YEREVAN (RFE/RL)–The Armenian economy continued to grow in the first quarter of this year despite an ongoing decline in industrial output caused by the crisis in Russia–according to government figures released on Tuesday. Finance and Economics Minister Eduard Sandoyan said his government has succeeded in keeping the country from the worst effects of Russia’s economic woes.
Official statistical data for the first three months of 1999 showed that Armenia’s gross domestic product was up 4.6 percent compared with the same period last year. Deflationary processes that began one year ago have accelerated this year with the consumer price index in late March 3.9 percent lower than at the end of December.
Economic growth in Armenia hit 7.2 percent last year under a 1.3 percent consumer price deflation. A strong boost in the construction and agricultural sectors more than offset a 2.5 percent industrial decline–triggered by the Russian crisis last August. Many Armenian enterprises have lost their markets in Russia as a result. That trend continued into the first quarter of this year–with the manufacturing sector producing 4.4 percent less than during the same period in 1998.
A sharp fall in Armenian exports to Russia and other ex-Soviet republics has added to the country’s huge trade deficit. It reached $588.7 million last year and is still on the rise. By contrast–exports to countries outside the former USSR–which now account for the bulk of Armenia’s foreign trade–have increased by one third.
"Our main achievement is that we have managed to save our market from the effects of the [Russian] crisis and keep up [economic] development," Finance Minister Sandoyan told a news conference on Tuesday. He said the government’s tight macro-economic policies coupled with Armenia’s economic "re-orientation towards the European Union" have been the main mitigating factors. Last year–the EU pulled ahead of the Commonwealth of Independent States as Armenia’s leading trade partner–with a $334.4 million annual turnover.
Sandoyan also cautioned political opponents against the use of populist economic rhetoric in the run-up to the parliamentary elections scheduled for May 30. Many parties and candidates call for a larger government role in managing the economy in an effort to capitalize on a widespread disillusionment with reforms.
"Any change of economic policy may put an end to any prospects of development," Sandoyan said. "The only option for countries like Armenia is to form a legal and political framework to attract investmen’s."
Government statistics says direct foreign investmen’s in the Armenian economy totaled $240 million last year–more than during the previous several years taken together. But recent years’ growth has so far had little effect on living standards in Armenia that had dropped dramatically in the early 1990s. Unemployment remains extremely high and the aging economic infrastructure requires billions of dollars in investmen’s. Analysts say higher growth rates are needed for ordinary Armenia’s to see a quick improvement in living standards.
Most of them agree that a boost in exports is vital for achieving that.
Armenia’s relative macroeconomic stability is to a large extent dependent on regular loans from the World Bank and International Monetary Fund. Interest rates are set disproportionately high–the big trade imbalance being one of the causes. Despite the low inflation Armenian Central Bank maintains its re-financing rate at 52 percent. Yields on government treasury bills reach even higher amounts.
Meanwhile–a World Bank expert said Monday–that he was convinced that the Armenian banking system should not fear competition among foreign banks.
He said the arrival in Armenia of another major bank would force HSBC-Armenia to intensify its efforts and finance various projects–and local banks would start to imitate it.
He recommended that a serious German bank–which would be able to strengthen the Armenian banking system–should be attracted.
The World Bank economist said that the banking system of Armenia accounts for only four per cent of gross domestic product and through its insignificance it has been protected from Russia’s financial shocks.