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#1 Aratta-Kingdom

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Posted 23 October 2007 - 07:37 PM



http://www.businessw...age_top stories

Armenia a Model for Developing Nations




Economic reform and investment by Armenian expatriates have helped the country boost GDP by more than 10% a year for a decade




BusinessWeek
October 23, 2007


by S. Adam Cardais




To appreciate just how far Armenia has come in the last 15 years, it helps to imagine yourself living through an Armenian winter in the early 1990s.

It's the middle of January, it's five degrees below zero, and you and your family have only two hours of electricity a day -- such was the abysmal state of the energy sector in a country crippled by the dissolution of the Soviet Union, a traumatic earthquake in 1988, and war with neighboring Azerbaijan.

But Armenia has been "radically transformed," in the words of one World Bank official, since its independence from the former Soviet Union. Today, the average Armenian has electricity around the clock.

An influx of cash and a series of reforms have taken Armenia from economic basket case, with GDP plummeting 50 percent between 1990 and 1993, to "Caucasian tiger," to quote a World Bank report issued earlier this year. It has become a model transition economy that should continue prospering with a second wave of reforms.

GDP has increased more than 10 percent a year for a decade largely thanks to robust investment in a booming construction industry by the Armenian diaspora in Europe and the United States. Sharp growth in the services sector, including the financial sphere, and retail trade are also contributors, according to the European Bank for Reconstruction and Development.

"Given the fact that it doesn't have natural resources, its growth is quite impressive," says Heike Harmgart, country economist for Armenia at the EBRD.

And the most laudable aspect of that growth, World Bank economist Aristomene Varoudakis says, is "that macroeconomic stability has been preserved. Inflation has remained low," between 3 percent and 4 percent. Last year was an exception to this trend, with inflation climbing to 5.6 percent, but the International Monetary Fund forecasts a fall to 4 percent in 2007.

REFORMS REAP REWARDS

This fiscal discipline is an indication the government has backed up the bountiful diaspora remittances, which are more good fortune than anything else, with sound policy. Indeed, remittances alone don't make Armenia a model transition economy. A series of early, sustained governmental reforms enabled the country to capitalize on the cash inflow.

For instance, the government eliminated wage controls and privatized the majority of land and small businesses in the mid 1990s to encourage investment in construction and other sectors. The central bank has also been a key reformer, streamlining its operations and improving supervision over the banking industry to spur a dynamic financial services sector in a short period.

More recently, a new credit bureau to bolster small business lending and a modernized bankruptcy law have further improved the investment climate, two reasons Armenia ranks 39th out of 178 economies in the World Bank's "Doing Business 2008" report.

On all of these reforms, Armenia has been wise to cooperate closely with international institutions such as The World Bank and the IMF.

"The Armenian government has been listening to institutions very well, which is positive," Harmgart says. "The government has always been open minded."

It would be hard to overstate the benefit this economic revolution has brought the population. According to the World Bank report, the poverty rate has fallen from more than 55 percent in the early 1990s to 30 percent. Extreme poverty had dropped to 5 percent two years ago.

GENTRIFYING NEIGHBORHOOD

The good news for the region is that Armenia's prosperity isn't unique. Georgia's economy is growing at just under 10 percent and is one of the leading reformers in the world, at No. 18 on the "Doing Business 2008" report. Azerbaijan posted a whopping 34.5 percent GDP growth in 2006 thanks to its thriving oil industry.

As in these countries, though, there's still a lot of progress to be made in Armenia. Tax evasion remains rampant. It's extremely costly for an individual or business to file taxes, and tax revenues are only 15 percent of GDP, one of the lowest rates in the region, resulting in less money for strengthening the economy or fighting poverty through spending on education or health care.

The government is trying to increase tax compliance by introducing a system that allows payers to submit their returns by post or electronically, publishing a list of the country's largest contributors in a sort of ego-driven motivator, and opening specialized collections units, but more progress is needed.

Corruption, though becoming less pronounced, is also a major concern, as is Armenia's over-reliance on the construction industry. Though analysts predict Armenia will sustain double-digit growth in the short and medium term, it has to begin diversifying its economy by making trade more dynamic and attracting new knowledge-based investments, such as IT companies.

Reforms in corporate transparency, competition, and education will be central to realizing this goal, but "these are more complex reforms than the first round," Varoudakis points out.

Armenia has without a doubt taken great strides, but nothing highlights progress like starting from nothing. If the country wants to remain a "Caucasian tiger," it had better prioritize these difficult reforms now.

These will take a lot longer than turning on the power.



#2 hagopn

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Posted 23 October 2007 - 07:50 PM

QUOTE(Aratta-Kingdom @ Oct 24 2007, 01:37 AM)

http://www.businessw...age_top stories

Armenia a Model for Developing Nations




Economic reform and investment by Armenian expatriates have helped the country boost GDP by more than 10% a year for a decade
BusinessWeek
October 23, 2007
by S. Adam Cardais

To appreciate just how far Armenia has come in the last 15 years, it helps to imagine yourself living through an Armenian winter in the early 1990s.

