Friday, 27 February 2009
First of all I would like to introduce you our approaches to the processes that happen in the world now. How can we evaluate them? From methodological aspect we are dealing with a crisis. That means that we know all the regularities and rules of economic life, there just exists a serious decline. After some time and we will return to the reality that existed before the crisis, and those regularities that functioned will be restored, and economic development will enter its usual channel, the next economic cycle will occur.
The next methodological approach shows us that in reality crisis is not the reason for what is happening in the world. The crisis is a consequence of new world formation we are witnessing together and where there will be new consequences and new regularities, meaning that after the crisis the world is going to be different. And when the regularities change, is becomes unclear how the collapse will occur and how the new world will be built. And that means that we are dealing not with a crisis, but with chaos.
These two methodological approaches are important for determination of personal orientation for future. In our government we work in two directions. The first one is the realization anti-crisis measures complex. Here we act with the logic and regularities of industrial society and with the logic of crisis attitude to the situation. And the second direction of our thoughts leads to the new world, to postindustrial model of society.
It is obvious for us that regardless to future scenario the world will never be the same, so we need to have two planes of thoughts in our logical schemes.
There are such global structure violations today; this is the left plane and this is the right one, motion from the complicated to the simpler one. We are the witnesses of globalization stage deceleration and localization process activation. By saying localization we mean integration new process including regional areas, development of regional new logistics, about which we will talk in future. What are those regional formations and how are they going to fit in new logistics? It’s obvious that today we are dealing with sponsorship policy. Even if the developed countries say that it is bad, that it leads to global economics collapse and deepens the crisis, we can see that all global players provide sponsorship.
Nowadays the interference of state in economic relations is inevitable, and in regulation of those processes the role of the state naturally becomes more important. Whereas that bears general distrust to everything that is happening, because the regularities of the collapse are unclear, it is also unclear how the state is going to handle that situation. In times of social tension the increase of populism is the inevitable companion of the happening events. We are also dealing with that and it is obvious, that a deterioration of crime causing environment is happening.
I have already said that the sign of establishment of the new is the absence of collapse and formation logic, that is to say there is no agreement between the participants and regulators of the market on what is happening, when the bottom of this crisis will be visible and how the new will be created. The criteria of success change; reassessment of values occurs. Money is not a criterion of successfulness today.
The allocation of power centers and resources is obvious, new dislocation is occurring, global players want to clearly determine their positions, but they are not able to do it, because there is no general vision of future.
Redistribution of centers of force and resources is obvious; new dislocation is underway; global players want to determine their positions clearly and precisely, but they fail to do so as they do not share a common vision of the future. It is apparent, that a deterioration of institutes of private property and competition is taking place conditioned by the fact that participation of the government in economic activities is drastically increasing. Global institutes responsible for the architecture of worldwide finances and trade are demonstrating their inability. They do not possess tools, do not have an overarching policy and are not able to reach understanding with global participants of the market. It is evident that the architecture of worldwide economic and financial activities will change.
What are the disadvantages of current situation? There is a drastic decrease in global prices of natural resources resulting in a drop of Armenia’s raw material industry export. Copper and molybdenum sites and five major companies operating in this field are virtually facing huge problems; they can cope for several more months considering high incomes that they have yielded during the last three years.
Import rules have become more severe; the demand in Armenia's partner-countries has decreased thus causing a decline of export in all sectors. Harsh import rules have a somewhat simple reason – all countries are either explicitly or non-explicitly carrying out protectionist policy and are stiffening customs rules, product quality control and so on. Consequently, a potential increase of unemployment and deterioration of the social state of citizens with the biggest share of incomes consisting of transfers is occurring. First of all, this is with regard to transfers from Russia. In the overall mass of transfers their share is about 70 percents. We already have recorded a drop of the transfer growth rate.
Due to negative expectations a stoppage of private building industry, fall in private inputs in Armenian economy and delays of payments within international agreements are observed. Goods are being sent to Russia, but for various reasons payments for them are two or three months overdue.
Criminоgenic situation is worsening and corruption risks are increasing.
What are the positive aspects of current situation? Foremost, it is maitenance of macro-economic stability; so far international expert assessment of macro-economic stability has been high and the projections have been positive.
External price pressure has dropped. Inflation in the country was slightly higher last year than it had been projected – 5.5%; however, this is the lowest inflation compared to CIS countries. Inflation in January was 1 percent, in February we expect a price drop. This strengthens our potential, macro-economic sustainability potential and specifically reinforces the CB position.
Armenia's banking system coping with the first wave of the financial crisis, is maintaining stability; we do not face liquidity issues, capitalization level is very high, banks are operating with high profitability.
The level of state external debt is low. Currently it constitutes 17 percent of the GDP. This significant reserve of security creates favorable conditions for new external loans. This means that we represent a sound country and can drastically increase the external debt level and overcome potential problems, significantly expand opportunities of attracting institutional investors and creditors, given that our rating remains positive. We operate within the scopes of all our international obligations and institutional investors are largely interested in investing just in Armenia.
