Infrastructures to become Armenia's comparative advantage

Nerses Yeritsyan:

Infrastructures to become Armenia's comparative advantage

PanARMENIAN.Net - Minister of Economy Nerses Yeritsyan holds the post of the country's chief economist in a crucial period when Armenia has to recover from the crisis and carry out long-term relief reform to ensure economic growth. In an interview with a PanARMENIAN.Net, Minister Yeritsyan dwelled on his achievements and drawbacks.
What should Armenia do to recover from the crisis with minimal losses?

The global financial crisis showed up in Armenia through reduction of foreign investments and private transfers. Export volumes also decreased due to abrupt fall in prices for raw products. These are the trends with a pronounced social pretext. That's to say, along with maintaining business activity we have to maintain employment rate and prevent social tensions. Armenia's anti-crisis policy is built on these two cornerstones.

Don't you fear that attraction of foreign investments will hamper the country's economic development? What should be done to diversify the economic structure and to avoid blows in future?

The crisis definitely proved the need for economy diversification. The sectors ensuring sustainable and high growth were rather vulnerable because of external factors. Economic recession in partner states resulted in GDP downturn. Before the crisis, the Armenian government adopted a policy envisaging economic growth based on export-oriented industries. It supposed bold reforms, improvement of business and competition environment and development of information and high technologies, education, finance and healthcare. Latest developments proved the need of a more flexible policy, specifically in attracting foreign investments.

 Since Armenia is a small country with a small economy, few resources and lack of accumulative reserve funds, the need to develop a knowledge-based economy has been repeatedly stressed…
Armenia's external communication, the trends of the global economy development, as well as the analysis of our comparative advantages, capacities and resources, unequivocally run into one final point: Armenia has no other way of development, as turning into a knowledge-based economy. In contrast to fuel and energy resources, Armenia has rich human potential, and development of human capacity is the only guarantee of our progress. This important task is embedded in the medium and long-term strategy of the government, we pledged to implement. 
Taking into account the nature of our economy, what industries and trends can boost its rehabilitation? 
 What does the transfer to a knowledge-based economy mean in case of Armenia? This means that we must focus on the development of human capital and industries constantly upgrading. First of all, we must form relevant infrastructures. In particular, for investing in human capital it is necessary to raise savings and ensure the process of their institutionalization. The best guarantee is the formation of modern pension and insurance systems. Simultaneously, we must build an information society by creating internationally competitive education system, raising the level of e-literacy, establishing ultrafast internal network and making information technologies widely accessible. 

Along with the creation of enabling environment for the ICT and high tech development, we must ensure their appropriate application in the economy to increase productivity.  In general, the spheres which can raise country's competitiveness have been declared as national projects: Armenia as business, education, health, recreation and financial center.

Which countries' experience could be implemented in Armenia and which counties could be guided by Armenia's experience in overcoming financial crisis?

The world economy has not overcome the crisis yet. Haltered in some countries, economic recession still persists in the others. The international community came to realize that global problems could be resolved through united efforts only, but the importance of internal economic policy should by no means be diminished.

What are your predictions for the end of 2009?

As recent months' data testifies, Armenian economy has reached critical point in July. Economic downfall was haltered and 1% GDP growth is expected in 2010. International structures like IMF and WB also share these expectations.

Over the past several years a two-digit economic growth has been registered in Armenia, allowing it to significantly enhance its international image. Will economic downfall affect Armenia's image, considering the fact that its rating was decreased by Fitch?

I'm confident that the ranking drawn up during the crisis period could be changed depending on the effectiveness of policy conducted. The crisis period was the one of equalization, when the countries with different development level had to face one and the same problem. It's a chance to make a real breakthrough.

How efficiently are international credits outlaid in Armenia?

The credits are mostly spent on development of infrastructures. It's early to speak of efficiency but we have already fixed certain progress. We managed to resist the first wave of the economic crisis and prevent a social disaster. Now, we plan implementation of infrastructure programs. Developed infrastructure will enable organization of profitable businesses and diversified economy. Only then it will be possible to consider efficiency of credit funds.

Did Armenia retain its attractiveness for foreign investments?

Certainly, the crisis resulted in reduction of investments flows. However, it did not affect Armenia's investment attractiveness. The matter is that investors are assessing global risks.

What about the plans to establish of All Armenian Bank?

The Armenian National Assembly has passed the law on establishment of All Armenian Bank, which will be strategic entity unifying national programs. The Bank has been already registered and is supposed to open in 2010.

How do you estimate Armenia's economic benefits as a result of normalizing relations with Turkey and opening of the border?

The phenomenon of "closed borders" cannot be considered normal from any viewpoint. It does not fit the logic of the present-day world. So, development of economic ties with neighboring states is inevitable. As to Armenia's economic benefits, that's certainly a complicated issue. On the one hand, opening of the border will bring us face to face with new challenges. We must be able to create relative advantages in terms of business environment and infrastructures. Turkey is a rather big market attracting direct foreign investments. We can, in some way, have our share in them, increasing the level of economic diversification and investment absorption. The biggest challenge is the advantage of a transit country, what is quite natural in case of having relevant infrastructures. With a potential for being involved in regional energy programs, Armenia may have an exclusive role in creation of a Europe-Asia land corridor. It can also offer high-quality services in healthcare, educational and scientific sectors. After all, we should keep in mind that we border on a country which forms part of EU free trade zone and has real chances to become an EU member.

What do you think is your biggest achievement as Minister, and what drawbacks do you see?

The most serious progress is the current discussions over large-scale infrastructure programs. There is also progress in education sector, especially in projecting educational infrastructures.

What we didn't manage to do was ensuring speedy implementation of projects. Although changing business atmosphere and quality system seemed enough, we faced the need to mobilize resources in the initial stage. And this is what hampers materialization of our plans.