 billion USD. This was absolutely wrong and corrupt decision. The smart thing would be to reformulate the debt of the people as the debt of the country. They should have given the money to the people to pay the banks and not deal with the stock market. Some people are saying that 500 trillion USD stocks were given out. The stocks have turned into a second type of USD and the Federal Reserve System didn’t deal with their emission issues. The release of the money and artificial stimulation of construction are against the credit principles. That is a very rough method of mediating the economy on part of the state. Perhaps Bush was feeling envious about the praise of his predecessor Clinton (the latter was the best president of the US; he provided a non-stop economic growth for 8 years and provided low level of unemployment). The provision of economic growth through construction is characteristic to Russia and Armenia as well.
– What is the state of the RA economy?
– There is a terrible issue in Armenia. Numerous houses were built, the majority of which is not sold now. I’d say in Armenia crisis arrived a year ago and the issue is slightly different. Here Robert Kocharyan, Armen Gevorgyan, Bishin, Hermek, Elite Group, Tonus and others are in charge of construction. Here huge pyramids are being built. These people take credits from banks and start construction and then re-credit the same project. And all that is not reflected in the budget. If ten years ago we had a budget that could be comparable to the budget of Azerbaijan now our budget is 6-7 times less. We have been paying with our undeveloped social level. What consequences can the crisis has on us? First there is a great risk that the amount of monetary transfer will decrease rapidly. Gradually the importation level will decrease and the prices will increase. Secondly the metallurgy of Armenia will suffer; the price of molybdenum has seriously decreased. Here problematic banks may become the Arshininvest, VTB Armenia, which had made serious investments in metallurgy and mortgage credit. The third issue if the consumption of construction. As the owners of the construction are people loyal to the current government and more specifically the former president they don’t pay taxes. They didn’t even rush to sell their product. Many banks are reconstructing many construction projects. In the line of mortgage credit it was quite popular to build pyramids (by CB’s silent agreement) due to re-crediting. The same construction project is being re-credited 3-4 times. They build a little bit. Later they want more money. However, the constructor should sell a part of the built product before continuing the rest of the construction. But it’s not sold. The mentioned banks already have a problem of being liquidated. I hope there will be no need to return the deposits of people. It is also a possibility that investment banks will also have issues. Those banks are the Credit Agricole, HSBC, etc. The Armenian banks will also soon start to face serious issues. All this will be very visible in spring. IPOs also cause great concerns. Because of Tigran Sargsyan a number of companies (ArmRusGazProm, Valex) have gathered quite a lot of money. The strategic investor should spend money from its own pocket or take a credit from the bank. They should not collect money from the people and IPOs shouldn’t be issued. Now they insist that we don’t have any connection with the world economic crisis. A year ago they were bragging that we had a developed banking system and are integrated in the world. This government is not able to do any serious analysis.
– What shall the government do in these conditions? What shall the banks do?
– They have a lot to do. For example, I don’t know if there is any decision to cease the re-crediting of construction projects. Whenever they build a building and the money is not enough they should get insolvent. But the ones, who construct, are from the government. Same with metallurgy, which has been occupied by the team of the former president. Who will ever know what is actually happening in that sector? This is not even a competitive market. The price of molybdenum increased. People were selling and receive incomes. But no one has ever inspected them; no one ever checked whether they abide the laws or not. Thus they may have serious consequences on Armenia. I can also mention one consequence. In the whole world the oil price decreased by 45% and 15-30% the oil price decreased. We already pay for that crisis. There is no competition in Armenia; all the prices are appointed. The percentage of the bank credit is also appointed. That includes the currency rate and everything else. Open the website of the CB and there no decent information there, just minor things and no serious analysis. They always show the faces of statesmen, who we all hate. They keep repeating that everything is OK. If there is no problem why would they repeat that every day? But our corrupt government, which survives at the expense of the taxes of the RA citizens, cannot continue this for too long. It seems that they are not even taking any steps to improve the situation. They don’t even have any idea what to do.
– Mr. Bagratyan, what solutions will you offer for this situation?
– I don’t have to criticize every time and offer solutions. Nevertheless, I can bring up several solutions. Those are connected with actual reforms. Let them levy property tax from the property owners especially the property from downtown. Let them apply a construction tax. Robert Kocharyan will punish them for that. I don’t have to speak and offer reforms for each word. They find it a reform that the tax inspection should work in the framework of the law as though the previous law forbad that.
– Recently they declared as a reform that the importers may appeal the prices set by the customs committee.
– Couldn’t they sue in past and now they can? According to the law the importers can always disagree with the set prices. This has been set in the customs code since 1991-1992. Is there any reform here? I offered you a few reforms. I can continue the list. The CB must be deprived of the right to emit credits. The financing of schools by the state must be implemented through vouchers. Let the parents decide which schools to send their kids. Today they pay less in the private school than in the state one. A part of the teachers is corrupt and even criminal during the elections. The banking system of the whole world is sick with flu. It reaches us to but nothing is done to prevent it. Let them start a discussion in the parliament. But how can they discuss this with the oligarchs of the parliament? The government of Russia gave money to the VTB bank. The VTB finances the Teghut project with 247 million USD. The price of copper decreases and I want to know what’s going to happen next. They should tell us that. We cannot always speak. We speak and criticize but we are sued for that. If the government doesn’t have ideas it cannot cope with the idea or opinion of others. Armenia is in a tragic state. We should add political difficulties to this.