The Armenian government must end the privileged treatment of some businesspeople, improve tax collection and embark on other “deep and swift” reforms if it is to speed up Armenia’s economic development, the International Monetary Fund warned on Wednesday.
The IMF delivered an unusually blunt public message to President Serzh Sarkisian’s administration just weeks after sending a high-level mission to Yerevan that discussed the government’s economic policies.
“We think the gradualist approach has run its course,” Mark Horton, the mission chief, and Guillermo Tolosa, the head of the fund’s Yerevan office, said in an op-ed article. “Unless changes are deep and swift, the positive results that Armenians desire will also be gradual in coming, if they come at all.”
“Decisive changes, made quickly and comprehensively, should persuade Armenians and others abroad that society rewards those who work hard, think big and take chances, not those whose best asset is a privileged connection,” they said. “Armenian workers, managers, students and pensioners -- all Armenians -- should perceive that the game is fair, open and reaching for best solutions for ordinary Armenians.”
In that regard, Horton and Tolosa reiterated the IMF argument that Armenia should seek to offset its “isolated geographical situation” with better governance and a more favorable business environment in particular.
“It is still common for well-connected parties to have privileged market position, or for profits to be wrongfully lost,” they said. “Until a more decisive approach and proper incentives for risk-taking are well established, there will not be enough investment, jobs, or hope in Armenia’s future.”
The IMF officials also singled out the need to improve the government’s tax administration record, which still leaves much to be desired after years of reforms. “The government needs to do more to collect taxes: some, such as excises, are low by international comparison, and tax collections from some firms and sectors are also too low,” they wrote.
The IMF has for years been calling for such reforms, while praising the fiscal austerity of successive Armenian governments. The current government claims to be doing its best to improve the investment climate.
Officials in Yerevan, notably Prime Minister Tigran Sarkisian, point to the country’s improved position in the annual “Doing Business” surveys conducted by the World Bank. Armenia ranked 32nd among 184 economies rated by the bank last year on different aspects of business regulation, up from 50th place it occupied in the 2011 rankings.
Tolosa acknowledged last December that the government has made “considerable efforts in this regard.” But he insisted that for local businesses “it’s still difficult to deal with the government on many fronts.”
With Armenian courts lacking independence and widely distrusted by the population, government connections remain essential for large-scale entrepreneurial activity in the country. Some sectors of the Armenian economy continue to be controlled by government-linked tycoons believed to be enjoying privileged treatment by the government.
Many of the so-called “oligarchs” hold seats in the Armenian parliament. President Sarkisian has relied heavily on their political backing in ensuring desired election results for himself and his Republican Party.
Sarkisian declared faster economic development and poverty reduction his top priority as he was sworn in for a second term in office on April 9. He instructed his newly reshuffled cabinet last week to achieve quick economic betterment. Still, neither Sarkisian nor the cabinet has so far unveiled a specific reform agenda for the next five years.
The president discussed his economic policies with the IMF mission led by Horton in Yerevan on April 29. His press office gave few details of that meeting, saying that both sides praised the implementation of a $410 million lending program for Armenia that was launched by the IMF in June 2010 and will be completed next September. It said they also discussed the possibility of fresh IMF loans to Yerevan.
The subsequent IMF warning will leave observers wondering whether Horton and Tolosa did not hear promises of sweeping reforms from Sarkisian. In their joint piece, the IMF officials emphasized that the Armenian authorities should initiate “dramatic changes” that would demonstrate that “some behaviors will not be welcome anymore in Armenian society.”