OF THE CRISIS - - * *Meri Yeranosyan is a researcher and the vice president of Advanced Social Technologies, based in Yerevan.
T 1 Its impact spread over the globe, resulting in the slowdown of the world economy. The panic over the crisis, led understand the problem. The Imperfections that Allowed Surpassing the Direct Impact of the Global Financial Crisis After the collapse of the Soviet Union, the Central Bank of Armenia underwent dramatic change. Only in 2006 did the Central Bank of Armenia adopt the country before the task was shared between the Central Bank of Armenia and The Ministry of Finance. zations, 12 insurance companies, 91 pawnshops, 244 exchange agencies 2, nine money transferring and seven payment systems processing and clearing com- 3 main actors in the arena remain foreign owned banks, Banks own more than 20 banks out of 22 are with foreign participation. 4 tion of funds through banks between lenders and borrowers is low: The level The Armenian banking system, though stable enough and showing progressive 6 1 Chairman Ben S. Bernanke,, 14 April 2009. http://www.federal reserve.gov/ newsevents/speech/bernanke20090414a.htm 2 3 locale=en 4 Head of Financial System Policy and Financial Stability Department of the Central Bank of Armenia Vahe Vardanyan, Ibid. 6 Ibid.
securities (banknotes, bonds) and derivatives (forwards, options, swap). These instruments are extremely sensitive to changes in the macroeconomic environment since they are based upon future-oriented agreements regarding concrete deals between parties. Classifying Armenia as a low-income country, IMF analysts conclude, Low- instruments. and 2008 respectively. Market capitalization is a determining factor of stock valuation based on public opinion regarding the company s net worth. 8 - term external liabilities and mostly from the international organizations and af- 9 The imperfections highlighted are mainly the side-effects of still being a relatively undeveloped among the listed that can not be characterized as an imperfection of the system ; it is, rather, the main achievement of the activities of the Central Bank. Because of its small size, the banking system was able to withstand the crisis. run. Nevertheless, having negative expectations, banks tightened their lending conditions. The World Bank claims that Armenia entered crisis with some strengths: Wellcapitalized and liquid banking system with strong prudential regulation; prudent 10, IMF 2009. www.imf.org 8 www.wikipedia.org 9 Head of Financial System Policy and Financial Stability Department of the Central Bank of Armenia Vahe Vardanyan, 10 Volume 8 Number 2 TURKISH POLICY QUARTERLY
Indirect Effects of the Global Financial Crisis - and other sectors - 2.9 times). 11 Apartment prices in Yerevan per square meter Though the government tried hard to surpass mass panic by downplaying the crisis, the slowdown of economic growth in the last quarter of 2008 made the impact of the crisis on the Armenian economy obvious. When January-May tax revenues did by 19.4 percent. 12 Decline in real estate prices was observed by plummeted by at least 30 percent this year because of a worsening economic 13 According to a OSCE nationwide survey in 2008, In the period of January 2002 in labor migration. 14 tances from abroad for the given period of time. Armenia. Most labor migrants are men (90 percent of labor migrants) who cent of labor migrants). 11 12 Ibid. 13 Recession cuts Armenian property prices, 31 March 2009, http://www.armtown.com/news/en/rfe/20090331/ 200903311/ 14,Yerevan: Asoghik http://www.osce.org/ publications/
Decline in remittances from Russia was one of the main shocks the Armenian - the boom in construction in recent years, notably of residential investment. A 16 Construction was the driving force of Armenian economy in the pre-crisis pe- concealed to the problems in other sectors of Armenia s economy. The crisis severely hit the construction sector and construction volumes were cut in half. 10.3 percentage points down, while at the same period of 2008, construction added 2.9 points to GDP. Among the reasons for the construction decline, economists note the low level of availability of investment resources and decline in demand. Mining is another sector of Armenia s industry that was badly hit by the crisis. Post-crisis decline in metal prices in the international market caused contraction of mining industry by 10 percent. In the world commodity markets dramatic price decrease for the raw materials was observed, which caused those raw ma- the other branches of economy were followed by the deteriorations in these sectors. 18 of which is raw materials almost in half. Armenia exports to a limited number of countries: The concentrated structure of Armenia s export six countries ac- try s vulnerability to a negative impact arising from a shock to a major trading partner. 19, July 2009. www.imf.org 16 Premier: Additional cash injections in Armenia s construction sector can mitigate adverse impact of global crisis, 1 July 18 19, www.pf-armenia.org Volume 8 Number 2 TURKISH POLICY QUARTERLY
