Prime Minister Tigran Sarkisian pledged to markedly improve Armenia’s business environment, crack down on tax evasion by the rich and strengthen the broader rule of law as he laid out his government’s new and ambitious reform agenda on Wednesday.
Addressing the National Assembly, Sarkisian acknowledged the existence of “oligopolies” that have monopolized key sectors of the Armenian economy and grossly underreport their earnings. He also spoke of “lessons” which the country should learn from a steep economic declined experienced by it this year.
“The first lesson is that the crisis has demonstrated the vulnerable points of our economy in an even more pronounced fashion,” he said. “The economy has a low level of diversification and there is an acute lack of ‘long-term money’ and an absence of institutions working with it.”
“Secondly, there exist oligopolies and a low level of competition in the economy,” Sarkisian said, echoing statements by the World Bank and the International Monetary Fund. The oligopolistic structures “pose a very serious challenge” to the state as they translate into an “uneven distribution of the tax burden among economic entities,” he said.
Another problem exposed by the crisis, according to the prime minister, is “the slow course of reforms which we must accelerate.” “Naturally, the government’s 2010 plan of actions will be based on these lessons and aimed at solving these problems,” he said.
The remarks are broadly in line with the recommendations of the World Bank and the IMF. Top officials from both multilateral institutions warned recently that Armenia can not return to the path of robust growth without tackling government corruption and creating a level playing field for all businesses.
“Everybody must be equal before the law regardless of their position, accumulated wealth and revenues,” stated Sarkisian. “That issue will be at the center of our attention. It applies to big business in the first instance.
“Big business can regain public trust only through transparent operations. For big business, honoring tax obligations must be a matter of dignity.”
Sarkisian already pledged early this year to make large enterprises, which are often owned by government-linked individuals and post suspiciously low profits, “the number one target” of his government’s fight against tax fraud. To that end, the government ordered such companies to undergo regular audits and publicize their results.
The premier admitted on Wednesday that the measure has so far proved useless. He said the government will go farther next year by obligating Armenia’s 500 top state officials to publish statements detailing their and their relatives’ assets and revenues.
Sarkisian pinpointed the challenges facing the country as he formally presented his cabinet’s draft budget for next year to the Armenian parliament. The bill, already discussed by the main parliament committees, calls for at least 859.6 billion drams in expenditures ($2.22 billion), a 9 percent decrease from the government’s original spending target for 2009. The latter has been repeatedly revised downwards in recent months owing to a serious shortfall in tax revenues.
According to the prime minister, the government expects to spend considerably more than is envisaged by the proposed budget because of additional assistance to Armenia promised by the United States and the European Union. It has also decided to raise its 2010 revenue target by 17 billion drams, he said.
In the words of Finance Minister Tigran Davtian, that should lead to a total government expenditure of 930 billion drams and a budget deficit equivalent to 6 percent of Gross Domestic Product (GDP). The budget was drawn up on the assumption that the Armenian economy will grow by 1.2 percent next year.
Armenia’s GDP shrunk by as much as 18.3 percent in the first nine months of this year. The government anticipates a full-year contraction of roughly 15 percent.
Davtian also forecast that Armenia’s external debt will continue to rise in 2010 and account for 46 percent of GDP. “That is an acceptable burden for Armenia,” he said.
The debt/GDP proportion stood at just 13 percent late last year. Armenia has since borrowed more than $1.3 billion from the IMF, the World Bank and other external sources to ease the fallout from global credit crunch.
Sarkisian spent most of his speech detailing, explaining and defending his government’s response to the crisis that has been strongly criticized by the Armenian opposition but praised by the Western lenders. He said, “The logic of our anti-crisis program is clear -- to substantially increase spending on infrastructures, to improve the environment for small and medium-sized enterprises, to assist those companies that experience temporary difficulties caused by negative global market trends.”
“Are the listed measures enough to neutralize the negative effects of the global financial and economic crisis?” he asked later in the speech. “Of course not. But is it fair to ignore the large-scale work that we have done together with you in the course of this year? Of course not.”