Arshak Smbadyan: “Government policies will be the death of village agriculture” Almost 50% of the 168 families who reside in the village of Bayandur, Shirak Marz, have taken out bank loans. These loans, mostly for agricultural purposes, have been provided by ACBA Credit Agricole Bank and from the “Kamurtch” and “Finka” credit agencies. Village Mayor Hovakim Sargsyan has also taken out a loan. “Without a loan, believe me, it’s just not possible to make a go of things, says Mayor Sargsyan. But the conditions that the banks and our government set down will surely lead to the emptying of our villages in the next 1-2 years. People just won’t be able to work the land and make a living. We can just barely pay off these debts. It’s getting so bad that even I’m thinking of moving out of here.” Last year, Mayor Sargsyan took out a $1,300 eight month loan from ACBA at an annual interest rate of 24%. He also had to pay $300 due to currency rate changes for the dollar. First time borrowers get hit with 30% “The first time one gets a loan the interest rate is 36%, not 24%,” says Mr. Sargsyan, showing us his documentation. “I paid the bank 18,000 as an intermediary fee. Then they take a minimum of 30,000 so that you have something in your account. There’s also the 5,000 fee I paid to become a bank member. In other words, I left 53,000 AMD in their bank.” This year, Hovakim Sargsyan applied to the same bank for a loan.”This time, it was a $2,100 loan for 18 months at 24%. Again, I’ll use the money for farming. But I can’t say if I’ll come out on top. It’s just that I have no alternative. I took out a loan last year to raise some potatoes but I suffered. I’ll try the same this year and hope that nature cooperates. Today, it’s only the bank that clearly knows what it should be doing,” says Hovakim. Mayor Sargsyan says that there’s a person in the village who took out a 3 million AMD agricultural loan from ACBA who wound up not having a profitable year. The villager went to another bank, VTB Armenia, put up some farm equipment for collateral and took out a new loan to pay off the old one. Now, that same guy is working abroad somewhere to get the money need to pay off the VTB loan. Mention the words ‘bank’ or ‘interest’ to the Smbadyan family of Bayandur and a chill runs up their spines. Particularly affected is the woman of the household who confesses that even though she never asked her husband or son the amount of the loan they took out, or how much they were paying in interest, she knows the days when payments must be made by heart. Armenouhie Smbadyan says, “A month before we had to pay, the place was topsy-turvy. People were saying don’t spend any extra money so that we’ll have enough to pay the bank with on the day it’s due.” Arshak swears - no more dealings with banks Arshak Smbadyan, her husband, swears that he’ll never have anything to do with banks again. “We dealt with two banks, VTB-Armenia and ACBA. We were happy with the first since the loans were in Armenian AMD. But when the loans are given in dollars you don’t know from pone day to the next what the rates will be. It’s very unsettling.” “The 1.5 million AMD loan from VTB was easier to pay off than the ACBA 840,000 AMD loan that we had to pay back in dollars. It ruined us,” says Arshak Smbadyan. In 2008, in order to grow potatoes, the Smbadyan family took out a two year 1.5 million AMD loan from ATB-Armenia at 20% annual interest. As collateral, they put up the farm combine, which the bank apprised at 2.5 million AMD. In April 2009, before the former loan had been paid off, they once again had to turn to the banks for credit. This time, Arshak Smbadyan took out a one year $1,800 loan from ACBA at 20%. He put up a mower as collateral. The bank valued the equipment at 1.2 million AMD; 3-4 times less than its market value. ACBA told the family that they could either take the $1,800 or its equivalent in AMD. The Smbadyan’s preferred to take the amount in AMD, at the exchange rate on the day. All their loan payments have been in dollars. In March, 2010, the family paid off the VTB loan and plans to pay off the ACBA debt on April 6. Had to sell the pigs to pay our debts “But you should ask the price we had to pay,” complains Armenouhie Smbadyan. “In April, we slaughtered all our pigs. We have only two cows left in the shed. But we had no choice. We didn’t want them to take us to court or to seize the farm equipment. On the day we had to make payment, we borrowed money from someone in the village. We sold the pigs to pay this guy back. How’s that for a money merry-go-round?” Arshak says that the loans taken out for potato farming turned into dust, especially last year, due to those unscrupulous seed sellers. “I got 10 tons of seed at 300 AMD per. One bag of fertilizer was selling for 9,000 AMD last year. I purchased 30 bags,” recounts Arshak. “There’s the tiling and planting, the chemicals, labor costs, etc. You do the math. The seed they sold me was bad and I wound up leaving the damaged rotten potatoes in the field. I only harvested twenty tons. According to my figures, I should have wounded up making $2,000 profit. Such is the life of a village farmer. If this is the way the government proposes to keep agriculture afloat, forget about developing, very soon the only hope to hold on to will be in the country’s mines and mountains. You mark my word.” Arshak Smbadyan shares the opinion of other rural borrowers regarding what must be done. They call for lower interest rates, longer payback periods, government attention and a bit more sensitivity on the part of banks. Government needs to pay greater attention “Last year the government told us on TV that the insecticide plant in Vanadzor would be up and running and that we would now be getting good quality domestic product. But they still sold us the imported stuff. They import the stuff from Iran and Georgia and you can’t believe what is written on the outside of the bag in terms of content. This year, one bag was going for 7,900 AMD. That’s quite expensive for the average village farmer. If the government’s intention is to let just a few select farmers make super profits, then the agricultural sector is finished,” said Mr. Smbadyan. The Smbadyan family has decided not to farm the land this year. Rather, they will use the $5,800 loan their son got from ACBA to update the farm equipment. This year, they will live off the rental revenue from the equipment. Bayandur Mayor Hovakim Sargsyan believes that if the banks are so keen to conduct their affairs in foreign currency, the least the government can do, since it doesn’t intervene in the matter, is to learn from the experience of others. “During the formative years of the United States, each community had its local savings and loan bank.  These banks were allocated funds by the government and in turn lent out the money to locals without the demand for collateral. Promissory notes were issued. I think we can do something similar here. If the government wants agriculture to at least survive, then it must come to the assistance of rural farmers. At minimum, subsidies need to be allocated, if the government cannot effectively regulate the business practices of banks.