Wayzata World Factbook 1996/The World Factbook - 1996 Edition - Wayzata Technology (3079) (1996).iso/mac/TEXT/ECONOMIC/ARMENIA.TXT

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U.S. DEPARTMENT OF STATE
ARMENIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS



                             ARMENIA

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                    1992       1993      1994

Income, Production and Employment:  (billions of rubles)

Real GDP (1991 prices)             7.593      6.469     6.391
Real GDP Growth (pct.)             -52.3      -14.8      -1.2
GDP (at current prices)           59.068    779.619    29.400 2/
By Sector:  (pct.)
  Agriculture                       31.8       48.1      34.8
  Industry                          37.6       26.0      51.6
  Construction                       4.3        3.7       2.6
  Transportation                     1.3        0.6       1.5
  Trade/Catering                     3.3        2.0       1.5
  Other                             21.5       19.6       8.0
Real Per Capita GDP (1991 USD)       N/A        990       900
Labor Force (000s)                 2,194      1,530     1,490
Unemployment Rate (pct.)             3.4        6.5       7.0

Money and Prices:  (annual percentage growth)

Money Supply (M2)                    N/A        N/A       700
Base Interest Rate                  8-10       46.5   360-210
Personal Savings Rate               9-10        N/A    60-180
Retail Inflation                   728.7      930.0     900.0
Wholesale Inflation                  N/A      990.0     900.0
Consumer Price Index                28.7      940.0     900.0
Exchange Rate (USD/NC)
  Official                         1/400    1/2,020     1/350
  Parallel                         1/400    1/2,050     1/370

Balance of Payments and Trade:  (USD millions)

Total Exports (FOB)                74.52     108.01    129.98
  Exports to U.S.                   1.43       0.23      0.39
Total Imports (CIF)               141.02     205.43    254.44
  Imports from U.S. 3/              1.02       1.99      2.30
Aid from U.S. 4/                   45.10      93.20     81.73
Aid from Other Countries             N/A     112.50    113.00
External Public Debt                 0.0      220.0     592.0
Debt Service Payments (paid)         0.0        0.0      45.0
Gold and Foreign Exch. Reserves     15.9        N/A       N/A
Trade Balance 3/                 -66.500    -97.417  -124.460
  Trade Balance with U.S. 3/       0.409     -1.764    -1.991


N/A--Not available.

1/ 1994 Figures are all estimates based on available data in
October 1994.
2/ 1994 GDP estimate is in billions of Armenian drams.
3/ Grain, fuel and other assistance imports not included.
4/ Other U.S. assistance was available through regional
programs for which a country-by-country breakdown is not
available.

Sources:  the Armenian Ministry of Economy, the Armenian State
Statistical and Analysis Committee, and the Central Bank.



1.  General Policy Framework

    In 1994, the severe economic crisis in Armenia continued.
Almost all Armenian industries suffered shortages of fuel,
electricity and raw materials, as a result of the embargoes by
Azerbaijan and Turkey, and civil unrest in Georgia.
Rehabilitation of regions damaged by the 1988 earthquake has
been progressing slowly.  The average purchasing power of the
population decreased as compared with 1993 and further limited
trade opportunities.  Corruption remained a problem.  However,
the relative stability afforded by the cease-fire which has
been in place since May 1994 for the Nagorno-Karabakh conflict
has enabled the government to devote more attention to the
economy and invigorate its reform efforts.

    The present Armenian government has demonstrated a firm
commitment to turning Armenia from a centralized state with a
planned economy into a democratic society with free-market
economic relations.  The disintegration of the ruble zone in
1993 led Armenia to introduce its national currency, the dram,
which lost value rapidly at the beginning of 1994.  The general
economic crisis and severe shortages of energy resources during
the winter period resulted in a significant decrease in
industrial production.  The standard of living has continued to
erode, and a significant out-migration of the population has
occurred.  The Nagorno-Karabakh conflict had forced the
government to convert many of its operating machinery
manufacturers to defense production, but the cease-fire, which
has been in place since May 1994, has helped stabilize the
economic situation.

