“The economy of Armenia didn’t digest the cement,” two days ago said the head of the Armenian branch of the World Bank Aristomene Varudakis. It is hard to figure out any other way to express the plight of our economy and what had happened to it. It means that the construction balloon, which our statesmen had been proud of for years, finally burst by spreading the odor of the glutted and inert economy. Aristomene Varudakis said $25 million of this sum will be channeled to support the budget, particularly, help reform tax and customs systems and strengthen the capacities of agencies dealing with competitiveness policy. Some $7 million will be allocated to Social Investment Funds to support implementation of 37 projects, $5 million for social security administration improvement, particularly, for modernization of regional social security centers. Besides, $10 million will be channeled to support a new project to upgrade the public sector, increase the transparency degree in the public service system and improve electronic management of services for population. Together with this we shouldn’t forget that this balloon was helped to be blown by the WB. So this structure also played its unique role in this process. Not only did they helped to blow the balloon but also lauded the plans of the government in terms of economy development. And now by mentioning that the business and government are rooted with each other, the international structures encourage the Armenian government to use necessary political will to fight against oligopolies and corruption. This means that the government should have fought against itself. Do you believe their words? Of course not. In order to put a tick in their record they need the Armenian government to at least speak about fighting against these phenomena. They want them to implement several projects with long names. Nobody needs that in Armenia the government shows political will to fight against these things. If this happened we probably wouldn’t need to apply to international structures for support. But now we depend on foreign debts.
About the state debt
When the average person feels concerned about the increase of the foreign debt and that this burden of payback is going to stay on the shoulders of their children, the state officials start to explain with lenient smiles that the state debt/GDP proportion is in the allowable limits and that many of the European states are in a worse shape, etc. They keep using all kinds of complicated terms to explain their policies. In fact this got nothing to do with reality and that in the people’s saying the government is paying back for the mistakes of the World Bank. Our government obeys the recommendations of the WB like the commands of the God. Thus, two days ago Varudakis predicted that the foreign debt of Armenia will reach the limit of 50% of the GDP in 2011. Moreover, he mentioned that the non-privileged portion of the debt has increased more. On the same day on the air of Shant, Varudakis said that worrisome fact is not the foreign debt/GDP but the low level of tax levying. We should compare with European states. They collect taxes in the amount of approximately 40% of the GDP and can serve those debts without too much of tension. In Armenia this index is less than 18%. So if the 50% foreign debt threshold is permissible for European states then in our country this permissible limit should be less than 25% of the GDP. Unfortunately during the TV show nobody recalled that the same WB representatives used to say that Armenia was meeting the global economic crisis from “strong positions.” As a strong position they would mention the low level of our foreign debt. Nobody asked a question why the WB only now recalls the difficult plight of our economy and the vulnerable segments of the economic structure. Simply said, the following is taking place. Armenia has borrowed immense amount of money, which it should return with interest rates. Indeed this money is not going to be paid back at the expense of the personal property of government officials but from the budget, which is mainly formed by the paid taxes and customs fees. But the main issue is that the taxes are decreasing in absolute numbers. So the rates of tax collection should be increased. This is what Varudakis suggests. Armenia should essentially reform its tax administration and collect many taxes because after 2012 most of these taxes will be directed to acquit the foreign debt. And the practice shows that the tax collection mainly grows at the expense of small and medium businesses by “squeezing” the businessmen and calling it fight against the shady economy. It is also clear that this will not allow the government to increase the pensions and salaries. Money won’t be enough. It means that the acquittal of debts will be done at the expense of budgetary employees, pensioners and subsidies for vulnerable groups. By wrapping up we may say that the assurance of the government that the state debt won’t remain on the shoulders of average citizens is mildly said far from reality.
About the “reserve” trick
During the recent period in the center of attention emerged the currency exchange rates, more accurately to say the theme of AMD revaluation. Some people mention that this is a natural seasonal phenomenon connected with Christmas expenses. Others insist that the CB is intentionally revaluating the AMD to provide super incomes for importers. In both of the cases the viewpoints are not far from logic. At any rate, many people think that after the New Year the AMD will start to devaluate. Of course, there is no reason why the opposite would happen. But this is only from the first sight. In the long-term prospect our state has very serious incentives to revaluate the AMD. Let us simplify why. Let us assume you are borrowing 1000 USD from a friend of yours to take care of Holiday expenses and you have to return it in several months. Indeed, you exchange this amount into AMD. He goes exchanges the money at 380 per USD, buys the pork, drinks and other attributes. And then the USD starts to devaluate. When it’s time to acquit the debt we find out that the USD costs 300 AMD. And as we receive the income with AMD when the time comes to pay for debt he buys the USD at 300 AMD instead of 380, which is 80 AMD less. It turns out that a person, who has incomes in AMD benefits from the AMD revaluation. Approximately the same mechanism works for the state. They have taken the debt in USD at 380 exchange rate. And as the incomes of the state are formed at the expense of taxes registered in AMD in the event of the AMD revaluation the budget will appear in a better shape. It seems that there is nothing bad with that. Moreover, some “smart” ones may think that we cheated the money owners by returning cheap USD. However, in the case of the state and the average citizen there is one big difference. The Armenian, who lends money with USD, suffers financially because at the return of his money he gets to have less money as the value of the USD is less. Meanwhile the structures, which lent money to our state don’t have any problems with that. They don’t even know anything about the AMD. And who suffers in that case? Of course the RA population, the ones, who survive in Russia or Americas and their relatives survive due to the several hundred dollars sent from abroad. In other words, the state pays the debt taken for unclear purposes by pillaging its citizens working abroad and doing low-class work. And if you add to this the fact that the local production suffers due to the AMD devaluation the economy becomes uncompetitive. It turns out that we cheated not the outside world but ourselves. Maybe it won’t happen and the government will really intend to activate the economy and pay debts without hurting the mid-class. This is only one of the possible versions of economy development. In the end let us add that such a policy has been conducted for years as a result of which the USD rate decreased from 590 AMD to 300 AMD per USD rate. And if our economy didn’t digest the cement then the government very well digested the results of its economy. By the way, by strongly criticizing our economy based on construction and monetary remittances the WB is also trying to digest the results of its policy. All we have to do is to predict whose fault it was that we appeared in such “strong positions,” by facing the dual-digit economic growth.