Armenia: Yerevan Counts on Bank to Strengthen Ties with Diaspora

The Armenian government is trying to systematize long-standing economic relationships between the mother country and its vast diaspora community. The centerpiece of the initiative is the creation of an All-Armenian Bank, which would be used as an economic engine for domestic development. Even before its launch, however, some experts in Yerevan are expressing skepticism about the bank's ability to achieve its stated aims, citing a lack of conceptual clarity.

At present, nearly twice as many ethnic Armenians live abroad as in the Republic of Armenia, which has a population of approximately 3.2 million. All Armenian presidential administrations since 1991 have tried to make use of the Diaspora's economic clout to help fund the development of public-sector infrastructure in Armenia.

President Serzh Sargsyan's administration is hoping that the creation of an All-Armenian Bank can put diaspora investment to more efficient use. The bank would have a twin goal of developing the human capital of Armenians, and "enhancing the competitiveness of Armenians in the world market."

The bank, slated to begin operations in January 2010, is projected to have an initial capitalization of 5 billion drams, or about $12.9 million, the minimum capital requirement for Armenian banks. The government has announced it will contribute 20 percent of that sum; private sources would be expected to provide the rest of the start-up capital. It is envisioned that the All-Armenian Bank would not compete with other Armenian banks. But since the operating blueprint for the bank is still being developed, specifics of the non-competition idea have yet to be fully worked out. Existing plans call for the creation of a board of governors, but the board's responsibilities and obligations also have yet to be specified.

In addition, it remains to be seen how the bank will attract investment. There seems to be an assumption that Diaspora Armenians should consider investing in the All-Armenian Bank as a patriotic duty. But some experts say there has to be something more than patriotism to act as an investment incentive.

Manuk Herngian, chairman of Yerevan's Economy and Values research center, noted that while patriotic diaspora Armenians may settle for a lower return, investments in the bank "must be comparable in their returns to those existing in the home countries of diaspora Armenians." The bank's business plan must take this need into account, Herngian added.

A somewhat daunting obstacle is the fact that Armenia in general does not seem to be an inviting investment destination at the moment. Armenia's economy shrank by nearly 16 percent in the first five months of 2009; the International Monetary Fund recently predicted a 15-percent downturn for the year.

Yerevan State University professor Bagrat Asatarian, a former Central Bank chairman, asserts the creation of the All-Armenian Bank could undermine the country's general economic interests. "Why create privileges for one Armenian bank, instead of improving the whole investment climate in the country?" Asatarian asked.

Beyond the creation of the bank, President Sargyan's administration is striving to strengthen the government's relationship with diaspora communities by expanding the Ministry of the Diaspora in Yerevan. Although the government's overall state budget is set to shrink by roughly 10 percent in 2010 -- due to the negative impact of the global economic crisis -- the Ministry of the Diaspora is expected to see its allocation more than double to $630,000. The 100-employee-strong ministry, set up in October 2008, focuses on public diplomacy with Armenia's diaspora.

Detailed plans for how the budget increase will be put to use have not been made public. Of late, however, ministry representatives have trumpeted the effectiveness of exchange programs. For example, under a campaign called "Ari tun," or "come home" in English, the ministry brought in 350 young diaspora Armenians from 35 countries for two-week stays with local families this year. Ministry spokesperson Tigran Harutiunian said that number will nearly double next year to 600 participants. The ministry also recently organized two conferences for ethnic Armenian architects and lawyers; cardiologists will be the focus of an upcoming gathering.

Some experts have questioned whether the Sargsyan administration's efforts to reconcile with Turkey may have a negative impact on his move to strengthen the ties between Yerevan and diaspora communities. Despite widespread media reports about diaspora protests against the Armenian-Turkish rapprochement, ministry spokesperson Harutiunian claimed that "the interest of foreign Armenians in their homeland has not reduced at all."