By Emil Danielyan
The European Bank for Reconstruction and Development (EBRD) will significantly increase its investments in the Armenian economy this year which will mainly involve relatively cheap credit to local small and medium-sized companies, its president announced on Wednesday.
Jean Lemierre said the EBRD plans to spend between 10 million and 12 million euros ($14 million) in 2004 and up to 20 million euros next year on strengthening Armenia’s private sector. This will be up from some 6 million euros provided by the London-based credit institution last year.
According to Lemierre, most of the money will be channeled into Armenian banks that will in turn lend it to private firms that will submit investment projects worth between $500,00 and $2 million each. The banks will be expected to charge below-average interest rates and set borrowing procedures “as simple as possible.” “We shall try to reduce the cost of the operation of the loans,” he said at the end of a two-day visit to Yerevan.
Similar lending schemes, aimed at reducing the high cost of borrowing in Armenia, have already been financed by the World Bank, the U.S. government and the Lincy Foundation of U.S.-Armenian billionaire Kirk Kerkorian. Their impact on interest rates and the overall accessibility of bank credit has been quite limited.
Lemierre said the EBRD will focus on helping export-oriented Armenian companies involved in agribusiness, mining and information technology. He said the bank also aims to shore up the country’s cash-strapped banking sector and will buy a stake in some Armenian banks as part of the effort.
The EBRD was set up by leading Western donor states in 1992 to foster the transition of former Communist countries to the free market. Its investments in Armenia have since totaled just over $100 million, something which President Robert Kocharian described as insufficient during his meeting with Lemierre earlier in the day. Kocharian called for the bank’s “more active participation in Armenia’s economic development.”
The EBRD’s biggest project in Armenia was a 46 million-euro loan disbursed in 1993 for the construction of the new Fifth Unit of the Hrazdan thermal power plant, the largest in the country. The sum proved insufficient due to poor government planning and, according to some media allegations, corruption. The Fifth Unit remains incomplete and is unlikely to become operational in the near future.
Another major EBRD loan worth 17 million euros was used for the construction in the late 1990s of a big cargo terminal at Yerevan’s Zvartnots international airport. With the terminal now used far below its operational capacity, this project too failed to live up to the expectations. These fiascos seem to be a key reason why the EBRD now prefers to deal mostly with the Armenian private sector and focus on smaller-scale cash injections.
“We should be focused on the development of the private sector,” Lemierre said. “This is mainly medium-sized companies that are the most efficient in the country.”
“If there are in the future large projects on which our support is asked we are ready to consider them,” he added. “But for now the priority we have agreed on with the government and the president is the banking sector and the private sector.”
Lemierre also made a largely positive assessment of recent years’ economic trends in Armenia. “I was in Yerevan exactly three years ago on my first visit. I must say that what I see today in the country demonstrates progress. There is clear macroeconomic improvement, the situation is better and there is growth,” he said.
But the EBRD president was also quick to caution that the country’s “level of development is still not high enough.” “We still see a lot of poverty,” he said.