YEREVAN (RFE/RL)–The world’s two leading financial institutes approved on Tuesday a total of $124 million in additional loans to Armenia–praising its government for a major progress in economic reforms during this year.
The International Monetary Fund yesterday approved the release of the last $59 million portion of its three-year loan package–saying that Armenia’s macroeconomic performance in 1998 "improved markedly." The money is part of the IMF’s $154 million Enhanced Structural Adjustment Facility loan to Armenia–approved in February 1996.
In a separate move–the board of directors of the World Bank announced a new $65 million loan package to Yerevan to assist its policy of economic reform.
The IMF portion–to be disbursed in two installmen’s–is aimed at supporting the Armenian government’s economic program for the next year. The move was attributed to the IMF’s conclusion that "Armenia’s macroeconomic performance improved markedly during the first nine months of 1998." It followed a pledge by Yerevan "to move forward [next year] in consolidating the gains achieved so far in stabilization and deepening structural reform," an IMF press release said.
The government of President Robert Kocharian expects that economic growth will be more than six percent this year and the annual inflation will not exceed three percent. According to the government forecast–the growth rate will be at least four percent next year–with inflation to be kept within a single-digit level. Tight fiscal and monetary policies "will continue to be implemented" in 1999–the IMF said.
With a concessional interest rate of 0.5 percent–the ESAF loans are designed for low-income countries to strengthen their balance of paymen’s. Originally set at about $143 million–the three-year loan to Armenia has been increased by $11 million–according to the latest IMF decision. The money will be disbursed in two equal semiannual installmen’s of $29 million–the first of which available "at the end of December," the IMF said.
"Armenia has made a substantial progress in improving its budgetary system and revenue collection," the World Bank said in a statement on Tuesday. The Bank’s loan will largely go to finance the government’s 1999 budget deficit–projected at 4.6 percent of Armenia’s Gross Domestic Product.
The Kocharian government plans to cover the spending gap–estimated at 51 billion drams (roughly $100 million)–mainly by external borrowing. The IMF statement said the cabinet’s draft budget for 1999–pending approval by parliament–is "consistent with the objectives" of its economic program.
The two influential institutes also urged Yerevan not to lose the momentum in structural reforms as well. They said in particular that the authorities should boost the efficiency of the energy sector–still dependent on state subsidies.
"The authorities intend to proceed with the privatization of energy enterprises and measures to strengthen the management–accountability–and reporting of the financial situation of the energy complex," the IMF statement said. It said those measures may involve further "tariff increases."
The World Bank–for its part–said it is currently finalizing terms of a $53 million loan for the Armenian energy sector–indicating that the subsidies will have to be phased out. In a highly unpopular move–the government raised energy prices by 12 percent earlier this month–provoking strong attacks from the opposition.
The IMF and World Bank both stressed that the increased amount of their loans aims to alleviate "spillover effects of the Russian crisis" on Armenia–which has hit hard its exports to Russia–a leading trade partner. The Bank said its loan is $15 million higher than planned to "assist Armenia to overcome the Russian crisis." The IMF pledged a "concerted international donor effort to assist Armenia–as well as neighboring ESAF countries to address the balance of paymen’s difficulties resulting from the Russian crisis."
Armenia experienced an enormous plunge in GDP levels in the early 1990s due to the collapse of the Soviet command economy and the Turkish-Azeri blockade of Armenia. Despite a moderate economic growth in the ensuing years–most of the Armenia’s live below the official poverty line. "Armenia will require continued–albeit declining–external concessional financing in the years to come," the IMF said on Tuesday.
In November–Prime Minister Armen Darbinian said the reform process in Armenia has become "irreversible," pointing to the fact that 70 percent of the country’s GDP is generated by the private sector.