By Emil Danielyan
Armenia’s economy can continue to expand at double-digit rates without a near-term solution to the Nagorno-Karabakh conflict, the outgoing head of the World Bank’s office in Yerevan said on Monday.
But Roger Robinson cautioned that continued rapid growth may not be sustainable unless the Armenian authorities improve the rule of law, strengthen the judiciary and spend more on healthcare and education. He also admitted that the dramatic strengthening of the Armenian dram might reflect negatively on the country’s “very strong economic performance.”
According to official statistics, Armenian growth is on track to remain in double digits for a sixth consecutive year, with Gross Domestic Product increasing by 12.5 percent during first nine months of this year. The Armenian government acknowledges that the growth, largely driven by a construction boom, has primarily benefited Yerevan and surrounding areas.
In an interview with RFE/RL, Robinson said he has seen a “significant change in the quality of life” in the country since taking over the World Bank office in the Armenian capital nearly five years ago. “I think it has affected the majority of the population,” he said, pointing to government data showing that the proportion of Armenians living below the official poverty line fell from 56 percent to 34.6 percent between 1999 and 2005.
“Can this be sustained over the next five or ten years? I believe it can be,” Robinson said, adding that this will require deeper “institutional reforms” that would improve governance, tax and customs administration as well as the overall business environment in Armenia. He also stressed the need for increased government spending on education and other public services.
Asked whether the growth can be sustainable without a settlement of the Karabakh conflict, Robinson said, “It is possible.”
Many Western policy-makers and analysts have long asserted that Armenia’s economic development hinges on the reopening of its borders with Azerbaijan and Turkey, something which they believe would make the landlocked country far more attractive to foreign investors and reduce high transportation costs incurred by Armenian exporters. French President Jacques Chirac subscribed to this belief during a state visit to Yerevan last month, telling Armenians that “only a lasting and just peace will allow your people to turn their hopes into reality.”
In Robinson’s words, the growth rates registered by Armenia in recent years have taken Western donors by surprise. “I have to say that I have been surprised every single year that I’ve been here,” he said. “If you asked me last year if I would project 12.5 percent GDP growth this year, I would say no. If you asked me the year before if I would be projecting double-digit growth in 2005, I wouldn’t.
“Even some of us that know the country and the economy quite well are all surprised by the rate of growth.”
Still, the World Bank official, who has helped to allocate hundreds of millions of dollars in low-interest loans to Yerevan, insisted that Karabakh peace, is a “necessary and good thing to sustain the growth in the future.” “I think that’s a given,” he said.
Robinson also reiterated the World Bank’s strong endorsement of the Armenian authorities’ monetary policies that have come under public scrutiny amid the continuing appreciation of the national currency, the dram. Government critics allege that the authorities have “artificially” boosted the dram’s value by over 40 percent since December 2003 to enrich government-connected importers and siphon off a large of part of massive cash remittances from Armenians working abroad.
The Armenian Central Bank strongly denies any exchange rate manipulation, insisting that the dram’s strengthening is the result of a surge in the volume of those remittances. The bank’s under-fire chairman, Tigran Sarkisian, said last week that the construction boom has also been responsible for the exchange rate fluctuation.
“I believe that the foreign exchange market in Armenia is very free, very open, and I do think that it reflects the real flows of foreign currency,” said Robinson. “I don’t think there is much doubt about that.”
Local manufacturers complain that they increasingly have trouble competing with imported goods and selling their production abroad. This might explain why Armenia’s net exports fell by more than 6 percent while imports rose by 16 percent during the first nine months of 2006.
Robinson admitted that the stronger dram could slow down Armenian growth, but said its impact on the economy should not be overestimated, arguing that local firms should cope with the situation by boosting their productivity. “There are many firms in Armenia … that are not operating at 100 percent of capacity,” he said. “There is probably a lot of productivity gains and efficiency gains that could be made in the Armenian producing sector.”