Press Release No. 05/167

Press Release: Press Statement at the Conclusion of the Visit of Mr. Agustín Carstens to Armenia, July 20-21, 2005

July 21, 2005

Mr. Agustín Carstens, Deputy Managing Director of the International Monetary Fund, issued the following statement today in Yerevan at the conclusion of his visit to Armenia.

"I am pleased to be in Armenia for the first time. The purpose of my visit was to meet with the Armenian authorities and review the impressive progress they have achieved over the past several years.

"I have had the privilege to meet the Prime Minister and Deputy Speaker of the National Assembly. I have also met the Finance and Economy Minister, Foreign Affairs Minister, and Chairman of the Central Bank of Armenia, as well as representatives of the international community. We have had very productive discussions, and I would like to thank the Armenian authorities for their warm welcome and the excellent arrangements they made for my visit.

"Armenia is on a promising path toward sustained high growth and the alleviation of poverty. The IMF has supported the government's reform efforts under successive concessional arrangements. Most recently, in May 2005, the IMF's Executive Board approved a new three-year program under the Poverty Reduction and Growth Facility Arrangement in support of the government's economic program through 2008. Armenia will be eligible to draw about US$34 million under this concessional facility over the next three years.

"The immediate challenge faced by the authorities is how to cope with the increase in remittances and capital inflows. The central bank is to be commended for its handling of these inflows and preventing inflation from being reignited. Its commitment to price stability has alleviated poverty and protected the poor. I also support the flexible exchange rate policy, which has served Armenia well. It provides an important shock absorber for the economy.

"The flexible exchange rate policy needs to be complemented by continued prudent fiscal policy to contain possible overheating of the economy in response to strong capital inflows. This should be done in a way that will ensure that social and infrastructure needs are met in line with the authorities' poverty reduction strategy objectives.

"A good deal of my discussions today focused on moving ahead forcefully with reforms in tax and customs administrations intended to raise revenues in a transparent and non-discretionary manner. I very much welcome the tax and customs reforms already implemented, which have resulted in a notable increase in revenue collection. We agreed on the need to move forward with Government's Tax Action Plan, in particular the forthcoming review of customs operations aimed at improving transparency and reducing discretion. More generally, the main challenge facing the Armenian economy is the need to improve the business climate, which is necessary to spur investment.

"Armenia has taken important steps to modernize its financial system. I support the monetary authorities' efforts to consolidate these gains, especially by continuing to strengthen financial sector supervision, fostering a competitive environment in the sector, and deepening and broadening financial markets. I was pleased to hear about the central bank's proposal to improve corporate governance in the financial sector. These initiatives will reduce borrowing rates (by compressing the spread between borrowing and depositing), increase financial intermediation, and encourage savings and investment.

"To conclude, I am encouraged by the meetings held yesterday and today. I sensed strong ownership of reforms, which is good for continued economic success. The IMF stands ready to continue to assist Armenia with policy and technical advice, as well as financial support in implementing its reform agenda, and I wish the authorities success in this endeavor."