The potential of inflow of quality labor to Armenia has considerably increased, especially from Russia, which has serious difficulties today. The fall of prices of innovative machinery and technology is a major positive factor for us. In critical conditions the growth of the confidence in government is a result of growth of interest in projects and programs that we implement today. Plus our management tools, which are in demand today. Crisis creates a unique opportunity to remedy the mistakes of the past, which are many: we have set out to correct them determinidely. There is a definitely positive attitude towards the projects that we implement today.
Apparently, another positive factor is that some reforms simply cannot be left for the future; we need to carry out them today.
What principles should the Government’s activity be based on in such a situation - given the positive and negative aspects? The first principle is our word, words should be followed by actions, and there must be outcomes. If we do not follow this principle, we are likely to lose the confidence. The second principle is maintenance of rule and order. During crises rule and order are needed as never before. However, rule and order, as a rule, should be attended by transparency and public control. All the decisions that we make are initially discussed in business environment; draft decisions are posted on our web-site. We have a rule, which does not permit us to adopt draft decisions without discussing them with business community.
Another principle is promptness of decision making and complexity of measures. The next principle is the projective approach. We have revealed a rather serious problem in public administration area. That is the lack of a projective approach, the inability to describe the outcomes, which you seek to achieve. So now we broadly shift from traditional methods of budget process management to projective ones.
Let’s turn to national private partnership principle: what does it mean? It is obvious that in times of crisis the state has more functions, there is a big load on the state and realizing all those new projects the state must insure the participation of private sector in realization of those projects with distinct strategy of leaving the business. The strategy of leaving the business must be known not only to private business representatives but also to the public. And the arrangement of collective conferences is obligatory: all anti-crisis measures that we develop and realize must be thoroughly discussed with the public, it’s important for the public to understand what we are doing. This was the prologue, and the first part of the report concerns the package of anti-crisis measures. We can say that fundamentally what we do today is revolutionary changes in government activity. We have always been guided by hyper free logic of project realization and the thing we are realizing now is much unexpected especially for our government. We give national insurances to private companies to realize projects that agree to our notion of how to overcome this crisis. We give credits, including direct credits from budget. We take part in the capital of private companies with the strategy of leaving that capital. We subsidize, including in agriculture sector, and we already have successful projects in those fields, which are mentioned in the appendix of my report and you can learn them. We have decided to postpone the payment of VAT for equipment and technologies import. That is a serious opportunity for updating productive power, and installing new technologies, and we already have an agreement with private sector. That postpone, which is fundamentally a liberation from VAT, has already given some results. Creation of specialized export companies, the mission of which is the assemblage and optimization of export power, standardization and certification of small business production, export contracting expenses decrease: these are the main issues that Armenia has come across in the last 10 years. There are many small companies here, especially in agriculture sector that produce high quality products, but as they are very small, they can’t organize the export of their products themselves.
It is known that in developed countries companies are created that take the implementation of those functions. Unfortunately, in Armenia the level of synergism is not so high, and such small companies don’t make agreements around consortiums creation. So we have made a conceptual decision that the state is going to take over that function and we are going to create the specialized export companies together with private sector. By the end of last year after joining GSP+ system, since January 1 the exporters can make the EU export for reduced taxes. That is a very important advantage that Armenian businessmen have over Russian ones.
Realization of regional and national investment projects is the second important direction of anti-crisis measures package. The interest is very high for the project of new nuclear facility construction. There are many investors who have spare money. They are looking for reliable projects. Nuclear facilities are just those projects and we have serious interest in that project. The tender of operator has already been announced and it’s closing on March 13. The project is already activated.
The second project is the road construction. About a thousand kilometers of road construction is going to be done by funding from the World Bank, Asian Development Bank, “Millennium Challenge” project, which we implement with USA, also by budget financing.
The project of water supplying system reconstruction through all the territory of Armenia is also a big project, which will require around 300mln dollars. In the project of earthquake region reconstruction the state will invest about 250mln dollars. The realization of these big projects, of course, will serve as a powerful impulse for restoration of economic growth indexes.
The next direction is the support to small and medium businesses. By our evaluations small and medium businesses in two years can absorb about 250mln dollars and the money will be given by Armenian-German foundation. The World Bank will participate too, which has already provided us with 50mln dollars. European Bank of Reconstruction and Development and Asian Bank are ready to provide funds for development of small and medium business.
Separate popular arts liberalization from any kind of entrepreneurial taxes: this decision has been made by the government, and the parliament has already accepted the package of law during the first session.
The package includes transition of separate service sectors to certified payments and a milder regime definition for tax management when working with small and medium business, also dispose of obligatory accounting for companies that have less that 100mln drams in circulation and definition of simplified tax report.
Next direction of anti-crisis measures is the long term national credit involvement. You know that we have had successful negotiations with Russia and we have agreed about 500mln dollars credit, which we will most probably get in March of this year. Naturally that is a very serious amount for Armenia’s anti-crisis package.
National not targeted expenses decrease, meaning reorganization of Armenia’s budget expenses part. We must be able to decrease inefficient expenses and to allocate them with logic, which I have told about, that is – abrupt increase of expenses for sub-structures, including road building, power engineering, water supply, drinking water, also small and medium business certification.
