14:30, December 27, 2010
Inflation appears to be issue #1
We asked several Armenian MP’s with an economics background to summarize the economic situation in Armenia for 2010 and to offer predictions for the coming year. Here’s what they had to say.
Gagik Minasyan (Republic Party)
Government Diversification Strategy Pays Off
2010 was a pretty interesting year. After the devastating economic crisis, we tried to get back on our feet and the road to stable development. It wasn’t easy. We had to take steps to diversify our economy. Nevertheless, the widespread investment made by the government to set the stage for diversification paid off. If we had predicted a 1.2% growth rate, it turned out to be 2.6% for the first eleven months of the year. It would have even been greater had we not experienced a 14.5% drop in the agricultural sector.
Industrial production continued to grow at an impressive rate of 9.78%; construction at 3.8%. The sharp drop in agriculture had other negative consequences – the fairly high level of inflation. This is due to two factors. The first is the high grain prices in global markets. The second was the poor climatic conditions during the year. As a result we experienced an 8.1% inflation rate for the first eleven months in 2010. Sadly, we won’t be able to bring it down this year to the budgetary level planned for. But, the government has taken steps to tackle the issue, including creating favorable conditions for our domestic producers, i.e. the importation of high quality seeds and promoting selective commercial practices so that we aren’t wholly at the mercy of external factors.
During the first eleven months of 2010, export levels rose by 41.2%; imports by 14.2%. This is a very welcome development since, if it continues, our import-export ratio can hit a balance. Next year’s budget also forecasts a rise in exports.
These economic growth indicators and foreign trade numbers do not immediately directly impact local consumers. They are felt indirectly. As regards inflation, each family feels the effect. Ask any household, in any country, and they will tell you that inflation hits them right in the pocketbook and the impact is greater than any other economic indicator out there.
Artzvik Minasyan (ARF-D)
Armenia is too dependent on donor organizations
2010 was a year still under the impact of the 2009 economic crisis. The effects of the crisis weren’t mollified and the official figures cited as growth in the GDP do not signify that the crisis was over. The government failed to create a competitive economic environment, and this merely serves to further restrict Armenia’s competitiveness on the world stage. As a result, we have the continuing drop in Armenia’s competitiveness both regionally and globally
I refer to a failure in two aspects. First, that the government isn’t able to correctly evaluate the situation, as well as a scarcity of resources, and then there is the extreme dependency of the country on external donor sources. Their technical advice has led Armenia to the present slump, one of the deepest, in which it finds itself. The Armenian government must be more circumspect when it comes to accepting their advice and not willy-nilly adopt their suggestions from which there is no return. No wonder that often the government’s good intentions, in the end, wind up hurting the populace.
There are a few reasons for this. For starters, the authorities haven’t been able to correctly define the real problems facing the economy. In a few cases, when there is talk about these issues, the analysis is superficial and various statements are made purely for show. No concrete steps are ever taken. This is the continuing behavior of an economy run by an oligarchic system and the non-competitive nature of the Armenian economic sector. Lacking a stable model for economic development, we are constantly running around in circles and getting nowhere.
The authorities are trying to register progress in non-industrial sectors. This is not only dangerous given today’s modern world, but it also cannot guarantee long-term growth. First, there is no country has been able to transform any degree of progress, achieved in the non-productive sector, into a system-wide phenomenon.
For example, when we take a look at tourism, we will not be able to convert any successes in that sector to the economy overall. There is no stability and the smallest of problems can turn off the flow of tourists. This would have grave consequences for the country. However, if we had a more stable base for production, then any shake-up would have less of an economic fall-out overall.
The government has officially declared that Armenia will become a center for the non-productive sectors – finance, health, tourism, etc. This goes to prove that our government doesn’t see Armenia’s economy as stably progressing in the long-term.
2010 was a year that reflected this policy. If things continue as they are, and the 2011 budget gives all indications that it will, then we will not be able to overcome the crisis in the coming year also.
In 2010, the government and its official bodies weren’t able to convince the populace that the steps being taken would improve conditions down the road. This is proven by the fact that 65,000 residents left the country in the first nine months alone.
Vardan Bostandjyan (Prosperous Party)
Armenia lacks oil and is vulnerable
I would like to say that 2010 was a positive year for Armenia in terms of the measures and approaches we were able to enact aimed at overcoming the impact of the crisis. There is the perception that we are undergoing an upswing. This means that we have come out of the low point and are moving in the right direction. I also believe that we are on the road to recovery.
It is only due to the inflationary tendencies that Armenia appeared to be vulnerable. Naturally, this was firstly a result of the changes in global markets. Armenia has no strategic resources, and we all know that all types of inflation are conditioned on the existence of such resources. Let me present the following picture. Say there is a country that possesses oil and imports more than it exports. It is able to overcome the negative influences. Armenia, in these terms, is vulnerable. This is so evident that you don’t have to be an expert to figure out.
Given that our levels of wealth and consumerism aren’t at high levels, any small changes that occur, on the micro level, aren’t felt by the people. The fact that the current minimum salary of 30,000 AMD will be raised by 2,500 come January 1 will not make much of a difference to the average citizen. Are there people out there who actually think that the money exists to raise salaries by 10,000 but that the government is only giving 2,500? In such cases I am reminded of the traditional adage – only take strides as long as your blanket. What government wouldn’t like to see its people live well and have the capacity to purchase goods? But this is Armenia and the resources are lacking.
2010: The Economy in Review