By Emil Danielyan
Armenia and Russia have finalized an agreement on the release of a $500 million Russian loan aimed at helping the Armenian government minimize the fallout from the global economic crisis, the Finance Ministry in Yerevan said on Tuesday.
Russian Finance Minister Aleksey Kudrin announced his government’s decision to disburse the “stabilization credit” on February 4 after weeks of Russian-Armenian negotiations. Yerevan reportedly sought up to $1 billion in Russian assistance during the talks.
A short statement by the Armenian Finance Ministry said the loan will be repayable in 15 years, with a 4-year grace period, but gave no other details of the deal. With ministry officials unavailable for comment, it remained unclear just how the government plans to use the sum equivalent to more than 15 percent of its projected budget for this year.
The statement clarified only that the finalized agreement does not place any “non-financial obligations” on the Armenian side. It was an apparent assurance that the government will not repay the loan with more industrial assets.
Armenia had handed over its largest thermal-power plant and four other enterprises to state-run Russian companies in payment for its $100 million debt to Moscow in 2003. Its leadership’s decision to turn to Russia for financial support has fueled speculation about more Russian-Armenian equities-for-debt agreements are possible in the future.
Large-scale external assistance is vital for the success of the government’s efforts to mitigate the global downturn’s impact on the Armenian economy. The World Bank announced last week that it will provide Armenia with up to $800 million in loans in the next four years.
The government hopes to use the promised funds for implementing infrastructure projects in rural areas of the country and providing more cheap credit to local small and medium-sized enterprises. Officials say these measures will at least partly offset the loss of many jobs in export-oriented industries as well as an anticipated drop in large-scale remittances from Armenians working abroad.
Vartan Bostanjian, deputy chairman of the Armenian parliament’s economic committee, described the government’s anti-crisis plan as “almost faultless” but admitted that its implementation will be an uphill task. “Every person, including myself, can wonder if we will manage to implement that program in full,” he told journalists.
But Bagrat Asatrian, a former governor of the Armenian Central Bank highly critical of the government, insisted that the authorities still lack a clear-cut strategy of dealing with the global economic slump. He also strongly criticized their ongoing crackdown on tax evasion, saying that it is forcing many small businesses and self-employed Armenians into bankruptcy.
“The world would not collapse if they delayed their tax crackdown by a year,” Asatrian said during a public debate with Bostanjian. “Up to 5,000 people would keep their jobs.”
Ashot Khurshudian, an economist at the Yerevan-based International Center for Human Development, called for urgent government support for agriculture, saying that cash-strapped Armenian farmers could be the first casualties of the crisis. “If farmers fail to get credit resources to buy seeds and fertilizers in time for the spring planting period we will feel the consequences at the end of this year,” Khurshudian warned. “I would urge our decision-makers to think about helping the agricultural sector as early as this spring.”