Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
April 13th marked one year since Hovik Abrahamyan was appointed to the position of Prime Minister of Armenia. Previously he was the speaker of the National Assembly. After the government of Tigran Sarkisyan resigned, Premier Abramyan announced the necessity to establish equal conditions for business and to reduce “the shadow” in the economy. However, the new government issued tax benefits to only a few companies, as their owners had close contacts with the authorities. One of them is the ANG Company, which is connected with a well-known oligarch, an MP from the ruling Republican Party of Armenia, Samvel Alexanyan, and the Armenian Harvest Company, which is connected with presidential advisor Aram Garibyan and his brother Abel.
Prime Minister Abramyan ordered one of the most controversial officials, Gagik Khachatryan, to control the process of providing equal conditions for competition. According to the Armenian and Russian media, the latter owns a great number of shops, cafés, and enterprises through assumed names. Moreover, since the beginning of the year the budget has lost about 8 billion drams ($1=477 drams) in the revenue sphere.
One of initial promises by Abramyan was an announcement of the necessity to establish favorable conditions for the development of small and medium-sized business (SMB). In summer 2014 the government presented to the National Assembly a draft on amendments to the Law on Turnover Tax. It was approved by the parliament, led by the ruling majority. The law requires a decrease in the turnover tax from 3.5% to 1% for SMB. However, in fact the new order makes the situation of SMB even more difficult, and creates obstacles for development, as it is directed at an increase of tax volumes, and small and medium-sized business cannot bear it. The government created a new reason for people’s dissatisfaction instead of encouraging SMB development.
The law caused a wave of indignation and protests in Yerevan and Gyumri. Premier’s promises that the law was aimed at taking major business to the tax field, while SMB wouldn’t be hurt, didn’t calm down protesters. For the first time in many years the government had to freeze launching a new law twice. Due to people’s great indignation, its launch was shifted from autumn 2014 to February 2015, and then from February to July 1st.
Ovik Abramyan showed flexibility and ability to conduct a dialogue with the opposite side, unlike the former premier. As a result, the operation of the law was stopped. Tigran Sarkisyan was absolutely uncompromising regarding any suggestions by the opposition and any demands by citizens.
One of the central problems of the last 2 years was the problem of the Defined Contribution Pension System (DCPS). It required obligatory contributions of 5% of salaries by citizens (who were born after 1874) to pension funds. Attempts by the government to implement DCPS, large-scale protests, and the decision by the Constitutional Court, which excluded the restriction of citizens’ rights, were the main reasons for Tigran Sarkisyan’s resignation.
Even though Abramyan promised to cancel DCPS, he and his team slightly transformed the contribution system into a tax. The idea of the new tax, or the so-called targeted social contribution, should have given monthly payments of 5% of salaries a more impregnable character in comparison with defined contribution pensions. It is more difficult to argue tax payments to the budget than the law on defined contribution pensions. Thus, the initially unclear thesis by the prime minister on a “defined, but not obligatory” contribution pension system was successfully implemented. However, the step of the government undermined people’s fragile confidence in the authorities.
This category of measures also includes an increase in electricity power rate on August 1st 2014 by 10%. This was another reason for the general indignation which led to protests.
Representatives of the opposition and some economists believe that the reason for the ineffective work of Abramyan’s government is that the prime minister is one of the most prominent representatives of the clannish-oligarchic regime, who is interested in monopolization of the economy and development of major business at the expense of SMB.
The majority of problems in the social, economic and financial spheres were inherited by Abramyan from his predecessor, who is called by some experts ‘the killer of the Armenian economy.’ First of all, these problems include the significantly higher foreign debt in the years of Sarkisyan’s premiership (2008-2014), the policy of supporting the dram, i.e. artificial overvaluation of the dram against the dollar. A dramatic confirmation of the policy was the devaluation of the dram in November-December 2014 by more than 10%. Today the national currency exchange rate has stabilized; however, many experts say that this stabilization is a temporary phenomenon.
Among numerous ‘traps’ which Sarkisyan left for his successor, there was the permanent printing of DMB, as the fiscal structures didn’t want to deal with major companies. Thus, representatives of major business, including the oligarch-monopolists, who are one of pillars of the current regime in Armenia, usually avoiding tax demands.
Meanwhile, according to some media, the president has forbidden the current landscape premier from criticizing Sarkisyan and his government. It should be noted that Abramyan’s government has been formed according to the President’s recommendations.
However, Abramyan’s cabinet has no plan of action on getting the country out of the crisis situation. All the decisions taken by the prime minister are made in emergency conditions and for a short term only. The government had to support producers in the current difficult situation, but the authorities did not do this.
