by David Stepanyan

Wednesday, June 29, 11:43

"Horses are not changed at full tilt", the wise saying says. Judging
by the previous and current actions and statements of Armenian
ministers responsible for economy, one can suppose that they are at
least unfamiliar with the meaning of the saying. Over the past few
years of activity of the governments of at least two presidents of
Armenia, the long-suffering Armenian economy changed its horses at
full tilt for 4 times. At the beginning, after Synopsis appeared in
Armenia, IT sphere was declared a priority. Afterwards, over the
pre-crisis period the lapidary sphere, which demonstrated certain
success at that time, was declared to be a locomotive. And finally,
in 2007-2008, against the background of the construction boom, which
mostly covered the center of Yerevan by doubtful Russian capitals, the
sphere of construction was declared to be the locomotive of Armenian
economy. Thus, before 2009 thanks to huge foreign injections, first of
all swelling the market of real estate, which actually lacks domestic
demand, the economy quite really demonstrated two-digit growth.

However, this led to nothing, as the global financial crisis in autumn
2008 deprived the economy of the locomotives, i.e. construction,
"developing" property market and ore mining industry, thereby depriving
the Armenian ministers of the ungrounded optimism.

However, against the background of the implacable growth of prices
for ore materials and non-ferrous metals in 2010-2011, the Armenian
bureaucracy has come alive again, which is demonstrated by the
statements of Armenian Economy Minister Tigran Davtyan at the end
of the first half-year of 2011. Having stated that "the key driving
force and locomotive of economy in 2011 will be industry", the
minister stressed that the ground for such optimism is the dynamics of
industrial production over the first half-year, which exceeded 10%. At
the same time, according to the specialists of the Economy Ministry,
in May 2011 versus May 2010 the industrial output growth exceeded 25%.

Davtyan also expressed confidence that the biggest growth was fixed
not in the ore mining field, but in the sphere of machine building,
light industry, and the touchy jewelry.

However, let's put the minister's convictions aside and be back on
the disappointing reality. It seems that the reasons of the desperate
state of the Armenian economy should be looked for not in the lack or
power of locomotives, but in the serious immune deficiency experienced
by this sphere of public life. It is the immune deficiency that
led economy to 14% decline in 2009, which allowed the republic to
occupy the "honorary" first place in the CIS and the second place
in the world. At the same time, it is obvious that it was not the
global financial crisis but the high level of economy monopolization,
oligarchization of the economic model, and corruption growth in all
administrative fields that mostly hindered the economic development of
Armenia. Taking into account that such a state of economy has already
led to a strong food inflation expressed in the inflow of masses to
the opposition's rallies, the authorities of Armenia were forced to
consider possible structural shifts in the economy.

After the significant consultation with President Serzh Sargsyan,
the officials seemed to stir a peg. Offices remembered the real
sector of economy, industry and even small and medium business. The
strong growth in prices of food produced in the republic made the
authorities pay attention to the agriculture problem which had been
neglected because of its "low effectiveness" and cast adrift. Taking
into account the modest opportunities of the local market, the main
producers of agricultural products and the processing enterprises may
only rely on the export opportunities in their development. However,
over the past few years the opportunities and prospects of this
development have been persistently ignored in favor of macroeconomic
stability expressed by artificial, monetary restraint of natural
inflation. To note, despite all this sacrifice, the inflation level
in Armenia in 2010 made up 9.2%.

Such contradictory results have obviously become the regular
consequence of the economy model imposed on Armenia by international
financial organizations, in which macroeconomic stability is declared
a priority. For many years nobody has been paying any attention to
the fact that the Central Bank's monetary policy applied to achieve
"stability" delivers a direct blow on the real sector of economy,
putting an end to its further development.

The crisis in Armenia in 2009 perfectly demonstrated that the
two-digit, in fact the arithmetic GDP growth of Armenia had little to
do with the development of the real sector of economy. This is first
of all grounded by the fact that the whole monetary policy has been
applied over the past few years only in order to reach short-term
success and restrain inflation by monetary methods. Over the past two
years, as a result of this "activity", the lapidary sphere, which
had been prosperous once, as well as the enterprises processing
agricultural products, agrarian sector and other ex-locomotives,
turned out to be uncompetitive.

The government and the fiscal structures responded to all these
challenges only by strengthening the administrative pressing aimed at
implementation of the fiscal plan, no matter how paradoxical it is. In
the meanwhile, traditionally the pressing was directed not against
large monopolists, but against the main consumer of banking services,
i.e. small and medium business. Afterwards, having come across new
risks, the commercial banks toughened the conditions of provision of
loans to the population by considerably restricting their injections
in small and medium business and property market. The small and medium
business was not slow to respond to the toughening of fiscal pressing
and the monetary policy by starting moving to neighboring Georgia,
whose authorities created a perfect investment climate for Armenian
business. According to unofficial data, over the past year over 1000
entrepreneurs moved their business to Georgia at least partly. In
response, the authorities are only making incomprehensive statements,
the sense of which is restricted to complete denial of the fact of
capital outflow to the neighboring country.

It is getting clear that the state machine not only cannot, but is
not going at all to stop this process. Instead, the authorities are
doing their best to prevent the oligarchic system of state governance
in Armenia from failure. At the same time, the oligarchs themselves
that are closely interconnected with the power are inherently unable
to take optimal governing decisions. Against this background, the
oligarchic authorities are only striving to maintain the current
situation as long as possible despite the objective premises in favor
of radical reforming of economy, having no desire to bite the hand
that feeds. Still, the search for some way out of the crisis remains
the most complicated task of the government.

This is especially topical given the fact that it is already getting
impossible to restrain the public discontent. Apparently, the problem
can only be resolved by shocking the whole economic system with all
the following activities. The authorities will take no such a step.

Instead, half measures are already being taken, which have nothing
to do with the long-term outlook of economic development and will
actually give nothing to Armenia. As a result, with every passing
year the negative trends in Armenia's economy are getting less and
less controllable. Anything may contribute to radical change of the
situation, but this cannot be done by means of one locomotive as one,
even temporarily developing field.

P.S. The economy minister has recently given another new idea to the
information market of the country: now production of ... flowers,
first of all, roses will become one of the most important directions
of export. With such "traditional" goods Armenia is unlikely to get
a place in the system of international division of labor, which is
capable to ensure high export revenues and necessary diversification
of economy.