By Emil Danielyan
The International Monetary Fund has approved a new three-year lending program for Armenia which aims to bolster its “strong” macroeconomic performance and is conditional on improved tax collection, the IMF office in Yerevan announced on Friday.
In a statement circulated by the office, the IMF said Armenia will receive about $34.2 million in low-interest loans through 2008. The first installment of the fund’s new Poverty Reduction and Growth Facility (PRGF) worth about $5 million was disbursed on Wednesday, the statement said.
“Armenia’s economic performance continued to be strong in 2004 and early 2005,” the IMF’s Deputy Managing Director Agustin Carstens was quoted as saying. “Encouragingly, poverty and inequality indicators have improved notably in recent years, owing mainly to higher salaries, private transfers from abroad, and state social assistance,” he added.
The fund approved the fresh loans less than six months after completing a similar lending scheme for Armenia worth $105 million. The PRGF funds have been used by the Armenian Central Bank to maintain a stable exchange rate of the national currency, the dram, and alleviate the country’s negative balance of payments.
With Armenia’s hard currency reserves approaching $600 million and the dram dramatically appreciating over the past 18 months, analysts have wondered if Yerevan really needs more IMF money. “I don’t think that the Armenian government is coming to the IMF because it needs financing,” the fund’s Yerevan representative, James McHugh, told RFE/RL in February. “It comes to the IMF because of the credibility that a fund program gives its reform effort.”
That effort, according to the IMF, should focus on significantly increasing the government’s tax revenues which made up less than 16 percent of Armenia’s Gross Domestic Product last year -- a very small proportion even by ex-Soviet standards. Carstens described tax and customs administration reforms as “the heart of the program.”
The Armenian authorities announced a major crackdown on tax evasion in January. Their overall tax revenues rose by 24 percent to 92.8 billion drams ($200 million) during the first four months of this year. However, many of the government’s wealthiest businessmen connected to the government are believed to continue to grossly underreport their earnings.