CURRENT ECONOMIC SITUATION
As with other countries making the change from a command economy to capitalism, the changes have been difficult, the bulk of the population has not seen real gain in the quality of their lives, and the social fabric is under strain.
The situation has improved by increments, the government implementing several key measures to liberalize trade, encourage investment and promote the market economy. As with other countries making the change from a command economy to capitalism, the changes have been difficult, the bulk of the population has not seen real gain in the quality of their lives, and the social fabric is under strain. Education, culture and the sciences--traditionally Armenia's strengths in the Soviet Union, have suffered the most, along with old-age pensioners who have seen their savings evaporate.
Hard facts include a WFP estimate that 50 percent of Armenians live in poverty, earning less than $25 a month and that perhaps one-fifth of Armenia’s workers have left the country, many seeking employment in Russia, Europe and the US. Perhaps the most devastating factor to the Armenian economy remains the impact of the ongoing Nagorno-Karabakh dispute.
The central policy objective affecting industry is privatization. Pending completion of the privatization program, the government is forcing state-owned enterprises to operate according to market principles. Since the beginning of 1995, no direct subsidies have been granted to the industry. This is in sharp contrast to previous years, when direct subsidies were provided on a fairly large scale via concessionary credits to firms.
Privatization has been rocky, the first voucher system for privatizing companies considered a failure, and other, auction-driven sales just beginning to be implemented. Key industry sales are beyond the means of the local population, and have been just as controversial, with expectations exceeding actual market value of companies in some cases, and alleged inside deals transferring ownership to influential locals for a fraction of their real value.
To date Armenia has privatized nearly ninety percent of its arable land and rendered land titles freely transferable. Homes and apartments are in the process of being privatized, with residents registered at a residence de facto owners in the interim. The first major privatization of a state-owned business occurred in 1997, with the sale of Armentel, the Armenian Telephone Company to a consortium led by Greek investors. Other companies slated for privatization include hotels, the Yerevan Shoe factory, the national airline (which failed in 2003, The WIne Facory, the Cognac factory, the diamond, gold and molibden mining operations and other enterprises.
The countries of the European Union account for one-third of Armenia’s trade; trade with the United States, Russia, Israel and Iran is also considerable, followed by Turkmenistan and Georgia. Israel, now Armenia’s third-largest trading partner, is primarily involved in joint diamond-cutting ventures. A proposed project to build a pipeline to carry Iranian natural gas to Armenia has been on hold for several years due to lack of funding; for now Turkmenistan supplies Armenia with gas for most of its needs.
International financial agencies and donor countries continue to aid Armenia to ensure transition to a market economy. Diaspora Armenians also provide much needed help through the Hayastan (Armenia) fund. Projects have included a construction of a highway and gas pipeline, the refurbishing of an orphanage, and the building of a medical center, school, and housing units.
Armenia is part of the CIS-7 initiative, a plan launched in 2001 by international lending organizations to help the poorest of the Soviet successor states reduce debt and poverty and achieve sustainable economic growth. In 2001, Armenian officials and International Monetary Fund (IMF) representatives signed an agreement for a new $90 million loan. In February 2001, Armenia also concluded a deal with the World Bank for a $50 million Structural Adjustment Credit covering just over half of Armenia’s anticipated 2001 budget deficit. The loan is contingent on continued reforms.
Armenia acceded to membership in the World Trade Organization in February 2003.
CIA Factbook: Armenia
WFP Hunger Report Armenia
World Bank Armenia Report
IMG Armenia Report
BSEC (Black Sea Economic Cooperation Business Council) Site