Armenia's old foreign debt to be paid off with new one

David Stepanyan, Yerevan. Exclusively to Vestnik Kavkaza

Judging from recent actions of the Armenian government and particularly of the Ministry of Finance, the issue of Armenia's ever-growing foreign debt has become one of the most important problems of the Armenian economy. The Minister of Finance, Vache Gabrielyan, has announced that in 2013 Armenia's foreign debt will amount to 4 billion 374.9 million dollars. This means that it has increased by $252 million since 2012. Moreover, if in 2011 the ratio of external debt to GDP was 30.1%, in 2012 it was already 31.1%.

In 2013 the government will have to allocate about 418 million dollars to reduce the debt, which is over 1.5 times more than in 2012, when it amounted to only 245 million dollars. Armenia owes more than 80% of the debt to international financial institutions (IMF) and Russia. More than half of the foreign debt consists of loans granted for a period of 35 to 40 years, the grace period of which varies from 7 to 10 years. Loans provided to Armenia are not easy loans, since they have a floating interest rate which is very close to commercial loans (LIBOR +3).

Certainly, the 7 percent economic growth forecast for 2012 has probably set high hopes in terms of the capability of Armenia to settle its foreign debt. However, the forecasts for 2013 are not as reassuring. Former president Robert Kocharyan said that the fundamentals still do not give any reason to be optimistic. The first fundamental reason according to Kocharyan is the continuing outflow of citizens from Armenia. Kocharyan also highlighted a decrease in investments.

The opposition agrees with the ex-president. The former prime minister and presidential candidate Hrant Bagratyan believes that the Central Bank of Armenia is to blame for all the misfortunes. He believes that out of 418 million dollars of foreign debt that the country will have to pay in 2013, $200 million were used by the Central Bank to stabilize the dram in 2008-2009.

Former Foreign Minister Vartan Oskanian believes that the use of foreign debt in the previous four years has been ineffective. The politician said that the funds were not invested in sectors that could contribute to  economic growth, provide revenues to the budget or help to manage the debt.

However, the power in the face of the ruling Republican party still considers that staying calm is the most important thing in this situation. The head of the Standing Committee on Financial-Credit and Budgetary Affairs of the Armenian Parliament, Gagik Minasyan, said that given the growth of GDP, the foreign debt in 2013 will remain at the level of 37% of GDP. He said that he does not consider such a situation to be  dangerous and that it would not hinder the implementation of budget programs. Deputy Finance Minister Vardan Aramyan, also a member of the Republican party, has a similar opinion. However, he also said that the government intends to take out another loan in order to manage the external debt.

Thus, the government has adopted a brilliant decision not to reinvent the wheel, and to solve the problem by taking new loans. In early 2013 alone the government expects to acquire new loans worth 509 million dollars, which will be directed only at managing the foreign debt. Only a minor part of this sum will be spent on solving domestic economic problems.

The authorities prefer to take out new loans in order to pay the old ones. This policy significantly hinders the development of the economy. Experts predict that with the payment of 418 million dollars in 2013, another devaluation of the dram is inevitable. In these conditions, the debt management alone would require not 170 billion drams as expected today, but 200 billion drams. The chairman of the Union of Domestic Manufacturers, Vazgen Safaryan, believes that the economic situation in Armenia in 2013 will be very difficult.
 
A well-known businessman and philanthropist, Levon Ayrapetyan, a part of the Armenian Diaspora, said that it was the lack of professionalism of the Armenian authorities that had led to the current situation in the Armenian economy. Ayrapetyan, who has invested tens of millions of dollars in his motherland, has called the increase of pensions in 2012 by six dollars a shame. "If we force the oligarchs and the like to pay the foreign debt, not six, but a hundred dollars could be added to pensions… I cannot understand the voracity of businessmen, which causes them to go into politics in order to earn more money. When you look at Armenia from outside, through the prism of the Armenian Diaspora, it makes your hair curl," the businessman said commenting on today's Armenia.