ARMENIAN ECONOMY IN NEED OF BOOST.

The Armenian economy started the year with a bang. Recently released data, however, show that the economy may be cooling off. In the first quarter of 2001, GDP rose by 12.1 percent year-on-year and industrial production was up 9.2 percent. After having reached US$588 million in 2000 (30.6 percent of GDP), Armenia’s trade gap improved in the first quarter of 2001, during which exports rose by an impressive 28.8 percent to US$75.7 million and imports fell 12.4 percent to US$176.4 million. Nonetheless, such positive trends did not continue in the second quarter. According to recently released data, Armenian GDP growth slipped to 6.4 percent year-on-year in the first six months of 2001, and industrial output was up just 2.7 percent. While imports continued to decline and exports rose, the rate of decline of imports fell to 9.3 percent and export growth dropped to 9.3 percent. Total imports reached US$395.3 million, while exports grew to US$155.8 million.

The slowdown in the second quarter is disconcerting because Armenia will need high economic growth to raise living standards enough to halt the rapid emigration of skilled labor. Although Armenia’s economy has grown steadily since 1994, that growth has not spilled over into living standards, and 55 percent of the population still lives below the poverty line. The government acknowledged that the expanding shadow economy has limited budget revenues, as the state struggles to pay wages, pensions, and social insurance.

At a donor’s conference sponsored by the World Bank in Paris on July 10-11, the international community offered Armenia US$620 million in assistance over the next three years. Armenia is expected to be admitted to the World Trade Organization by the end of this year,which should help the country to find new foreign markets for its goods, thereby boosting production.

What Armenia needs now is more foreign investment. While some potential investors are put off by the high level of corruption, Russian and Armenian officials agreed during talks on July 19-20 that Russia will receive stakes in various state-owned firms in Armenia in return for writing off Yerevan’s US$88 million debt. Russia is reportedly particularly interested in the energy and mining sectors, as well as in electronics production. Although Russia’s interest in Armenian energy should be seen skeptically in view of Russia having in the past used its monopoly in that area to expand its political influence, investments in other sectors may help to revive production. Given the small size of the Armenian economy, that could have a huge impact on the country’s industrial sector, which over the past years has contributed relatively little to the country’s economic growth (Snark, July 12; Russian agencies, July 16, 20).

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