First published in April 19, 2008 Armenian Reporter
Government stability, growth and dram fluctuations
The Armenian Reporter’s inaugural survey of experts
Editors’ note: Last week we asked more than 100 regional experts to weigh in with their expectations about the longevity of Armenia’s new government and Armenia’s economic and currency trends. A good number of them – 27 – responded before our deadline.
As we learned, the respondents expect relative government stability over the next year and subsequent several years, even though the postelection crisis and global economic turndown has dampened their enthusiasm for Armenia’s economic performance somewhat. The majority also believe that the steady appreciation of Armenia’s currency has reached a peak, but few expect depreciation.
Certainly, the results of this survey are not scientific and it is always hard to predict the future. But we believe that the diverse views expressed below are informative and should help stimulate further debates about Armenia – in which we invite all of our readers to participate.
We thank this survey’s participants and hope to be able to do this with some regularity.
Please note that the percentages do not always add up to 100 because of rounding.
Tigran Sarkisian is Armenia’s newly appointed prime minister. How long do you expect his tenure to be?
44 % say until the next parliamentary elections (scheduled for May 2012) or longer
“While I expect the transition to the new government to be difficult, I think we will have stability in the end.”
“The country needs stability and he is credible; his nonpartisanship is just what is needed at this juncture, and he could indeed last the full four years.”
“His solid background in banking and finance, coupled with the enormous trust and respect that the IMF, the World Bank, and the EBRD have for Mr. Sarkisian, bodes well for Armenia’s economic development in the long term. He will most likely surround himself with Western-educated and intelligent technocrats, which will buttress Armenia’s international standing and image.”
“Tigran Sarkisian showed excellent results in governing the Armenian banking sphere. It is highly likely that his expertise will be appreciated over the current tenure of the president and the parliament.”
“He’s done OK at the Central Bank. He has networked and should stay out of the president’s hair and play second fiddle. So I see him minding the store and surviving.”
“The choice of Tigran Sarkisian implies that the president’s priority is the economy, including trying to deliver on his pre-election promises of a better life for more people. I don’t see any candidate emerging who would be better qualified than Sarkisian to meet that requirement, even though he may have an uphill struggle if the global economic downturn intensifies.”
44 % say more than a year but less than four years
“The new president and prime minister have inherited a heavy political legacy and a society on the brink of a split. It is thus hard to believe that they could focus solely on economic issues. Populist steps dictated not by economic effectiveness but public demand will probably be necessary. The biggest challenge will be to strike the right balance, and the new government has no time to waste.”
“[Tigran Sarkisian] will smooth the path for [President] Sargsian with international financial organizations. As PM, he will be allowed to make nonessential decisions. But he has no large power base and if he tries to create one in the future, he will be ousted. If he doesn’t, he will be kept as a convenience until Sargsian’s inner circle feels the need to reward someone else with the post. There is an outside chance that like Vartan Oskanian, he will become so competent and so pliant that he will be kept on longer.”
“He is a prime minister of the moment, not a long-term player. He is a technocrat whose appointment is aimed to satisfy everyone. But it doesn’t look like he is ready for the type of reforms necessary. He may become a long-term PM, but two to three years is more likely.”
“He will most likely fall prey to party politics.”
“[Tigran Sarkisian] has presidential inclinations. I do assume that he will do everything not to fail in terms of his personal career and he will stay there if the president keeps him. However, closer to presidential elections, he may want to get out.”
“With all the caveats, I think that the most likely scenario is the status quo for Armenia: political stability, reasonable growth rate and stable government. But this scenario has not more than a 60 percent chance.”
11% say about a year or less
“Armenia is facing deep social, economic and political crises and the present prime
minister and the coalition do not have the understanding and capacity to overcome these crises, especially since they have been in power for the last ten years and somehow engendered the present situation. The lack of legitimacy and trust from society is the main cause and the backing of outside forces would not improve the situation. The situation needs internal solutions.”
The government expects the double-digit growth that began in 2001 to continue this
year. What do you think?
48% agree somewhat
“I expect that the instability and uncertainty that were generated because of March 1will eventually disappear. I expect Tigran Sargsian’s government would bring back Armenia’s economy back on track. I expect that this government will be able to use the discontent of the population that was exploited before and during March 1, to reduce monopolistic power of oligarch importers and to collect adequate amount of taxes from them, generating a healthier government fiscal conditions.”
“Inflation will increasingly be a factor. More important than growth is the public satisfaction with economic performance. Right now it looks like the public is dissatisfied, and this dissatisfaction is likely to grow.”
“As long as the new Sargsian administration diversifies the type and expands the flow of direct foreign investment to Armenia, especially in the realms of IT and telecommunications, Armenia’s growth should remain close to the 10 percent. What’s critical, however, is that this growth be felt in the everyday lives of Armenians living in both urban and rural areas of the country, and not just a handful of wealthy families.”
“Hard to imagine that Armenia will be immune to the worldwide slowdown, but possible; economists are talking about ‘decoupling’ and Armenia’s strong economic ties with Russia may insulate.”
“Armenia’s economy will be affected by the world economic downturn. Also, the housing and construction boom will most likely slow down somewhat. However, Armenia’s economy is not integrated with the rest of the world to such a degree where the impact of a global decline will be proportionally reflected in the Armenian economy. Also, ‘home loan’ programs which were recently initiated in Armenia will bear fruit in the next 5–10 years increasing demand for housing and thus keeping the construction boom going. All this may be affected by political instability and the resumption of fighting on the front with Azerbaijan.”
