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Edward Sandoyan:

Armenia's economy not yet put on market rails

PanARMENIAN.Net - Macro-economic situation in Armenia suffers from the consequences of untimely realization of institutional reforms. At the same time, the country's banking system was able to resist external shocks thanks to the regulation and surveillance system in the sphere, ex-Economy Minister, Professor and Doctor of Economy Edward Sandoyan, Pro-Rector of Russian-Armenian (Slavonic University), told a PanARMENIAN.Net reporter.
"How do you estimate Armenia's current macro-economic situation? To what extent is Government's anti-crisis program effective?"

"Our country has found itself in a rather complicated situation. I think current processes here are similar to the situation in other states like Armenia. The main problem is that our economy is in not in balanced state, i.e. it has not been put on market rails and hence is unable to resist external shocks like crisis. From standpoint, short-term programs like anti-crisis policy can be successful to a certain extent, but their strategic sustainability is hard to estimate. I personally find that we delayed the process of conducting institutional reforms. In more global terms, we blundered a lot since 1991, so the situation we are facing now is economy's payback. "

But it isn't as though we registered a two-digit economic growth.

"There are many people speculating over the two-digit economic growth Armenia registered before recession. They are somehow mixing emotions with real economic processes. We did really register an economic growth. Since gaining independence, Armenia's average economic growth was within the range of 9%, and in this regard, we ranked as the second country after Azerbaijan. On the other hand, however, we are required to consider the quality of such growth. If we look upon existing quality indexes in terms of clusters and GDP structure, we'll find that we actually did not and do not have a new economy and the growth was registered in different periods due to the development of different sectors, particularly recent years' construction work which mostly covered housing facilities. However, housing construction cannot ensure long-term strategic growth, and the process was to stop sooner or later, especially considering that demand for dwelling facilities was an extra-economic factor. That's to say, it developed from without, particularly from Diaspora, and was satisfied at the expense external sources. These are neither internal economic resources or transformation of population's savings. These include foreign private transfers and direct investments in housing sector."

Do you agree with 1.3% economic growth envisaged by RA 2010 national budget?

I am positive about good intentions but I can't agree or disagree over a number of reasons, specifically unsteadiness of Russian economy and uncertain sources of financing of our economy. The only thing I can say for sure is that Armenian economy proved much more resistible that other transit economies. The reforms launched 15 years ago have produced results. I am hopeful that will overcome the possible second wave of the crisis Russia is scared of. The problem is that some 25-30% assets of Russian banks are doubtful. According experts, our index is 5%. So, I believe that the programs implemented by the Armenian government and Central Bank will help avoid irrevocability of credits.

How did national currency devaluation affect RA economy?

The imperfect money-and-credit policy presents serious threat. Unpredictability and ineffectiveness of money market policy leads to fluctuations in foreign currency exchange rates, making increasingly negative influence on RA economy. National currency devaluation process is a positive one. Keeping forever the existing rate would spell waste of national reserves, to the detriment of economics' export potential and ability to attract investments. I support the floating currency rate and inflation targeting policy, which, unfortunately, was never practiced in RA.