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Western Donors Laud Economic Growth in Armenia

Armenia's continuing robust economic growth is winning accolades from Western donors. A consensus is building among economic experts that the tiny South Caucasus state is finally emerging from its post-Soviet doldrums.

Officials from the International Monetary Fund (IMF) and other donor organizations now believe that decade-long growth in Armenia has produced a sizable reduction in poverty. "Armenia is on a promising path toward sustained high growth and the alleviation of poverty," Agustin Carstens, the IMF's deputy managing director, said at the end of a mid-July visit to Yerevan. In May, the IMF expressed its approva of Armenia's economic directionl by offering a three-year, $34-million loan agreement.

According to official statistics, Armenia's Gross Domestic Product rose by 10.2 percent in the first half of this year. The GDP growth has averaged 11 percent during the previous four years. Carstens strongly endorsed the Armenian government's economic strategy. "The IMF stands ready to continue to assist Armenia with policy and technical advice, as well as financial support in implementing its reform agenda," he said, adding that the Armenian economy is expanding so fast that it now runs the risk of "overheating."

Brian Kearney, who runs a US government-funded project to reform Armenia's social security system, said economic growth has had a visible impact on living standards, adding that it has also lifted the public mood. "There is a new buoyancy and a new confidence that wasn't here five years ago. It might seem a small thing but, for me, just the change in people's demeanor and approach to life is remarkable."

"Five years ago it was very much hanging on," Kearney added. "Now I see people striding forward."

Household income surveys regularly conducted by the Armenian government show that the proportion of Armenians living below the official poverty line shrunk from 55 percent in 1999 to just below 43 percent in 2003. The poverty rate would stand at 32 percent if it were calculated using World Bank methodology that uses consumption expenditures, as opposed to income. Each income survey is based on data collected from about 5,000 households. Officials say the results of similar research conducted last year and to be released this fall will show a further drop in poverty.

"There are very few countries that have achieved such important progress in such a short period of time," the IMF's Carstens said.

However, some economic analysts view official figures with skepticism. For instance, many analysts believe the official poverty line of about 13,000 drams ($30) per month is set too low given the rising cost of living. The National Statistical Service of Armenia (NSSA) estimated in a 2003 report that the average Armenian family spent two thirds of its income on food -- a telling indicator of persisting hardship. "The consumption of high-priced food products such as meat products, milk products, fruits and eggs is very low," the report said. The government agency also asserted that many Armenians still cannot afford adequate healthcare as "only one in three persons with health problems applied to a doctor for medical care."

There is also a mounting income gap dividing the rich and poor, as well as Yerevan residents from those living elsewhere. Many rural areas have hardly seen any development since the economic collapse of 1992-1993, when Armenia's GDP shrunk by half due to the outbreak of wars in Nagorno-Karabakh and elsewhere in the South Caucasus. The social polarization reflects a highly uneven distribution of benefits of economic growth, some experts contend. The gap is widened further by widespread tax evasion among the wealthiest citizens. The Armenian government's tax revenues are on track to rise by about 30 percent this year, but they will still make up a very modest 16 percent of the GDP.

More importantly, the rate of job creation has lagged behind the economic expansion, failing to alleviate the country's number one social problem -- unemployment. The official unemployment rate, measured by the Armenian Ministry of Labor, stands at just over 10 percent. But the real figure is probably much higher, many economists estimate. The NSSA, for example, puts the unemployment rate at a staggering 30 percent, citing a 2003 labor force survey.

Nevertheless, anecdotal evidence of increased prosperity is strong. This includes skyrocketing real estate prices, a growing number of cars, shops and other small businesses as well as a construction boom in central Yerevan. Economists still cannot explain what exactly has driven economic growth over the past decade. First-half growth in 2005 appears to be connected with a 43 percent surge in the construction sector. Another important factor is cash remittances from hundreds of thousands of Armenians working abroad. The Armenian Central Bank says remittances jumped by 50 percent to $750 million in 2004.

In addition, merchants have adapted to the continuing economic blockades by Azerbaijan and Turkey and the resulting high transportation costs. According to official statistics, the tiny landlocked country has doubled its GDP and tripled exports since the late 1990s. "In five years time people will reflect well when they look back at what has been done over the past five years," Kearney said.

Emil Danielyan is a Yerevan-based journalist and political analyst.

Western Donors Laud Economic Growth in Armenia

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