The national debt of Armenia has exceeded $5 billion for the first time in its history. On December 31st 2015, the debt reached $5.71 billion. Armenia has never had such a huge debt. $4.3 billion is foreign debt, and $461 million is internal debt. Such a huge national debt in the context of an absence of any economic progress makes us think about unsolved problems and analyze the factors which hinder economic development.
Over the last 7 years the debt has grown by more than 350%. It turns out that the national debt is growing, while the economy is barely alive. According to the head of the Union of Employers, Gagik Makaryan, money which is provided by international donors must be used effectively, but it “is grabbed and spent under the cover of various reforms.”
Economists believe that the accumulation of foreign debts could be justified and would have no bug risks if the money is spent for programs on development of industries and infrastructure. Instead of this, the government takes new loans to pay the old debts and takes steps which seriously hinder the development of the country. Economist Samson Avetyan says that due to the artificial rising dram exchange rate, products which are exported from Armenia are much more expensive than products from countries with devalued currencies, including Russia, one of the main trading partners of Armenia. “Problems cannot be solved by controlling the exchange rate. Prices for energy products should be decreased; favorable conditions for exports should be created, and loans should be provided and insurance issues should be settled…” economist Ashot Tavadyan believes.
The monopoly nature of the economy and joining business structures with the official apparatus prevent economic development. They rule out the presence of normal competition in business.
Vardan Bostandzhyan, PhD (Economics), says that improvement of the competitive environment should be a priority: “It is necessary to form a free competitive space which will provide additional opportunities to economic subjects. Various monopolies prevent the development of business in Armenia. Emigration is explained by this factor. Free competition is the most important condition for economic development in any country.”
However, although the authorities always speak about measures on protection of economic competition, in fact the situation is quite different.
Egine Bisharyan, MP from the Rule of Law Faction, believes that trade networks violate the rules of free competition, as major malls are growing, while small groceries are being shut down.
Gagik Makaryan cites the data of the Ministry of Economy and says that 7000 companies were shut down in 2015: “Bureaucrats help their relatives to organize business, due to establishing unfair competition in small and middle-sized business. Previously, officials and their relatives were interested in major business, today they are interested in everything.”
The activity of the Katrin Company could be an example. It was founded in 1997 by the head of the Service of Enforcement of Court Orders, Miran Pogosyan, and his wife Karinae Mkhitaryan. According to the media, Katrin deals with wide-scale imports of bananas to Armenia.
The worst situation is in the spheres of trade and services; but computer companies which develop information technologies, a successful business sphere in other countries, are also being shut down. According to the official data of the Ministry of Justice, in December 2015, 69 companies were found bankrupted by court orders.
The reason for the bankruptcy of small and medium-sized businesses, i.e. the main obstacle on the way to economic development, is the support for monopolies by the Armenian authorities. A recent statement by the Minister of Economy Karen Chshmarityan should be considered through this aspect as well. He said that it was impossible to forbid monopolies and prevent their appearance in Armenia. The Minister promises that the governmental policy and legislation are directed at prevention of abuse of monopoly positions. Howerver, Chshmarityan didn’t say what the achievements in the issue were.
Although the State Commission on Protection of Economic Competition adopted a lot of acts on prosecution of subjects of the economy and many of them were fined millions of drams by court orders, the situation in the sphere of protection of economic competition remained quite difficult.
The current economic situation, including numerous monopolies and their supervision by the authorities, artificial raising of the dram exchange rate at the expense of exchange reserves, and the weakening of small and medium-sized business do not encourage the creation of conditions for real economic development, which could make the credit policy more thoughtful and reduce the debts.
Zoya Tatevosyan, PhD (Economics), thinks that there are many instruments to provide economic growth, including development of transport infrastructure, targeted crediting of export production, reconsideration of the monetary and credit policy, cutting interest rates for businessmen, tax benefits for small and medium-sized businessmen. Meanwhile, some analysts reasonably believe that all the problems are in the political fields, as the authoritarian regime in the country, which relies on the power of monopolists, is not interested in free economic competition.
