According to experts, the Armenian economy is facing several unresolved problems such as monopolization, a low level of diversification and unilateral dependence on foreign money transfers. Vahagn Khatchatrian, ex-mayor of Yerevan and current member of Armenian National Congress economic commission answers VK's questions.
- Recent economic growth is provided for the most part by construction activity and transfers. How has it influenced the economic development of the country?
- This policy was adopted in the Robert Kocharyan era. It is well known that construction enterprises are perfect for money laundering. 2002-2003 has seen the beginning of "North avenue" construction in Yerevan and 10 or even 20 times growth of land prices in the capital. The authorities were eager to develop this area because it presented real possibilities for foreign investments attraction and quick
personal profit. All oligarchs invested their money in the construction area hoping that this construction boom would last long enough. However, now the government understands that construction projects need further investments, but no one is now willing to make them as elite building are not on sale. And so they are turning into 'stone tombs' of 7 billion dollars. Meanwhile the construction boom didn't contribute to the economy development at all.
As far as the transfers are concerned, there are and pros and cons. Of course it's great that our compatriots send their relatives money from abroad. A maximum rate of transfers was registered in 2008 when transfer volume reached 1.6 billion dollars. The figure is expected to be 1.2 billion dollars in 2010. However, transfers and construction are the only foundation of our economy, i.e. there is no economy as such.
- Armenian export is considerably lower than its import. What stands in the way of boosting the export?
- Our competitive branches of industry able to win the international market, such as diamond faceting, jewellery production, IT, have been undermined since 2003-2004. The current clan-oligarchic system is
based on trade so the authorities support this import model of economy for already 6-7 years, as it is profitable for the oligarchs in power. The economy based on import interfere with the development of small and medium-size enterprises and thus prevents formation of middle class who won't sell their votes for 5,000 drams as some representative of lower classes do. So there is no space for opposition, for true elections. This economic model helps to exercise political ideology characteristic for authoritarian states.
- So it seems that statements about small and medium-size enterprises
development do not fit the scheme?
- Yes, and one of the best testimonies to it is the fact that stalls are being closed everywhere while supermarkets are being opened. It prevents real competition and the prices rise constantly. The entire world goes through certain economic cycles, and while the grain prices go up, coffee pieces go down. But not in Armenia: all prices go only up here, because the issues of pricing are resolved by the government and not the free market.
- What steps are to be taken to ameliorate the situation?
- The most important thing is to resolve the monopoly problem and promote free market economy. For now, we don't have any free market, it is under 100% control of the state. So under these circumstances the issues of monopolies and diversification can not be resolved.
- How could the monopoly problem be resolved?
- Monopolists should be brought into common tax field; they should pay the same taxes as everyone else. However, the monopolists themselves would not like the idea of plying by the rules, as they are used to tax-free profits. So to even the score other tax collecting principles should be introduced.
- Isn't it an administrative method?
- No, this is a mechanism aiming at tax volume differentiation and it is purely economic. If you have a five-story house and a luxurious car you certainly possess a higher income than the others, so you should pay higher taxes to the state. There is also another way: to free small and medium-size enterprises from taxes for about 5 years to give them an opportunity to gain their grounds. All of these measures require strong political will.
Interview by Susanna Petrosyan, Yerevan. Exclusively for VK.