It's the middle of January, it's five degrees below zero, and you and your family have only two hours of electricity a day -- such was the abysmal state of the energy sector in a country crippled by the dissolution of the Soviet Union, a traumatic earthquake in 1988, and war with neighboring Azerbaijan.

But Armenia has been "radically transformed," in the words of one World Bank official, since its independence from the former Soviet Union. Today, the average Armenian has electricity around the clock.

An influx of cash and a series of reforms have taken Armenia from economic basket case, with GDP plummeting 50 percent between 1990 and 1993, to "Caucasian tiger," to quote a World Bank report issued earlier this year. It has become a model transition economy that should continue prospering with a second wave of reforms.

GDP has increased more than 10 percent a year for a decade largely thanks to robust investment in a booming construction industry by the Armenian diaspora in Europe and the United States. Sharp growth in the services sector, including the financial sphere, and retail trade are also contributors, according to the European Bank for Reconstruction and Development.

"Given the fact that it doesn't have natural resources, its growth is quite impressive," says Heike Harmgart, country economist for Armenia at the EBRD.

And the most laudable aspect of that growth, World Bank economist Aristomene Varoudakis says, is "that macroeconomic stability has been preserved. Inflation has remained low," between 3 percent and 4 percent. Last year was an exception to this trend, with inflation climbing to 5.6 percent, but the International Monetary Fund forecasts a fall to 4 percent in 2007.

REFORMS REAP REWARDS

This fiscal discipline is an indication the government has backed up the bountiful diaspora remittances, which are more good fortune than anything else, with sound policy. Indeed, remittances alone don't make Armenia a model transition economy. A series of early, sustained governmental reforms enabled the country to capitalize on the cash inflow.

For instance, the government eliminated wage controls and privatized the majority of land and small businesses in the mid 1990s to encourage investment in construction and other sectors. The central bank has also been a key reformer, streamlining its operations and improving supervision over the banking industry to spur a dynamic financial services sector in a short period.

More recently, a new credit bureau to bolster small business lending and a modernized bankruptcy law have further improved the investment climate, two reasons Armenia ranks 39th out of 178 economies in the World Bank's "Doing Business 2008" report.

On all of these reforms, Armenia has been wise to cooperate closely with international institutions such as The World Bank and the IMF.

"The Armenian government has been listening to institutions very well, which is positive," Harmgart says. "The government has always been open minded."

It would be hard to overstate the benefit this economic revolution has brought the population. According to the World Bank report, the poverty rate has fallen from more than 55 percent in the early 1990s to 30 percent. Extreme poverty had dropped to 5 percent two years ago.

GENTRIFYING NEIGHBORHOOD

The good news for the region is that Armenia's prosperity isn't unique. Georgia's economy is growing at just under 10 percent and is one of the leading reformers in the world, at No. 18 on the "Doing Business 2008" report. Azerbaijan posted a whopping 34.5 percent GDP growth in 2006 thanks to its thriving oil industry.

As in these countries, though, there's still a lot of progress to be made in Armenia. Tax evasion remains rampant. It's extremely costly for an individual or business to file taxes, and tax revenues are only 15 percent of GDP, one of the lowest rates in the region, resulting in less money for strengthening the economy or fighting poverty through spending on education or health care.

The government is trying to increase tax compliance by introducing a system that allows payers to submit their returns by post or electronically, publishing a list of the country's largest contributors in a sort of ego-driven motivator, and opening specialized collections units, but more progress is needed.

Corruption, though becoming less pronounced, is also a major concern, as is Armenia's over-reliance on the construction industry. Though analysts predict Armenia will sustain double-digit growth in the short and medium term, it has to begin diversifying its economy by making trade more dynamic and attracting new knowledge-based investments, such as IT companies.

Reforms in corporate transparency, competition, and education will be central to realizing this goal, but "these are more complex reforms than the first round," Varoudakis points out.

Armenia has without a doubt taken great strides, but nothing highlights progress like starting from nothing. If the country wants to remain a "Caucasian tiger," it had better prioritize these difficult reforms now.

These will take a lot longer than turning on the power.


This article reas like an angry IMF note that whines about the lack of taxes collected.


#3 Mindtrap

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Posted 24 October 2007 - 10:34 AM

LOL, hagop jan, I hear you on that tax part, but Armenian is a devolving nation, they need to understand these things take time. I just love hearing reports like this (and assume them to have some truth) because it provides more ammunition for those who whine and moan about how terrible Armenian is. Their level of confirmation bias is amazing, they seem to almost black the positivity of the nation.

#4 gamavor

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Posted 24 October 2007 - 06:02 PM

Guys don't be too enthusiastic about these reports! Be realistic. Armenia still has a looooooooooooong way to go in order to reach partially the standard of living in developed countries. The evident progress is for the large part because Armenia has reached the grand bottom.

