{
  "title": "The Economic Transition in Armenia -- Speech by John Odling-Smee, Director, European II Department",
  "publication": "IMF News, July 31, 2001",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp073101",
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  "summary": "Given at the American University of Armenia in Yerevan",
  "publishDate": "2001-07-31",
  "sections": [
    {
      "heading": "I. Economic developments in Armenia since 1991",
      "content": "- Early transition outcomes:\n  - Liberalization of prices eliminated queues and forced saving; liberalization of economic activities increased access to goods and services.\n  - Output collapsed and inflation soared in the early years of transition.\n- Three major shocks to Armenia after 1991:\n  - Collapse of central planning: many enterprises lost markets almost overnight.\n  - Terms of trade deterioration as an energy importer.\n  - The war over Nagorno-Karabakh, blockades, and trade disruptions.\n- Key output and welfare indicators:\n  - By 1993, GDP in Armenia had declined to only 47 percent of its level in 1990.\n  - The proportion of the Armenian population living under the poverty line increased from around 20 percent in 1988 to around 55 percent by 1996.\n- Stabilization and recovery:\n  - Average consumer price inflation fell from over 5,000 percent in 1994 to 175 percent in 1995.\n  - From 1996 to 1999, average inflation fell from 175 percent in 1995 to less than 1 percent in 1999.\n  - The economy grew on average by around 5 percent a year during 1996–1999.\n- External shocks and 1998–2000 developments:\n  - Russian GDP fell by around 5 percent in 1998; Armenia was affected through reduced demand and remittances.\n  - Armenia’s GDP growth accelerated to over 7 percent in 1998, then slowed to around 3% in 1999 (note: source uses \"3%\").\n  - Budgetary expenditure arrears were reduced to well below 1 percent of GDP by Q3 1999, then rose to around 5 percent of GDP by end-September 2000.\n  - With restored political stability since mid-2000, arrears were reduced to around 3 percent of GDP.\n- IMF engagement and program status:\n  - IMF Executive Board approved on May 23 a new three-year loan to Armenia under the Poverty Reduction and Growth Facility."
    },
    {
      "heading": "II. Challenges for the future: good governance",
      "content": "- Overarching challenge:\n  - Put the economy on a higher sustainable growth path to reduce poverty, unemployment, and emigration by promoting private economic activity and new investment.\n- Policy priorities and reforms emphasized in the Poverty Reduction Strategy:\n  - Protection of property rights and strengthening the rule of law.\n  - Continuation of privatization in a transparent manner.\n  - Promotion of competition and reform of the financial sector.\n  - Creation of an efficient governance system, with public administration and anti-corruption as one of three pillars (alongside sustainable and equitable economic growth and the human development program).\n- Specific governance issues and recommendations:\n  - Tax policy and administration:\n    - Armenia cannot rely indefinitely on external budgetary financing; tax collection must fund government size.\n    - Reforms in tax administration need expansion and acceleration.\n    - Tax liabilities must be calculated according to the law and not negotiated; negotiated settlements undermine revenues and involve corruption.\n    - Broaden the tax base and reduce incentives to evade taxes; end unfair systems full of exemptions and negotiated settlements.\n  - Expenditure management and transparency:\n    - Strengthen transparency in deciding expenditure priorities; make hard budget choices in an open environment.\n    - Improve controls over expenditure commitments to avoid new arrears.\n    - Ensure adequate auditing procedures to confirm intended expenditures deliver real value.\n  - Public administration and anticorruption measures:\n    - Civil service reform law and financial disclosure law for government officials are important to foster trust and investor confidence.\n  - Regulatory and judicial reforms:\n    - Eliminate unnecessary regulations and harassment of small private businesses to reduce government role in economic life and opportunities for corruption.\n    - Move expeditiously with judicial reform to improve business and banking sectors.\n  - Management of government assets and quasi-fiscal deficits:\n    - Energy sector: major cause of non-payments and external debt buildup; represents a quasi-fiscal deficit when losses are tolerated but not shown in the budget.\n    - Privatization recommended to improve management of state assets and remove financial drains from waste and theft.\n    - Complete privatization of electricity distribution companies quickly and transparently; use open, competitive bidding to obtain best prices and signal commitment to foreign direct investment.\n- Governance diagnosis:\n  - Business interests can unduly influence economic policy-making and administration, often accompanied by growing corruption.\n  - Few major state institutions are immune from pressures of vested interests; this stifles growth, competition, and the government’s ability to finance social systems and reduce poverty.\n  - Improving governance so the government serves the interests of all, not just the few, is essential to sustain and exceed recent growth rates and reduce poverty."
    },
    {
      "heading": "III. Relations between Armenia and the IMF",
      "content": "- Historical engagement and lending:\n  - IMF has worked closely with Armenia since membership nine years ago.\n  - The first IMF loan to Armenia was made in 1994.\n  - Total lending has reached about $210m or 20% of the authorities' total external debt.\n  - Most lending has been under the Poverty Reduction and Growth Facility (PRGF), formerly the Enhanced Structural Adjustment Facility (ESAF).\n  - PRGF is available only to low income member countries and interest is paid at a low, subsidized rate.\n- Conditionality and country ownership:\n  - IMF lending requires confidence that Armenia is pursuing policies to improve its economic situation and ensure timely repayment.\n  - The IMF seeks policies that lead to improved growth and poverty reduction; macroeconomic stability and structural reforms are essential prerequisites.\n  - Reforms succeed only with domestic support; the government’s poverty reduction strategy must be widely supported for continued PRGF disbursements.\n  - Mobilizing support requires broad public debate about economic reforms; IMF contributes to such debates.\n- Current program status and outlook:\n  - IMF Executive Board approved a new three-year loan under the PRGF in May 2001 in support of the government’s poverty reduction strategy.\n  - A mission in Yerevan is assessing progress in the first few months of the PRGF; IMF will continue to work closely with Armenia during the three-year period and beyond.\n  - If the poverty reduction strategy is fully implemented, the IMF assesses the economic situation in Armenia will improve significantly; the IMF intends to work with Armenia to promote successful transition, sustained economic growth and poverty reduction.\n\nSpeech given at the American University of Armenia, Yerevan, July 31, 2001 — John Odling-Smee, Director, European II Department, International Monetary Fund.\n\n---\n\n\n References\n\n- Republic of Armenia and the IMF\n- Russian Federation and the IMF\n- The IMF and Good Governance -- A Factsheet\n- The IMF's Poverty Reduction and Growth Facility (PRGF) -- A Factsheet\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp073101"
    }
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    "Published: July 31, 2001",
    "Early transition outcomes:",
    "Three major shocks to Armenia after 1991:",
    "Key output and welfare indicators:",
    "Stabilization and recovery:",
    "External shocks and 1998–2000 developments:",
    "IMF engagement and program status:",
    "Overarching challenge:",
    "Policy priorities and reforms emphasized in the Poverty Reduction Strategy:",
    "Specific governance issues and recommendations:",
    "Governance diagnosis:",
    "Historical engagement and lending:",
    "Conditionality and country ownership:",
    "Current program status and outlook:",
    "[Republic of Armenia and the IMF](http://www.imf.org/external/country/ARM/index.htm)",
    "[Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm)",
    "[The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)",
    "[The IMF's Poverty Reduction and Growth Facility (PRGF) -- A Factsheet](https://www.imf.org/external/np/exr/facts/prgf.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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