The Gross Domestic Product of Armenia will reduce by 11% in 2009. During the economic forum organized by the Policy Forum Armenia this viewpoint was expressed by the former chairman of the Central Bank Bagrat Asatryan. The latter, by the way, praised the organization of the forum by saying that finally in Armenia the government has started to speak about the problems.
“The things happening in Armenia were not even supposed to be publicized. We are accustomed to not speaking and debating about issues,” mentioned Asatryan and added that then when the whole world was in crisis nobody was speaking about that in Armenia. And now when the whole world is discussing the possibilities of resolving these problems the Armenian government is discussing the reasons of the crisis. During his calculations Asatryan took into account only the indices of January-March (April wasn’t publicized yet). And the fact that the macroeconomic indices were worse in January-March then Asatryan didn’t exclude that the slump will be higher in near future. He explained his pessimism with the fact that he doesn’t see any serious program of overcoming the crisis on part of the government. Besides that, the negative factors, which affect the situation – the decline of foreign remittances and the loss of working place in foreign countries and especially in Russia, will impact our economy in the fall. Therefore, according to Asatryan the negative incentives will continue next year as well. As of the necessary steps then Asatryan first of all emphasized the political developments because without certain progress in those it is senseless to speak about the success of governmental programs. Nevertheless, Asatryan preferred not to speak in detail about internal political situation because of the fact that the forum hosted a major number of foreign guests (including Turkey). In the words of the former CB chairman a serious program is needed and not “fairy tale speeches, which are heard from lofty podiums.” In this regard, Asatryan mentioned in a positive meaning the activity of the CB, which is the only state structure that operates based on concrete programs and is more serious and honest compared to other structures. Let us mention that the forum also hosted the deputy-chair of the CB Vache Gabrielyan. He mentioned that the impact of the crisis is already noticeable. According to Gabrielyan in Armenia the government applies all the standard steps of overcoming the crisis, which other countries apply. The main means of tempering the consequences of the crisis is the stimulation of the development of the economy through improving monetary loan policy (improving interest rates). In the words of the CB deputy-chair there are two trends of expenditures – infrastructures and small/medium businesses. He confessed that “loan policy” has drastically deteriorated. Economic recession in Armenia has accelerated since then, with Gross Domestic Product shrinking by 9.7 percent in January-April. Vache Gabrielyan, the CBA’s deputy governor, said that the bank now expects the domestic economy to contract by 7 to 8 percent in 2009. The CBA forecast a full-year GDP drop of 5.8 percent as recently as last week. “In our opinion, one should not anticipate a deeper economic decline,” Gabrielyan said, speaking at an economic forum held in Yerevan. “In all likelihood, one may anticipate an economic decline of 7-8 percent in annual terms.” Gabrielyan predicted that Armenia’s macroeconomic performance will improve markedly in the second half of the year because “substantial inflows will be channeled into the economy.” The official appeared to refer to hundreds of millions of dollars in anti-crisis external loans secured by the Armenian government and Central Bank in recent months. In its statement, the CBA said the rate cut should also stimulate economic activity in the country. “The Board believes that in the existing situation it is much more effective to assist in the policy of support for economic growth with a drastic loosening of lending terms,” he said. During the forum the former minister of economy Armen Yeghiazaryan also made a presentation by summing up the last “unprecedented decade” of our history. “I mean in the aspect of economic development because there was time when we had a 12% economic growth, cheap money, golden rain, which was falling from the sky. All this lasted till September 2008, which started to regress from that period.” In the meantime this slump wasn’t too unclear because according to Yeghiazaryan we haven’t made all the necessary preparations for withstanding the crisis. The result was that during eight years the balance of the services (construction) reached 70% from 45%. “Perhaps we are the only country in the world, where construction makes 25% of the GDP. The industry was lowered up to 15%, agriculture – by 15%. It turns out that 70% of our GDP is comprised of services. This means that our country has more money than it creates,” said Yeghiazaryan. According to the former minister the country mostly depended on the outside money and when the money got less and when the confidence of the foreign investors reduced, the system collapsed, “The country, the economy of which is only for internal consumption, suffers more during crises.” Nevertheless, according to Yeghiazaryan we should learn lessons from the crisis. “First of all we should let others produce goods and items. Secondly, we should understand that corruption is not a very good thing and that there is a crisis of corporative management. Third, much money is no better than less money because the whole system collapsed because of that.” As a matter of fact the former minister of economy put into doubt the anti-corruption steps of the government and the CB. The mechanism of crediting the small and medium businesses is not very productive because according to Yeghiazaryan because when the banking system finances only 17% of the GDP this means that economy and the financial system work in parallel worlds. As of the policy of cheap money Yeghiazaryan is also skeptical about that. “In Armenia it is hard to implement this Canes model because industry was successfully buried and any increase of money is used on increasing importation,” he mentioned and added that our destiny is mostly in the hands of others. It means we depend on how the rest of the world is doing. And we cannot survive in these conditions for too long. According to Yeghiazaryan’s formulation the economy is in a non-sustainable state. The former minister thinks that first of all the competitive level of the country should be raised. “I don’t mean establishing a financial center. In fact this is a quite difficult work. In order to become competitive our country should be able to produce or sell something,” concluded Yeghiazaryan.
P.S. During yesterday’s discussion, when everybody was making forecasts of decline Bagrat Asatryan reminded that currently the government works based on a program, which anticipates 9.2% growth. And Yeghiazaryan first mentioned that he was one of the authors of the program and then joked, “we were writing this program for three years and it was adopted in September 2008. If it was adopted earlier things wouldn’t be so bad.”