By Emil Danielyan
Armenia has the most open and investor-friendly economy in the Commonwealth of Independent States and has drawn level with some of the world's developed nations in terms of economic freedom, according to a recent survey by two influential Western organizations.
The joint study by The Wall Street Journal and the Heritage Foundation, a Washington-based conservative think tank, ranks 156 countries on ten different factors, including trade and monetary policy, government intervention in the economy, banking and property rights. Armenia and six other states, including France, share the 45th place in the rankings of the "2002 Index of Economic Freedom."
The 450-page report, released on Monday, classifies 71 world economies as "free" or "mostly free" and the 85 others as "mostly unfree" or "repressed." With an overall score of 2.7 points measured on a five-point scale, Armenia is rated as the only "mostly free" country in the CIS. The Hong Kong economy, for comparison, is declared as the freest in the world with 1.35 points.
Neighboring Georgia and Azerbaijan are in the 108th and 118th places respectively and are both considered "mostly unfree."
The report says Armenia has moved up in the WSJ/Heritage rankings in the past year mainly due to the continuing low inflation and a major cut in tax rates last December. It stresses a “very low level of protectionism” in Armenia’s external trade, “low barriers” to foreign investment, a “minimal” state control of the banking system, and a “moderate level” of state intervention in the economy. “There are few official restrictions on foreign investment, and investors are welcome in most industries,” it says.
The report also highlights the negative side of the Armenian business environment, including political instability, rampant corruption, bureaucratic red tape and a flawed judicial system. “Armenia made progress during the past year, but a combination of internal and external factors continues to retard economic growth,” it says.
“The overall investment climate is hindered by high levels of corruption, the black market, cumbersome administrative requirements and poor protection of investors’ right.”
The authors of the global study conclude that its findings vindicate the free-market economics championed by former US president Ronald Reagan and former British prime minister Margaret Thatcher. They believe that this is particularly true of the former Communist countries of Eastern Europe and the ex-USSR.
“The progress made by such diverse economies as Estonia, Lithuania, Latvia, the Czech Republic, Hungary, Poland, and Armenia serves as testimony to the wisdom of those who fought the long Cold War against the "Evil Empire" that was the Soviet Union,” the president of the Heritage Foundation, Edwin Feulner, wrote in a preface to the report.
"The region's overall success demonstrates the permanence of the Reagan and Thatcher revolutions, which instituted a commitment to market freedom over government intervention,” the report affirms. “The findings of this study are straightforward: The countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than are those with less economic freedom.”
But at least Armenia, where macroeconomic stability and seven consecutive years of GDP growth have not substantially raised low living standards, does not fit into that pattern yet. The country is plagued with huge unemployment and most of its citizens live below the poverty line. Western donors believe that ensuring the rule of law and an improved investment climate is now the key to economic betterment and must become the main focus of the reforms.
The WSJ/Heritage report says regional instability is among the main factors that “really deter foreign investors” from coming to Armenia in larger numbers. It also argues that “the lack of trade with neighboring Turkey and Azerbaijan because of the ongoing dispute over Nagorno-Karabakh has inhibited the benefits that Armenia’s relatively open trade regime otherwise could be expected to provide.”