Monday, 30 March 2009
RA Prime Minister Tigran Sargsyan’s exclusive interview to ARKA news agency
ARKA - Mr. Prime Minister, what is your forecast for Armenia’s macroeconomic performance in 2009?
T. Sargsyan – Every day the economic situation is undergoing drastic changes. In this respect, we are eyewitnesses of “time compression,” therefore there is no much point in making forecasts now.
For a few months now, the government of Armenia has switched over to the so-called “manual handling” of economy and decisions are made on the basis of operative data, instead of forecasts.
Currently the scenario-based approach is the best tool for economic management. The government has developed a number of most likely scenarios, and we are going to take them into account in making decisions. Also, we have shifted to a quarterly budget planning regime under which spending will be subjected to strict control.
ARKA - What are the primary measures needed to minimize eventual losses due to the financial and economic crisis?
T. Sargsyan: Shortly, the following three factors are at the heart of the Government’s anti-crisis program: large-scale infrastructure projects; selective support of exporters, such import-substituting enterprises as are using domestic raw materials and employ the largest number of labor; support of small and medium size businesses.
ARKA – Is it possible for part of the international funds to be used in addressing the social problems?
T. Sargsyan: All the projects to be implemented under the Government’s anti-crisis program will indirectly promote the resolution of social problems. New jobs will be in place, crisis-hit enterprises will be supported financially and so on. Moreover, the Government has repeatedly stated that social commitments are a top priority for us.
ARKA - Which way may the factor of the Armenian Diaspora be strengthened and the potential of the Armenian world mobilized towards Armenia’s economic development?
T. Sargsyan: We have for some time been working in the new dimension of the Armenian world, which has no specific territorial boundaries. Every Armenian, irrespective of the country of residence, must feel at ease in the Armenian world. We have already launched such institutions in this area as are supposed to reveal the all-Armenian potential. I mean the National Competitiveness Council, National Competitiveness Fund, the All-Armenian Bank. In this light, the recent meeting with Russia-based businessmen of Armenian descent was an attempt to combine the efforts aimed at shaping an integral all-Armenian world.
Each of us should realize that teamwork is the only way to producing a sizeable synergic effect. The Diaspora has great intellectual potential. Its application in Armenia may bring about an economic breakthrough. At the meeting with Armenian businessmen, I had the task of informing them on our vision of Armenia’s future dayy, present the Government’s anti-crisis program, explain the Government’s approach to numerous problems and describe the possibilities for cooperation.
ARKA - What impact may the Central Bank’s return to the floating rate and the national currency depreciation have on medium- and long-term pricing in Armenia? Was the return a timely measure?
T. Sargsyan: Since 1993, Armenia had been abiding by a policy of floating rate. It was an objective approach based on fundamental economic conditions. Temporary departure from this policy was necessary to ensure the stability of the financial system amid the global crisis, and that was the right decision.
To cushion the transition from revaluation to devaluation of the national currency we had to milden the shocks both on the professional market sections and for ordinary citizens. Other countries’ experience shows that a period of financial stability is a necessity, otherwise there may be such undesirable consequences as outflow of capital and deposits, lower-quality credits, which, in the long run, costs more both for the state and for the private sector.
This complicated issue was discussed at a most high professional level, including experts of the International Monetary Fund (IMF). As a result, our strategy received a high appraisal on the part of the international community.
The exchange rate exerts essential influence on the prices of imported products, but it is only one of the factors influencing pricing in Armenia. Medium- and long-term pricing should be considered as a whole.
The level of economic activity and the demand for products and services are among key pricing factors now. Both of them are gradually decreasing due to the global crisis thereby affecting the prices. Our anti-crisis program is supposed to smooth the adverse impact of the crisis.
ARKA - Does the Armenian Government consider the possibility of providing “a tax holiday” to small and medium-size enterprises?
T. Sargsyan: As noted above, we have switched over to “manual handling” of the economy, which implies a set of measures aimed at improving the business environment, especially for small and medium-size enterprises. In practice, this means the following:
- increased borrowing with the support of the World Bank, European Bank for Reconstruction and Development (EBRD), the Asian Bank, as well as government credits to the amount of AMD15BN;
- 3-year VAT deferral for equipment imports;
- taking the non-taxable base up to AMD58.3mln against the current AMD3bln used to calculate the VAT;
- recognizing such expenses as may be evidenced by cash-registers to the amount of AMD36mln against the current AMD1mln;
- setting fixed taxes for small hotels and restaurants;
- removal of the mandatory accounting requirement for small and medium-size enterprises with a turnover of no more than AMD100mln;
- simplified reporting procedures for small and medium-size enterprises;
- dissolving those commissions receiving corporate tax returns;
- abolishing the monthly VAT report requirement for those enterprises with a turnover of no more than AMD100mln against the currently applicable AMD60mln.
We have neither the right nor are we able to give up revenue collection at this point of time as welfare charges make up a lion’s share in the public spending.
ARKA - What economic model should Armenia follow in this changing world?
T. Sargsyan: Today, amidst the global economic crisis, it seems too difficult to speak about a commitment to any well-known economic model. We are likely to observe new economic models emerge all along the next decade – the world will no longer be the same as it used to be, and seems to be quite dangerous to discuss things based on the old models.
Those appeals for combining efforts to oppose the global crisis made by the representatives of some countries have not been successful yet. And we can even see that individual countries are trying to resolve their problems by applying the Keynesian model.
In particular, such recent events as US President Barack Obama’s removal of the ban on cloning and unique transplantations imposed by his predecessor George W. Bush went unnoticed while they are the first heralds of the new world.
We cannot ignore the fact that scientific and technological progress is the key to changing economic processes. This means we must first of all develop the innovational component of our national economy.
