Press Release No. 06/133

Press Release: Statement by IMF Managing Director Rodrigo de Rato During his Visit to Armenia

June 19, 2006

Mr. Rodrigo de Rato, Managing Director of the International Monetary Fund (IMF), issued the following statement today in Yerevan during his visit to Armenia, where he is participating in an IMF/World Bank Constituency Meeting, as well as holding meetings with the Armenian authorities:

"I am pleased to be in Armenia for the first time. The purpose of my visit is to attend the annual meeting of a group of 12 countries, including Armenia, that work together at the Executive Boards of the IMF and the World Bank. I have met with the Armenian authorities and reviewed with them the impressive performance of the economy over the past five years.

"I have had the privilege to meet the President and Prime Minister, as well as the government's economic team. We had very productive discussions, and I would like to thank the Armenian authorities for their warm welcome and the excellent arrangements they made for this event.

"Armenia's economic performance has been impressive in recent years: double-digit growth since 2001 in an environment of low inflation; a strengthened external position; a reduction in poverty and unemployment; and, more recently, a notable improvement in tax performance. The IMF has supported the government's reform programs under successive concessional arrangements. In May 2005, the IMF's Executive Board approved a new three-year program under the Poverty Reduction and Growth Facility in support of the government's economic program through 2008, and just last month completed the second review under the program. Armenia will be eligible to draw about US$34 million under this concessional facility through mid-2008.

"My discussions focused on how to sustain strong economic growth and poverty reduction over the medium term, in particular the need for continued prudent macroeconomic policies; strong revenue performance to fund infrastructure development and expand public services targeted at poverty alleviation; and financial sector development. These reforms will require a broad social consensus and strong program ownership.

"The authorities have done a commendable job in maintaining sound macroeconomic policies. I am pleased that the authorities are committed to continued prudent macroeconomic policies, including in the run-up to next year's parliamentary elections.

"A good deal of my discussions 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 in 2005 and thus far in 2006. We agreed on the need to reduce tax exemptions as well as strengthen tax and customs administrations. Such steps could significantly improve the business climate, which is necessary to spur investment, and reduce the size of the shadow economy.

"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, increase financial intermediation, and encourage savings and investment. Financial sector development also hinges on integrating the shadow economy into the official one.

"In conclusion, I am encouraged by the meetings held with the Armenian authorities. I sensed strong ownership of reforms, as evidenced by the consultative process in designing Armenia's Poverty Reduction Strategy, which bodes well 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.

"We are also happy to support greater outreach to encourage a better understanding of macroeconomic and financial issues and the IMF's role in this area. Indeed, I understand that there was a very well attended event yesterday with parliamentarians and others in which my colleagues participated. I wish the authorities success in their endeavor and I look forward to your questions."