Articles

After the Velvet Revolution the Armenian leadership has been in search of comprehensive measures to revive the economy for a long period. In this coronacrisis situation the government is forced to quickly develop the necessary ways to support business and financial institutions and increase consumer demand. According to the latest statements of Prime Minister Nikola Pashinyan, when the pandemic ends, loopholes will appear in the world economy, which Armenia will have to occupy with a total turnover of at least $30 billion.

However, now the national currency is slowly depreciating. Many sectors of the republic’s economy are under threat.

The current government anti-crisis package offers three interconnected steps. The first is providing the economy with additional liquidity, providing 25 billion drams to business through the banking system. The second is allocation of a similar amount of money as a social package to socially vulnerable segments of the population. The third is preparation for the post-coronavirus world. For this purpose, they propose to allocate 80 billion drams.

According to experts, the package of measures presented by the Armenian government will not quickly solve the liquidity problem, which is increasingly faced by the business structures.

Some experts say that it is necessary to use a tax instrument, not a credit one, which a business can fully use at best in two months. The mining industry and the tourism industry are especially in need. But the government has not yet supported the idea of introducing tax holidays, since they are not ready to provide assistance to the poor.

Nevertheless, if business is not helped to stay afloat now, this could lead to a sharp increase in the number of unemployed, which the state will also need to pay benefits. And this is in a situation where there will be less and less money in the treasury due to a reduction in tax revenues during the bankruptcy of small and medium-sized enterprises. We have about 70 thousand small and medium enterprises, each employing 30-50 people. If at least a small percentage of them go bankrupt, it will be a big blow to the country's economy.

Given the risks and uncertainty until the state fully uses the quantitative easing mechanism, banks are unlikely to invest additional funds in the economy. Most likely, the recent decision of the Central Bank of Armenia on a symbolic reduction of the key rate by 0.25% and assurances of the regulator about the "stability of the financial market" will not help there. Until at least the approximate end of the crisis is visible, the risks for financial institutions that are conservative in their behavior, especially banks, are too high.

On the other hand, in the current situation, the main bank should also soften the rules for regulating the financial market, which requires a document from the Basel Committee on Banking Supervision.

It is worth recognizing that the leadership of Armenia did not take sufficient preliminary steps to prevent the consequences of the economic crisis that has long been brewing. This is not surprising when all hopes were placed on the help of foreign partners and the promised investment. As a result, we *** what we have. Western grants did not lead to a fundamental strengthening of the economy. They mainly went "into the pockets" of those whose opinion has weight in the political and business arena of Armenia.

The hopes for the activities of the USAID for Armenian economic development, for which the US government allocated $2.6 million, have melted away. Declared market liberalization has not yielded any results. Of course, this applies only to the economy and the social sphere, in the real improvement of which Armenia was interested, and not the US government. Political reforms supported by USAID have been implemented.

In contrast to the participation of Armenia in the Eurasian integration processes, the American authorities were imposed economic reforms on the American model. So, in December 2018, USAID launched a project to liberalize the market and trade in electricity, which provides assistance to Yerevan in diversifying sources of electricity production in order to reduce Russian gas consumption. So far, the Armenian authorities have fought back, realizing the catastrophic consequences of the inevitable increase in gas prices and the closure of the nuclear power plant in Metsamor if adopted. However, the embrace of partners promises to be tenacious, because the United States proceeds from the fact that the membership of Armenia in the CIS, the EAEU and the CSTO is not an obstacle to achieving the goals set to distance Yerevan from the Russian Federation.

In general, it is impossible to predict what impact the pandemic will have on the Armenian economy. It is difficult to argue that the coronacrisis is a great opportunity to overestimate the existing plans for long-term development, find better opportunities and approach their use with greater responsibility.