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2012 did not solve economic problems of Armenia

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  • 2012 did not solve economic problems of Armenia

    2012 did not solve economic problems of Armenia

    http://vestnikkavkaza.net/analysis/economy/35487.html
    2 January 2013 - 1:43pm

    Author: Susanna Petrosyan, Yerevan, exclusively for "Vestnik Kavkaza"

    Nothing has changed in Armenia as a result of 2012 in terms of the economy.

    The negative balance of foreign trade remains one of the main
    characteristics of the Armenian economy and continues to increase, in
    spite export growth outrunning that of imports. In absolute terms,
    Armenia imports more goods than it exports. If 10 years ago, imports
    were 1.9 times higher than exports in absolute terms, in 2012 this
    figure rose to 2.9 times and is now about $3 billion. This, despite
    assurances from the government about the promotion of local producers,
    indicates the opposite, i.e. that the market continues to be dominated
    by foreign goods, including food products.

    Economic growth, which remains at 6%, is traditionally supported by
    the sale of raw materials such ferrous metals and metal ores.

    According to some experts, despite the fact that there has been a
    slight positive dynamic in the Armenian economy this year, the
    population remains dissatisfied with the current situation and does
    not sense any positive trends. With inflation at 4.5% this year there
    have been made no moves to raise the average wage of $280 per month,
    and nothing has been done to raise pensions, the highest of which is
    $100.

    One of the paradoxes of the Armenian economy lies in the fact that
    this year once again food prices increased. Thus, the price of
    potatoes in Armenia grew by 11%, cabbage by 33%. Meanwhile, prices for
    food are falling: on the international stock exchange the average
    price of rice, sugar, potatoes fell approximately 15 %.

    In 2012, the trend of active capital export continued in Armenia. The
    former Prime Minister Hrant Bagratyan believes that the export of
    capital in 2012 in Armenia amounted to about half a billion dollars
    and called this figure "alarming."

    One of the most negative characteristics of the Armenian economy is
    the so-called "shadow" economy, which according to the IMF accounts
    for 35% of GDP in Armenia. In fact, according to some experts, this
    figure is closer to 50%. Even if we assume that the ratio of taxes to
    GDP is 35%, the inability to collect taxes is obvious. However, small
    and medium-sized enterprises continue to play the major burden in
    paying taxes. Economists believe that the current mechanism of
    taxation will lead small and medium-sized enterprises in Armenia to
    bankruptcy.

    Another alarming tendency is the decrease in foreign investment in the
    Armenian economy. According to official data, foreign investment
    declined by 35% this year, direct investments - by 54%. According to
    the head of the research center "Alternative", Doctor of Economics
    Tatul Manaseryan, the decline in foreign investment was caused by
    political processes in the country. In 2012, Armenia held
    parliamentary elections, presidential elections are taking place in
    2013. According to Manaseryan, a deceleration in investment with
    elections was expected and predictable.

    Meanwhile, economic expert and representative of the opposition
    Armenian National Congress Vaagn Khachatryan is convinced that the
    decline in foreign investments can be regarded as a significant
    indicator ofthe unattractiveness of the Armenian economy. He stressed
    that there is no free market in Armenia, no competition, and that
    private property is not protected. Also, certain people play a great
    role in the economy, while capital does not favor such conditions,
    opting for freedom, law, and good governance.

    A major problem is the lack of positive changes in the development of
    small and medium-sized businesses, which have a direct impact on the
    social sector. Thanks to the exclusive domination of monopolies in the
    economy, there are still very few economically-independent people in
    the country. Thus, 85% of Armenian export goods are produced by large
    businesses, particularly in the mining sector, while the share of
    small and medium-sized business is only 15%.

    "This trend has been prevailing for many years now. Exports are
    dominated by the usual 25 kinds of products, which are manufactured by
    large businesses. This indicates that the country does not produce any
    new types of products that could impact on exports," the director of
    "AE consulting" Gagik Margaryan believes. According to Margaryan,
    small and medium-sized businesses do not have unequal conditions to
    compete on the market and could benefit from targeted government loans
    to stimulate exports.

    Although the government has repeatedly expressed its concerns about
    the dominating role of monopolies on the Armenian market, it has not
    done anything.

    "The economic system in Armenia seems to aim at the destruction of
    small and medium-sized businesses. The economy is absolutely
    monopolized, oligarchs eliminate small businesses with the help of
    administrative resources and power," the former chairman of the
    Central Bank of Armenia Bagrat Asatryan believes.
    Imports are also monopolized. There are no formal restrictions for
    importers, but everyone knows that if someone tries to break a tacit
    monopoly, there will be problems at the customs and other
    administrative bodies.

    "It is almost impossible to diversify the Armenian economy due to
    corruption among the tax and customs authorities, the lack of equal
    competitive opportunities in the market and the availability of an
    oligopoly," the former representative of Armenia at the World Bank
    Aristomene Varudakis said.

    The majority of the population remains in very harsh socio-economic
    conditions, while the country's economy depends only on a few dozen
    families. Despite the promises of the government, industry and high
    technologies are not developing. These problems can be resolved only
    if the authorities have the political will to do so and in 2012 there
    have been made no significant steps to overcome the main negative
    trends and tendencies in the Armenian economy.

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