There is the problem of state apparatus efficiency increasing and absolute transparency of anti-crisis measures. Today we are developing a very important document for us – anticorruption complex project. The efficiency of that project must be insured by monitoring group and we are going to publicly invite the opposition to participate in the work of monitoring group. I am sure that the participation of opposition will provide serious results to anticorruption monitoring project.
The improvement of national purchase system: the contents of it is that in case of all equal conditions we are going to give preference to native producers. And this is the logic of industrial world, and with this logic distinct mechanisms, which I have mentioned, have been developed.
The second part of the report is about how we should act in postindustrial society and with new logic. The contents of postindustrial society’s new logic can be described with these main parameters that I will try to state. If you have time you can look at the table attached to the report, where there is presented the logic of industrial and preindustrial society by the same parameters. To save time I will simply state the logic of postindustrial society. In postindustrial society the basic process is the creation of knowledge, goods production knowledge. This is a fundamental change, which will take place and with which we will meet in new society, in new world. And that means that we must change our attitude to everything that has happened before that. And all our effort must be directed to creation power strengthening, for us to produce knowledge in Armenia. The main resource is intellect and mind activity. We must learn to think.
Government system: it is changing, in the new world that system is not going to be perpendicular but reticular and that will give us some advantage. The criterion of success is the knowledge, and not money, like it was in the logic of industrial world. And the base of activity is not the mission of earning money, as we are going to deal with a person, who is a carrier of intellect. The most important thing for the educated person is self-realization. In reality this is the new ontology.
The superiorities of national policy in postindustrial society. It is obvious that innovational technologies become primary. That means that we are going to work in creation mode, new knowledge creation mode and new approaches mode all the time. Healthcare is given a primary importance, we have several projects that can cause a turning point in healthcare. Education system has a primary importance for us too. We hope that the accumulated power in macroeconomic sphere, in financial sphere will allow us to make that direction one of Armenia’s relative advantages.
Organized recreation and business-advantage center: this means that the government of Armenia has every chance to create such a business environment in the country that it will have an advantage over its regional neighbors and we will compete with such countries, which have already succeeded significantly. Meaning, that engaging in business in Armenia must become very simple. For that a complex program of distinct measures has been developed and we must reach the turning point in two years time.
The aim of our meeting today is the development of Armenian World. Armenian World is a new territory of development, which unites Armenia and the Diaspora in one organism. Armenian World is a united mind activity platform of Armenian metropolis and representatives of Diaspora. That means that the ontology we represent, the logic of our thinking must be understandable for Armenian World and we must unite around us the people who are able to understand these new ideas and principles. Armenian World is a creation of pan Armenian global net and we are working on that. Meaning that Armenian World is our answer to the challenges of contemporaneity in a way of new architecture of world order.
How are we going to build the Armenian World? It is obvious that it is impossible to imagine the building of the new world with standard notions and structures. And that means that we must rely on postindustrial society’s logic of new structures and methods of management. From that aspect it is obvious that the states are going to change their role in regulation of public life. And that role is going to change in the direction of closer cooperation with public. For that purpose we have created the Council of National Competition, the mission of which is the competitiveness of Armenians out of our territories and borders. Meaning, when we leave the territory of Armenian state we are bound to cooperate with nongovernmental organizations that function in Armenian territories, we are bound to suggest a new system of Armenian World. The Council of National Competition has been created, the mission of which is the development of project field in Armenian World.
Pan Armenian bank. The law on Pan Armenian bank has already been accepted by the parliament of Armenia, the money for its establishment has already been allocated, and in March-April it will begin its activity. Under the aegis of the president of Armenia the “Luys” foundation has been created, the mission of which is the funding of education in world’s most elite education centers. The students must have the chance to get education in world’s best universities and the “Luys” foundation will take care of all the expenses. And that concerns not only the citizens of Armenia, but also those who live in Armenian World. You surely remember our president’s famous speech “Armenia doesn’t exist without Armenian World and there is no Armenian World without Armenia”.
What does the Armenian government suggest to Armenian World? First of all support in establishment of mirror companies (հայելային ձեռնարկություններ). I think, most of all that concerns the representatives of Russian Diaspora, who are successfully engaged in business in Russia, and now dealing with some problems are probably looking for a new field for realization of their new projects. We think that their experience and knowledge will let us organize mirror business in Armenia ant the state will support that projects. We will use tax contracts for new, especially big innovational projects, and all that is left to do is to make correct business plans.
The government gives national insurances for those projects that will create work places and export, also privileged long term land renting and production power, on the level of operative headquarters adjacent to RA government overcome of business hindrances, reliable banks to keep the savings, right to participate in semi structural projects held by the RA government.
Here we are also talking about the opportunity of participation in nuclear power facility project realization, as we assume that we can put up for sale some part of stakes. Summarizing the report as pivotal deductions we can note the following: the crisis opens new opportunities. When we are challenged we manifest our nation’s best self organization, ability of fast adaptation to new events. Crisis is the time of return to the sources, crisis is the time of liberation from old prejudices and mistakes. Crisis is the time to show all the world that the wisdom of old nations is reality.
Dear friends, you are awaited at home, welcome to Armenian world.
