New Armenian Economic Plan Targets Poverty

As Armenia's economy continues to post record growth, the government has announced an ambitious campaign to tackle the poverty that has marred living conditions in the country since the collapse of the Soviet Union. The government's change in tactics comes as the opposition continues to campaign for the removal of President Robert Kocharian from office.

For the past few years, Armenia has had one of the best performing economies in the former Soviet Union. Annual economic growth has averaged over 10 percent. Price liberalization and privatization programs and the accession of Armenia to the World Trade Organization in 2003 have all contributed to the surge. Foreign direct investment has increased by 74.5 percent since 2003, according to the National Statistics Service, with much of that coming from the far-flung Armenian Diaspora. Last year, the European Bank for Reconstruction and Development cited Armenia as the most likely candidate among the former Soviet Union for accession to the European Union.

But while Armenia's economic reform program has won raves from international finance institutions, the benefits have not been equally shared. Nearly half of Armenia's population of roughly 3.2 million people lives beneath the poverty line. A slight increase in unemployment in 2003 gave Armenia a 10.1 percent jobless rate, according to government data, and annual per capita income is less than $600. Only half of Yerevan's residents have running water 24 hours per day, and electricity and phone service are sporadic at best. Outside the Armenian capital, infrastructure has crumbled still further since Soviet times with barely functional roads, derelict schools and a battered health care system.

"The government has a good national perspective. But they seem to have problems persuading outsiders that the same kind of reforms are needed outside Yerevan," said the International Monetary Fund's Armenia representative, James McHugh.

With the announcement that the World Bank, Armenia's largest creditor, will focus its future assistance to the country on poverty reduction efforts, that scenario could be set to change. The Bank is expected to extend $250 million for work on rural schools, roads and irrigation by November 2004, Finance and Economy Minister Vartan Khachatrian told journalists earlier this month. The funds come on top of an additional $35 million in Bank funds for support of Armenia's public utilities, agricultural sector and civil service.

Announcing the program, Kahchatrian declared that the structural reforms necessitated by Armenia's transition to a free market economy were "almost complete," prompting the government to focus instead on a 12-year plan for slashing poverty levels. Since 1993, Armenia has received more than $1 billion in loans from international financial institutions and foreign governments for currency stabilization, privatization, earthquake reconstruction projects and support for such high-priority economic sectors as energy, agriculture and transportation.

The government also hopes to secure additional funds from the US Millennium Challenge Account (MCA) program for rural revitalization schemes similar to those targeted by the World Bank. Prime Minister Andranik Markarian told reporters on June 16 that Armenia would present a series of proposed projects ranging from school construction to repair of irrigation networks and roads to the MCA for approval by the end of July. Under the MCA financing rules, participant countries must do their own evaluations of funding needs and detail how they would spend any received aid. Armenian government estimates for funds to be requested have ranged from $500 million to $700 million, with some $100 million expected for 2004. Approval for the funds is subject to MCA countries' progress on democratic reform and defense of human rights.

Securing these funds could prove increasingly important for President Robert Kocharian's government if Armenia's political opposition gains broader popular support. A harsh government crackdown in mid-April on street protests in Yerevan that called for Kocharian's resignation has slashed attendance at the rallies, but the opposition shows little sign of giving up its struggle. On June 21, Viktor Dallakian, a leader of the opposition alliance Artarutiun, told RFE/RL that the group was considering a national petition drive for Kocharian's removal from office.

While the government in Yerevan has displayed little consternation at such threats, it is quick to point out the economic successes of its reform programs to international organizations as a counter-balance to criticism of its human rights record.

Government forecasts put expected annual GDP growth for 2005 - 2007 at 6-7 percent. That is a significant slow-down from 2003, when Armenia's economy grew by 13.9 percent, but still higher than Armenia's neighbor – and growing competitor for international assistance – Georgia, which registered only 5 percent economic growth in 2003. Reflecting the slower growth rate, inflation is expected to hold steady at around 3 percent, according to government figures.

But some representatives of international finance organizations caution that economic reforms in Armenia are far from complete. Among the tasks targeted by the International Monetary Fund is an overhaul of the tax system, including the elimination of so-called presumptive taxes, which target mostly cash-based businesses, such as consumer services, and do not reflect the actual income of the taxpayer. "Of course, we do not expect that due to this program Armenia will become a really European economy with a modern tax system," said the IMF's Armenia representative James McHugh, "but we are confident that it will take a major step in the direction of eliminating ad hoc taxes."

For now, political discussions on Armenia's economic reform strategy are largely limited to the government's policy statements. The opposition has focused on removing Robert Kocharian from office rather than arguing for an alternative economic reform plan. Hrant Bagratian, the former prime minister largely credited with jumpstarting Armenia's economic reform process in the 1990s, is among the few people criticizing the government's poverty reduction vision. In a June 16 interview with the daily/weekly Noyan Tapan, Bagratian termed premature Khachatrian's statement that structural economic reforms are now complete. Instead, Bagratian targeted the national pension system, judicial system and the management of state-run companies as among the areas still left untouched by reform.

Meanwhile, despite glowing marks for Armenia's economic reform programs, the country's search for international assistance is facing increased competition from neighbor Georgia, where an ambitious anti-corruption campaign recently brought in $1 billion from international donors, including the European Union. In a June 15 article, EU officials told Radio Free Europe/Radio Liberty that, despite Armenia's inclusion in a program designed to bolster regional trade ties, the country's attractiveness for additional aid programs has been marred by its ongoing dispute with Azerbaijan over the disputed enclave of Nagorno-Karabakh.