Armenia exports most to Russia, European Union countries (Germany, Netherlands, Belgium), Georgia and the U.S. For small open economies, such as the 20 The IMF graphs show that FDI growth was eight times less in 2008 than it had been in 2006. 21 In 2008, FDI was geared mostly to energy-related sectors (from Russia), telecommunications (from Russia and France) and transportation (Argentina). 22 The Armenian government claims that pre-crisis economic growth was mainly driven by non-tradable sectors and was heavily dependent on external factors: and service sector. 23 The mining industry, given the high prices and demand tion boomed and the service sector grew. The Armenian currency, the dram (AMD) appreciated. It was assessed that, the main portion of appreciation was 24 tional currency of Armenia has got depreciated by 22 percent against the dollar. nia, however, in extreme situations the Central Bank can buy or sell dollars, thus regulating exchange rates. The 3rd of March 2009 was called Black Tuesday in mass media, the day, when the AMD abruptly depreciated and panic started, some shops temporarily closed down, and the prices of mainly imported goods went up. When explaining why depreciation did not happen earlier and what caused the rapid depreciation of national currency in March 2009, the IMF explained, During 2008, the Central Bank of Armenia kept the nominal AMD/ bility and to do this, the CBA had to increasingly sell large amounts 20 21 Masood Ahmed,, http:// www.imf.org/external/country/arm/rr/2009/041009.pdf 22 23 24 Ibid.
cant loss in CBA reserves. Eventually, large depreciation was unavoidable The supply of dollars decreased: falling remittances (mostly from Russia), falling foreign direct investment (e.g., in real estate), large drop in export prices (copper and molybdenum prices fell by 2/3) and the demand for dram decreased: fall in demand for Armenian exports and re-dollarization. 26 Since the economic outlook of the country has worsened because of the global slowdown, the Armenian government has increased its external debt by request- dollars from the IMF; currently, the government requests augmentation of loan 28 Instead of Conclusion The merge of political and economic powers in Armenia developed an unhealthy social environment in the country and increased the distrust of people towards the State. The corruption and monopolies, the misuse of power and the inability of people to defend their rights, have rendered civil society ineffective, Increasingly, human rights movements organize themselves in the image of markets if we use that notion intuitively to denote competition among individuals and groups for scarce or limited resources. NGOs of various kinds and at various levels emerge as economic exchange rate volatility and facilitate the functioning of the market. Gross reserves were 1.2 billion USD at the end of April., July 2009, 26 IMF Resident Representative in Armenia Nienke Oomes, What explains exchange rate movements in Armenia, August 2009. Visit, www.imf.org/yerevan Head of Financial System Policy and Financial Stability Department of the Central Bank of Armenia Vahe Vardanyan, 28, July 2009. www.imf.org Volume 8 Number 2 TURKISH POLICY QUARTERLY
actors insofar as they seek to mobilize resources for their work; and as such many of them compete inter se. Funding agencies (whether national, regional, or global, private, governmental, inter-governmental or international) are economic actors that allocate resources. Human rights markets thus comprise a series of transactions across a range of economic actors that pursue competition within a frame- nomic actors seek to shape each other s agenda, or the sum of total of human rights goods and services thus produced, circulated and consumed. This process of social production, however, raises many problems that actors in human rights markets have to necessarily negotiate, giving rise in turn to what may be termed as human rights market rationality. 29 The voices of local and international environmentalists were ignored when a private company the Armenian Copper Programme seeing the country s raw materials as a source of fast and easy-to-generate income planned to build a massive open-pit of copper mine in the small town of Teghut, which would threaten local ecosystems and communities. 30 There is a belief among the environmentalists that some governments/big players have serious stake in the outcome, which is the main reason that environmentalists efforts remain fruitless. - crisis offers an opportunity for Armenia to make changes that would shatter the existing monopolies. It unfortunately is unlikely that this opportunity will be seized. External assistance from donors temporarily allows the country to stay ernment to generate income. The Government might be forced to make sound changes in the level and composition of taxation, which would cause fairer distribution of income in the society. Reforms in tax policies could create a more favorable business environment for start-ups and SMEs, and allow more just competition between all market players. This could be a good start for delinking political and economic powers. 29 Upendra Baxi, 2002,. New Delhi: Upenda Baxi and Oxford University Press. 30 Friend of Earth, http://www.foe.org/pdf/ Teghut_Fact_ Sheet.pdf