    The government has taken measures to lift almost all trade
barriers for exporters, and to reinforce the role of the
Central Bank by granting it significant authority to conduct
state monetary policy and license individuals or organizations
engaged in banking and related activities.  However, the
government budget deficit in 1994 decreased markedly due to
increases in grants, decreases in lending, and lower levels of
current expenditure.  The deficit was partially financed by
borrowing from the Central Bank and commercial banks, and by
credits received from Russia, other countries, and multilateral
institutions.  Since June 1994, the Central Bank has exercised
strong control on the emission and the exchange rates policy,
set higher reserve/deposits ratio requirements for banks, and
started to conduct credit auctions.  This, along with a slight
increase in exports during the summer and a number of
international credits, contributed to a sharp decrease in the
rate of inflation, from 30-40 percent in January/February to
3-7 percent in September/October.

    In 1992, Armenia privatized almost 80 percent of its
agricultural land.  In 1994, Armenia began major privatization
of industry.  The privatization program will be conducted in
three stages during 1994-1997, and is considered to be a key
step in improving the economic situation.  In 1994, more than
4,700 small and medium-sized enterprises were planned to be
privatized.  Privatization of dwellings also took place
throughout the year and is expected to end in 1995.

    During 1994, the Armenian government worked hard to improve
operating industries' export performance.  Concentrated efforts
were made to upgrade energy industry infrastructure, and to
find new sources/suppliers of energy and fuel.  An agreement
has been reached with Russia on joint exploitation of the
Metsamor nuclear power plant which may reopen in 1995.  In the
meantime, Armenian and Russian specialists continue to test and
modernize the plant, which was closed after the 1988 earthquake
for safety reasons.

    Armenian business laws have gradually been readjusted to
match those of western developed nations.  Present Armenian law
permits the establishment of almost all types of private
companies existing in the West, and the country's banking
system, which currently is very backward, is expected to
improve in the near future.  Armenia is open to foreign
investors and maintains a liberal foreign trade policy.


2.  Exchange Rate Policy

    At present, Armenia's banking sector consists of two state
banks, the Central Bank and the Savings Bank, and more than
forty private commercial banks, some of which are partially
controlled by the state.  During 1994, in an attempt to
stabilize the exchange rate and fight the hard currency black
market, the Central Bank adopted a number of contradictory
measures including a liberal policy toward issuing licenses for
exchange operations to any businesses, no strict control on
exchange rate policy, and numerous dollar interventions (though
of modest value).  Then, the Central Bank decided to set
obligatory exchange rates for all exchanges in Armenia, and
finally, to close many of the private exchanges, granting the
right for exchange operations to the existing banks only, and
determining exchange rates at the regular hard currency
auctions.  Exchange rates may vary from the Central Bank's
exchange rate by up to three percent.  In addition to the
market rate, the Central Bank maintains a second, lower
official exchange rate to be used in non-cash transactions
between state enterprises.

    No strict measures exist for control of hard currency
outflow from Armenia.  Armenian residents are currently
permitted to take a maximum of USD 500 with them when they
leave the country.  Permission to export foreign currency in
excess of USD 500 is granted only upon presentation of a
document proving that the money was purchased officially, or
legally obtained.  In May 1994, the Central Bank ordered all
Armenian resident companies to close their business accounts in
foreign banks, transfer funds to Armenia, and conduct all their
international transactions via Armenian resident banks.


3.  Structural Policies

    In 1994, U.S. commercial exports to Armenia were
insignificant, and were more affected by the Azerbaijani and de
facto Turkish blockade, unrest in Georgia, and the conflict in
Nagorno-Karabakh than by Armenia's tax and regulatory
policies.  In Armenia, resident foreign business owners receive
national treatment, and are generally subject to the same taxes
and regulations as Armenian businessmen.  Joint ventures with
more than 30 percent foreign investment are granted significant
tax benefits and other privileges.