“If we can avert a war, there is no reason why things should get worse.”
“Like all other statistics in Armenia, from demography to votes, the statistics will say what the government wants. The cost of oil will rise for Armenia and this will make growth a bit harder to maintain. The misshapen, de-formed nature of the economy – remittances, construction, and agriculture as the first three sources of income – makes any regular economic model useless as a predictive indicator.”
19% agree strongly
“The Armenian economy has a strong potential for growth and if it were not for the post-election crisis, 15 percent or even higher growth would have been a real possibility. The most basic management by the government, dealing with the most controversial factors that are non-economic in nature would help sustain growth. Such steps would be both good for the economy and would also be publicly supported. But they must be taken very soon, within a month or two.”
“Armenia still has a capacity to benefit from the traditional growth sectors (real estate, agriculture, etc.) The slowing momentum in those sectors, however, will be leveraged out by the second-generation reforms, which would make knowledge-based sectors of economy a growth factor.”
19% disagree somewhat
“Current numbers published by the government are inflated in the first place. The main drivers of growth are construction (has limited growth potential), services and remittances (the unfavorable economic situation worldwide might affect the latter). A lot depends on the strength of Russia’s growth.”
15% disagree strongly
“I do not believe in these numbers. Also, it looks like in some countries the stronger the growth, the more job insecurity and unchecked business development is around, which is detrimental for Armenia. What does this growth really mean, and what is Armenia’s real economic condition? Armenia’s economy is not sustainable at all, and combined with politics it becomes even less so, so what are we talking about?”
“10 percent growth rates are quite unusual and very seldom sustained. I expect slowing to about 6–7 percent; political uncertainty should reduce foreign investment.”
The Armenian dram has been appreciating against major foreign currencies. Do you expect this trend to continue this year?
41% say No, the dram should remain relatively stable
“This year, at least, the dram will stay between 300 and 320 to $1 U.S. as it is set in the budget.”
“The dram’s current rate will remain stable or at least the appreciation should slow down.”
“The [current fiscal] policy will continue because the people in power will continue to profit – keep in mind that the remittances that come to Armenia are denominated in foreign currencies and paid in drams, so remittances buy the natives less while the Central Bank acquires foreign currencies ever more cheaply by paying for it in a currency it controls.”
“I believe the Armenian Central Bank, under then–Central Bank Chief Tigran Sarkisian, had a hand in the dram’s appreciation in relation to major foreign currencies. As long as the new Sargsian administration prioritizes the needs and benefits of large-scale importers, as opposed to local manufacturers, the value of the dram will remain high in relation to other foreign currencies.”
“I do not see the continuation of appreciation trend to be a sustainable option. Tigran Sarkisian should know this better than anyone else. While real appreciation may continue, it would be much slower and directly linked to the growth rate in national productivity.”
“Even if the economic growth results in a natural appreciation the government will have to step in and stabilize it. Otherwise, Armenia risks losing its already very small export market."
“While the dram will stable relative to the U.S. dollar, it will probably depreciate vis-àvis the Euro.”
37% say Yes, the dram will continue to appreciate
“The trends will be dominated by the world financial crisis, most importantly the fall of the dollar. Armenia has only two options in this regard: dram appreciation or inflation.”
“The appreciation of dram will continue as a result of (1) a global trend of dollar-depreciation and (2) local specifics dictated by huge dollar-based injections in the form of private remittances from Armenian labor-force working abroad.”
“I expect the dollar will continue to fall in a long-term depreciation pattern similar to the long-term rise in oil prices.”
“It’s more likely to appreciate in the short term, but I don’t see that trend as continuing indefinitely.”
“My expectation is that the dram will appreciate at a slower pace than during the past few years. The financial and economic crisis in the United States could affect remittances and slow down the appreciation of dram.”
“Until a likely economic collapse, I do not expect any drastic changes in the obligations that the administration has vis-à-vis the businesses that help it survive. In the preelection period, a huge amount of promises has been delivered, which have to be satisfied, at least partly. I wouldn’t expect from Tigran Sarkisian to change the policies he is so accustomed to, like the tenet ‘inflation should be kept low.’”
22% say No, the Dram will depreciate
“Dram appreciation was reflecting inflow of remittances – if the remittance slow, it will depreciate.”
“Not because of anything to do with the local economy, but because the dollar will continue to fall relative to the euro.”
The survey responses come from 27 experts: Armineh Arakelian (Yerevan), Hrachya Arzoumanian (Stepanakert), Konstantin Atanesyan (Washington), Karen Ayvazian (Moscow), King Banaian (St. Cloud, Minn.), Asbed Bedrossian (Los Angeles), Eduard Danielyan (Washington), John Evans (Washington), Lev Freinkman (Washington), Liz Fuller (Prague), Richard Giragossian (Yerevan), David Joulfayan (Boston), Ara Khanjian (Los Angeles), Joshua Kucera (Washington), Artur Martirosyan (Boston), Samvel Martirosyan (Yerevan), Alexandros Petersen (Brussels), Tevan Poghosyan(Yerevan), Tom Samuelian (Yerevan), Zareh Sinanyan (Los Angeles), Ara Tatevosyan (Yerevan), Gevorg Ter-Gabrielian (Yerevan), Khachig Tololyan (Providence, R.I.), Mihran Toumajian (Los Angeles), Ross Vartian (Washington), Cory Welt (Washington), and Aghasi Yenokian (Yerevan).