First published in May 24, 2008 Armenian Reporter.
Political will, expertise needed for Armenian economic progress, experts say at AIPRG conference in Washington
Economists, others discuss corruption, dram appreciation
by Haik Gugarats
WASHINGTON – Unfair business practices continue to hurt Armenia’s consumers and the country’s overall economic competitiveness, international economic experts said at an annual conference organized by the Armenian International Policy and Research Group (AIPRG) on May 17–18 at the World Bank.
Saumya Mitra, the Bank’s lead economist for Europe and Central Asia, while remaining upbeat about Armenia’s economic progress, noted that shoring up Armenia’s global competitiveness required both the political will and technocratic leadership to address the shortcomings in economic structure.
In January 2006 remarks, Mr. Mitra had dubbed Armenia the “Caucasian Tiger,” likening its economic performance to that of the high-growth non-petro-states of Southeast Asia; the term was also used as the title of a World Bank book on Armenia.
“Caucasian Tiger” stifled by unfair business practices
“Competition in Armenia has been distorted by monopolies and informal restrictions,” said Mr. Mitra, linking them to a culture of “deepseated corruption,” as well as an absence of strong conflict of interest laws and antitrust institutions.
The World Bank economist believes that Armenia’s new president, Serge Sargsian, and his government recognize these shortcomings. But, he added, in addition to their focus on fixing tax and customs agencies, a more comprehensive policy was needed.
The new government’s program, approved by the National Assembly on April 30, incorporates provisions for enhancing Armenia’s competitiveness, creating a level playing field for all domestic businesses, and a more effective approach to tackle corruption, including passing conflict-of-interest legislation.
A paper presented by the International Monetary Fund (IMF) economists Nienke Oomes and Fernando Goncalves and Gohar Minasyan of Boston College revealed the impact unfair practices had on consumer prices.
Noting that normally currency exchange rates should have a direct proportional impact on domestic consumer prices, and dram appreciation should in fact result in a
proportional lowering of prices, the IMF economists found that this was frequently not the case in Armenia.
The paper noted that “the asymmetry cannot be reasonably explained by transportation costs. A more coherent explanation is that it results from monopolistic practices in the import sector, which is able to increase prices as the exchange rate depreciates and keep prices high when the exchange rate appreciates.”
Impact of dram appreciation
The Armenian dram appreciation, widely criticized in Armenia and especially in the diaspora, has on balance been welcomed by World Bank and IMF economists.
While recognizing the impact appreciation has on remittances as well as exports, Dr. Mitra said that the process itself reflected real productivity gains in the economy.
The link between growing productivity and appreciation of dram was also noted in the IMF paper presented by Dr. Oomes, the IMF’s resident representative in Armenia.
The IMF paper also concluded that the real exchange rate has in fact reached (or slightly overshot) its long-term equilibrium.
[A less scientific Armenian Reporter survey published on April 19, 2008 on p. 21, also found that a majority of experts queried believe that the dram’s appreciation relative to foreign currencies has reached a plateau.]
Armenian think tank in its sixth year
AIPRG was founded in 2002 by Washington- area Armenian economists and public activists and has since attracted institutional support from the World Bank and the Armenian government. AIPRG’s Advisory Board includes Prime Minister Tigran Sarkisian, who joined it while serving as chair of the Central Bank.
Armenia’s current economy minister, Nerses Yeritsian, is an AIPRG executive board member and one of its founders. Mr. Yeritsian joined the conference via video link from Yerevan, encouraging analysis and criticism of his government’s policies.
The two-day conference also included sessions on U.S. aid programs in Armenia, the role of the diaspora, developments in economic sectors such as IT and tourism, and involved a range of economists from the United States and Armenia.
AIPRG is co-led by a board which includes the World Bank’s Konstantin Atanesyan, the IMF’s Armine Khachatryan, and Nicole Vartanian of New York City’s Hunter College. This year’s conference was chaired by Dr. David Joulfaian of the U.S. Department of Treasury.
—Emil Sanamyan contributed to this story.