Sure, Yerevan is beautiful, sure there are lots of intelligent people, sure Armenian Cognac is great but...... how about modern infrastructure, high speed trains, wider highways, marketing, high-tech investments, logistics, market share in the international commerce, competitiveness...and the list goes on.
Most importantly working and efficient democratic administrative system, legal reform, fair elections, strong military and so on and so on. Most importantly - iron discipline and no more Armenian style "jamatrutiun".


#5 hagopn

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Posted 24 October 2007 - 06:38 PM

QUOTE(gamavor @ Oct 25 2007, 12:02 AM)
Guys don't be too enthusiastic about these reports! Be realistic. Armenia still has a looooooooooooong way to go in order to reach partially the standard of living in developed countries. The evident progress is for the large part because Armenia has reached the grand bottom.

Sure, Yerevan is beautiful, sure there are lots of intelligent people, sure Armenian Cognac is great but...... how about modern infrastructure, high speed trains, wider highways, marketing, high-tech investments, logistics, market share in the international commerce, competitiveness...and the list goes on.
Most importantly working and efficient democratic administrative system, legal reform, fair elections, strong military and so on and so on. Most importantly - iron discipline and no more Armenian style "jamatrutiun".


There are a lot of points raised, but none talk about the actual reasons for taxation in most economies. The irrational taxation that goes in the 30% to 40% mark on income and all monetary trasaction does nothing clsoe to justify all leigimate government expenses.

Teddy Roosevelt with good intentions began a bad trend of government against capitalism: His answer was to mediate as the Executive in labor matters. This then developed into the anti-Trust measures, which were and are full of the convenient loopholes that merely led the Oligarchs to hide the extend of their corporate holdings and control.

The one thing that people forget and neglect, due mostly to conditioning against and the carefully cultivated phobia against "conspiracism," is the Money and Banking Trust that still dominates the economies of the globe. It is a perpetuated myth that government ahs control over energy, raw materials processing, food stuffs and processing, and MONETARY sectors of economy.

How des this tie in with Armenia and everyone else? The IMF/WB complex belongs to the same private interests that control the US economy through the control of the stategically critical Trusts.

The best source, one that surprises me to no end since he was once a mouthpiece for the Money Monopoly, is former Reagan economic advisor Milton Friedman who later recanted and overturned his own theories and objections against direct government control over the so-called M1 supply. Here is represented his older views as if they were still his views before his passing http://economy.typep...pply/index.html

In the colleges they refuse to teach Friedman's latest alarms against private monopoly on money, which is, as he stated it, a global phenomenon that is the strongest geopolitical force on the planet.

In essence, from day one where ter Petrossyan sheepishly accepted devaluation of currency and hard assets, which is against all logic and is illegal according to all legitimate government policy, Armenia gave up her autonomy.

True freedom is economic freedom first of all.

Now when the IMF and WB give you their loans, they attach them with strings, "Conditionalities" as they call them. One of them is the Guarantee of Payback through taxation. They recommend rates of taxation, not based on the given country's budgetary needs, but on the payback condtionalities. It's a crippling game from the beginning.

Putin's mafia decided to bail Armenian out, is my suspicion, but for a steep price as well: Control of most energy producing assets (the Metzamor plant, the Hrazdan plant) and so on.

Therefore, when one sees the US budget, according to Friedman, W. Grinder and other legitimate economists, one sees that around 5% taxation of income is enough for the existing social programs and even government subsidies, and no sales taxation is needed. The rest goes back to payin interest to the Fed, which is a private consortium with private stock holdership.

Armenia having to tax anything above 5% of the GDP is equally ridiculous.

Edited by hagopn, 24 October 2007 - 06:39 PM.


#6 gamavor

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Posted 26 October 2007 - 12:12 AM

Tax system is the backbone of any financial system. Improving tax collection and revenues would only help Armenia absorb more loans, implement more social programs and provide credit lines for entrepreneurs.

What is bothersome with IMF/WB is their position on privatization of strategic industries. Competition, as a general rule brings prices down. The main revenue for the budget in any given state are the tax revenues collected as a surcharge over consumption of everyday necessities such as electricity. Now if you introduce to the public more efficient ways of distribution and production of electricity at a lower than the state owned companies price - here comes IMF with the big stick in hand, because lower cost for a unit of electricity means lower amount of tax money collected from the enterprise that will go to the state budget, hence slower return on the IMF loans.

Globally speaking IMF/i.e. the Americans/ should have come up with something like the "war on terror" in order to keep their tax revenues worldwide intact.


#7 Nazarian

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Posted 26 October 2007 - 07:32 PM

The Armenian government is a large welfare scheme. It's a large bureaucratic system that employs a large number of do-nothings. If they did nothing it would still be OK but they actually harm the society with a lot of red tape (created to justify their existence - I suspect).

There is really no need to increase the taxes collected. bringing the government to a normal size and fair tax collection would resolve the budget deficit problems.

But then you wouldn't have the corruption that the government officials depend on.




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