Sunday, 23 September

2008 Was a Year Replete with Contradictory Developments but in Terms of the Economy We Emerged with Honor

An interview with Nerses Yeritsyan, ROA Minister of the Economy

How would you evaluate 2008?

Despite the fact that 2008 was a year replete with contradictory developments, I can state that on the economic front we came out honourably since we mollified or neutralized those problems that we had. We enjoyed sufficient budgetary tax capabilities to counter them and that budgetary tax window allowed us to display certain flexibility in our monetary policy and register stability in the repayment sector. It must be also pointed out that the country’s debt is quite low which allows us to contemplate serious state investments programs.

I do not know it was by chance or not but the talk regarding the crisis was still in the air in Armenia when we started work on some large-scale projects, especially in the infrastructure sector. International experience shows that this is one of the best tools to overcome the crisis. For example, railways, auto routes, construction of the nuclear power plant and the creation of the Pan-Armenian Bank, designed to assist large-scale projects, in conditions of a crisis, will ensure the realization of anti-cyclical policies and those designed to prevent the fall of economic activity. In other words, what we need now employment on a mass scale and road construction and nuclear power plant construction demand both an engineering workforce and a labor workforce as well. The programs of the Pan-Armenian Bank will also insure the reform process and the creation of innovative infrastructures so that after this anti-cyclical stage we will be able to attract large-scale investment and to follow up on our development programs in a smooth and timely fashion.

Are the financing sources for these programs already identified?

I am not authorized to say if they exist or not, but it is natural that when the republic’s president states such an idea the resources have been previously identified, otherwise the president wouldn’t have made such declarations. For example, the USAID has conducted studies regarding the nuclear power plant and the government has passed a decision to employ professional consultants to realize the project. In the railway construction sector, the Asian Development Bank has already earmarked more than one million dollars for the North-South route project intended to come up with engineering solutions and proposals for financing. It is clear that by its participation the Asian Development Bank proves that there exists an overall strategic comprehension and that from a strategic standpoint such a project is worthy of being realized. By law, the financing of the Pan-Armenian Bank is already planned for and negotiations have been carried out with all international structures and partner nations in order that we can centralize resources. This must also include our capability to raise private loans, a very important issue. This initiative assumes a degree of private-state cooperation, something which leads to a maximum result level throughout the world. The government is able to increase its degree of participation to 20-30%, to bring forth transparent business models, where there are no short-term benefits for the private sector but rather serious benefits long-term. Thus, the question of corporate responsibility is also resolved. Our aim is to show that the political will exists to realize this huge concept, that it is realistic and doable. Thus, the first steps have to be taken. International experience shows that after these steps are taken the private sector is also drawn into the process given that they are large-scale projects in which the private sector is interested.

At a certain stage, however, mustn’t it be shown that they are profitable in order that others believe in them?

We have taken the first step, the cultivation of fertile ground for the second stage, in order for state-private cooperation to start moving. In addition, we already have several successful state-private cooperative programs under our belt.

To what degree does the domestic political situation impact on the economic sector?

It does have an impact on the economic level. It goes without saying that stability is important and in this regard we haven’t registered essential problems. But in terms of long-term investment it is desirable that the psychological state of affairs on the domestic political front be improved. If the entire participatory populace strives to attract investment to Armenia it presents a much different picture than when one portion of the populace, albeit a majority, is engaged in representing the country in such a way as to attract investment. Rather than citizens being engaged in political intrigue it is better that they engage in productive pursuits, for example, to come up with new initiatives in the social or economic sectors.

In your opinion, do the people trust the government?

In the programs of the government and in our statements, we don’t conceal the fact that a problem of confidence exists. We must be able to evaluate and develop tools so that society sees the impact of government on its everyday life. This is so because, in addition to doling out pensions, which is of course important, the activities of the government also are manifested in the fulfilment of numerous other programs that impact on economic growth and on the level of involvement of individuals’ in the social and economic sectors. There is a dual problem here. There are sectors where work must be carried out to improve transparency and structural staff in order to strengthen their influence. The other problem, in that we haven’t been able to represent the impact of what we have accomplished, which is the key to gaining confidence. Our reports must be changed in such a way that they not only show what has been accomplished but rather what we have gained as a result. It is a complex issue to realize and it is complex in terms of reaching a consensus, so that people accept the results of our actions. There are spheres where there must be a correct redistribution of resources in order to strengthen the impact of our policies. In particular, we are quite adept when it comes to drafting and passing legislation, but the problem as to what degree our laws are being carried out, when it comes to applying, insuring follow-up and analyzing, remains a complex issue that hasn’t been resolved.

