Recently the Russian loan in the amount of 500 million USD given to Armenia remains in the center of people’s attention. Everybody speaks about that but hardly anyone knows how this loan is going to be used.
The Russian loan has initially been covered in a “mysterious veil.” First after the agreement with the Russian side on the allocation of the loan there was no sound about the terms and dates of the loan. According to circulated rumors Armenia later refused to participate in the NATO military trainings in Georgia and the Russians opened the “chest.” And then they started to speak about the conditions – the loan is given for 15 years with LIBOR+3% interest rate. Reminder: LIBOR is an international floating rate and is being revised every year. In the current conditions when the whole world is in crisis the Central Banks are conducting a mild monetary policy and lower their rates. So LIBOR is currently a little more than 1%. In the future it will drastically increase. For example, according to economist, former CB chairman of Armenia Bagrat Asatryan in the whole world the priority is not the restraint of prices but the conduct of anti-crisis measures when preference is given to economic growth and provision of work places. In the event of stabilization of the economic situation, provision of certain economic growth the priority will again be given to restraint of prices, the means of which is going to be the increase of interest rates. During his interview to one of thee newspapers Asatryan also mentioned that it may reach 9-10% and that it is wrong to take on such an abstruse burden and inherit it to the upcoming generations (he meant the Russian loan). According to the calculations of the former prime minister of Armenian Hrant Bagratyan Armenia will have to return over 1 billion USD to Russia instead of the taken 500 thousand USD. The loan can by no means be considered an advantage loan as claimed by our government. Moreover, in the opinion of economists it is a commercial loan and perhaps there was no need for the President of Armenia, Serzh Sargsyan, express his gratitude to the Russian President Dmitri Medvedev for a loan that was given with heavy conditions. Nevertheless, good or bad, the loan is already approved. All we have left to do is spend the money right, serve it to the big goal that is to help overcome the impact of the global crisis. But here we have big mystery. No one knows how the money is going to be spent but it concerns everybody because average Armenian citizens are the ones to pay it back. The government also admits this. “The main question that concerns our citizens, MPs is how this money is going to be spent,” said the prime minister of Armenia Tigran Sargsyan during the government session of May 29, 2009. Later he slightly opened the parentheses by noting a few numbers and directions. He also added, “We will spend part of it to cover the deficit of the budget. In particular, we will spend approximately 24 billion AMD on the earthquake zone and we will allot nearly 15 billion AMD to the relevant bodies. From this money we will give money to businessmen, who support the whole business sector of Armenia. Those will help the ones, who have difficulties put their businesses on the right rails and provide workplaces for our population. We are planning to use a part of these financial means to finance the budget deficit of 2010 and the rest will be directed to anti-crisis measures.” In practice this is the only information that we have. It turns out that 65 million USD will be directed to reconstruction of the earthquake zone and nearly 40 million USD will be given to the development of businesses. The destiny of the rest of 400 million USD remains unknown. Hrant Bagratyan finds this kind of secret behavior a problem. It means that in practice it is impossible to give evaluations about the use of the Russian loan if the structure of expenditures is available only to a narrow circle of people. However, even with the present information is clear that most of the money will be directed to construction. During his speech at the House of Moscow, which hosted an economic event organized by the Financial-Banking College on June 5 he mentioned the following measures:
– Implementation of road construction, construction of a 800-1000-kilometer long highway in 2009-2012, which needs 110 billion AMD financing.
– Apartment building in the earthquake zone in the amount of nearly 75 billion AMD, including the construction of Varpetats town.
– Modernization of irrigation and potable water systems, nearly 100 billion AMD.
– Launch of the pan-Armenian bank and mortgage credit fund – 9 billion AMD.
In fact, the government is going to spend nearly 185 billion AMD or 500 million USD within 2-3 years on road construction and earthquake zone. It is understandable that this money is going to be taken from the Russian loan, from means provided by the World Bank and other structures. The expenditures for concretely recovery of earthquake zone, which amount to 75 billion AMD or over 200 million USD, caused a lot of concern. For example, Bagrat Asatryan is saying, “The government has long ago declared that the recovery of the earthquake zone is over. What construction now? What programs will be implemented?” It turns out that the majority of the loan will be directed to the development of construction. The government itself confesses that the crisis is an opportunity to correct the previously made mistakes but more intensively continue their previous policy by demonstrating preference to construction. “We have appeared in a crisis due to construction. Why do they help this sector now? Because their friends are in that business,” told us Bagrat Asatryan. Besides constructing a building the government is also trying to taking care of the demand and the evidence of that are the billions of drams to be invested for mortgage loan activation. However, many of the economists consider this policy explosive as well by reminding that the global crisis started because of the explosion of the “mortgage loan balloon.” In a word, Armenia is fighting the international crisis by mostly borrow money from the external world. This means that the state anti-crisis policy can be titled, “Give us money so we get by.” It’s not clear what’s going to happen next. The extreme pessimists think that the oligarchs will split the money among each other and put the Armenian economy in a worse shape. The more realists are all embarrassed as they don’t see the prospect of the efficient use of the loan. No one knows whether this loan will bring use or harm to us. There is an old Arabic proverb. One is having financial problems and is asking for some money from his trade partner. The latter orders his servant to bring in a few sack of gold and a mirror. He gives the sacks to the borrower and asks him to look in the mirror by saying, “Now that you received what you wanted your face shines because of happiness. Remember this face and try to return the money in the same face.” I am curious what our face is going to be like when returning the Russian loan.