The government is sometimes blamed for making certain pledges and then forgetting them; for example, turning Dilijan into a financial center or the Zvartnots Airport into an economic free-zone.

When I presented the Zvartnots project I stated a time frame, that’s to say the project has stages of completion to pass through, that will take 10-15 years, before final termination. In all cases, one first declares the project’s concept. But we haven’t directly lived in such a society. Large ideas usually require communication and afterwards the society gives its reaction, which helps highlight the risks involved in realizing the project. In the second stage, agreements regarding a specific time frame must be hammered out. In our case, it was a question of what investments had to be made, what assistance the government must come forth with. All this was already outlined in the project draft. To complete the project we will begin to speak to business entrepreneurs as of this year. By the way, there are business types who have agreed to relocate there and if the planned for freezer storage system are in place, they will package their goods there and transfer them to the outside market. We must, out of necessity, put this process of the concept into practice, which is registered in the agenda of the Armenian Development Agency. We will actively discuss the matter with all involved parties given that it is possible, due to inadequate communication, to end up with only ten companies and the idea will thus die. But if you don’t rush things, you can wind up with 100 companies and make the right selections. This process must be presented correctly and will take one year. During this period we will periodically talk about the steps that have been carried out and we will show proof of joint work. This is a new approach that is doable since it has been discussed with the participation of the parties involved. All state that an idea can be executed if joint work is applied. In other words, rather than being forgotten, solutions in stages are assumed. The execution of long-term projects demands a correct measure of communication and we are hopeful that in this issue you, the press, will also direct us.

In conditions of crisis, you would think that these ideas are out of step with the times given that the world is mired in other problems and we are presenting ideas. Perhaps, if the crisis didn’t exist, these ideas would work, but today they seem to be undoable.

The most inert sectors of the developed countries that have been immediately impacted by the crisis are high quality services and highly developed technologies. These aren’t being impacted. The sectors, which are considered to be traditional, built on huge financial bubbles, have been greatly impacted and these effects can be countered by capital expenditures. We have formulated a package of anti-crisis instruments which will allow us to ride out the fluctuations. Those resources that we need to bring these ideas to fruition and to allocate to business plans and investment projects, those costs aren’t essential for us to concede and the termination will take place a year later when there will be an abundant supply of resources in the world for such ideas. If we raise the projects to such a level that we state to investors how their rights will be protected we can attract investment to Armenia. And Armenia has shown that from the point of view of domestic demand it has relative advantages in terms of competitiveness.

In terms of developing the information technology sector, firms in the field talk about lowering the price of internet services. What steps are being taken along this line given that regionally Armenia has the most expensive internet fees? Why is it that the government can’t resolve this issue?

Why is it that problems occasionally pop up? There is a fascinating concept in the west as to what differentiates a rich person from a poor one. It isn’t because one has more money than another but because one is organized and the other isn’t. We have passed legislation to resolve the problem but they must be accompanied by technical solutions which require significant knowledge. During the holidays I allocated time to read some 150-200 pages of literature on the subject to see how other countries have tackled the problem; to redistribute the connection so that speed doesn’t suffer and that a multilayered system works. Prospects have opened up along the two directions and we’ll have a technical design in hand during the coming 2-3 months. It will be put up for bids. Let the internet providers consult amongst themselves so that the correct allocation occurs. As for the exterior distribution network there are different possibilities, to run cables alongside existing gas and electricity liners. There are even initiatives to ensure better internet connections via Turkey. The latter was a proposal put to the government by the “ArmTech” congress and it was actual experience that resulted from follow up dialogue with a private concern. When the Vice-Secretary of the United Nations was in Armenia, an official delegated with dealing with landlocked nations, we raised the issue and there was a general expectation that here too there could be some international agreement obliging neighbouring nations regarding the joint and unhindered usage of internet infrastructures. This year we would like to present such an initiative to the international community.

What about transfers from overseas? Have they gone up or down?

The crisis has shown that these transfers are fairly mobile but of course there’s been a change in the situation given that both the United States and Russia are experiencing problems at the same time. This issued has been studied at the national competitive council where famous Russian businessmen are members. In Russia, which is the main source of risk, there are people with various levels of income and most aren’t dependent on the financial sector which, if it suffers, might bring about changes in the types of transfers rather than an essential fall off. Perhaps there will be drops in terms of factoral incomes but counter-measures are directed at them. In addition, Armenians are employed in those sectors that have permanent workforce demand. Nevertheless, a fall in transfers has been accounted for in the anti-crisis package.

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