    Basic Armenian taxes include a profit/corporate tax (12-20
percent), a value-added tax (16.6-20 percent), an excise tax
(5-70 percent) for sale of certain products, a personal income
tax, and taxes paid to social security and pension funds.
Amounts of duties and fees paid for export/import licenses and
licenses for certain professional activities are normally
dependent on the current minimum monthly wages set by the
government.  Though Armenian tax law describes ten more types
of taxes, including a property and a land tax, relevant
necessary legislation and collection mechanisms have yet to be
adopted.

    All exports from Armenia are duty-free.  The law sets minor
customs duties (5-10 percent) for imports of certain goods.

    In 1992, Armenia and the United States signed a bilateral
investment treaty and an Overseas Private Investment
Corporation (OPIC) incentive agreement, which allows OPIC to
offer political risk insurance and other programs to U.S.
investors in Armenia.  In 1994, Armenia adopted the Law on
Foreign Investments in hope of providing a legal structure for
secure investments in the country's economy.


4.  Debt Management Policies

    In 1992, Russia assumed responsibility for managing
Armenia's share of the former Soviet Union's external debt of
$561.6 million.  In 1993, Armenia incurred ruble and hard
currency external debt totalling $220 million.  This included
credits received from the World Bank, European Bank for
Reconstruction and Development (EBRD), as well as from other
international institutions and foreign governments.  No debt
service payments were made in 1993.

    At the end of 1994, the Armenian external debt increased to
$592 million.  It included loans received from the World Bank
for rehabilitation projects in the earthquake zone, irrigation
projects, an EBRD loan for reconstruction of the Hrazdan
natural gas-fired power generating unit, a credit for
construction of a cargo terminal at Yerevan's Zvartnots
airport, and a number of other foreign credits.  Debt service
payments by the end of 1994 are estimated at $45 million.

    In December 1994, the IMF approved a $25 million IMF
Systemic Transformation Facility loan to support Armenia's
reform program.  The World Bank is also expected to offer
financing worth about $80 million during 1995, which will
support reform.  The United States, France, and the Netherlands
pledged about $110 million in humanitarian assistance and trade
credits which also will support Armenia's reform program by
addressing its balance of payments needs.  Earlier in 1994,
Russia also agreed to extend a 110 billion ruble credit, part
of which will be used for retooling the Metsamor nuclear power
plant.


5.  Significant Barriers to U.S. Exports

    In 1994, the following factors acted as significant
barriers to U.S. exports to Armenia:  a partial road and rail
embargo of the country, fuel shortages, lack of market
information, lack of a modern telecommunications system,
nonconvertibility of the Armenian dram outside of the country,
inflation, a backward banking system, insufficient protection
of foreign investments, the extremely low purchasing power of
the population and local companies, and lack of international
trade experience.

    Local or foreign companies registered and operating in
Armenia which receive their revenues in hard currency are
required to sell 50 percent of their hard currency profits to
the state for drams at the official exchange rate.

    In 1994, government procurement practices were mainly based
on countertrade transactions, as well as competitive bidding in
certain industry sectors and programs financed by international
credits.


6.  Export Subsidies Policies

    In 1994, export-oriented industries continued to receive
government assistance.  As was the case during the Soviet
period, the government subsidized some state enterprises and
provided resource discounts to producers in critical industries.


7.  Protection of U.S. Intellectual Property

    An agreement on trade relations between Armenia and the
United States, signed in 1992, states that the parties shall
ensure that domestic legislation provide for protection and
implementation of internal property rights, including
copyrights on literary, scientific and artistic works,
including computer programs and data bases, patents and other
rights on inventions and industrial design, know-how, trade
secrets, trademarks and servicemarks, and protection against
unfair competition.

    In August 1993, the Armenian parliament adopted the Law on
Patents, and the government established a Patent
Administration.  Patents are granted for a period of 20 years.
Laws on trademarks and copyrights are being considered by the
Parliament.

    Armenia plans to join the Paris Convention for the
Protection of Intellectual Property, the Madrid Agreement
concerning international registration of trademarks, and the
Patent Cooperation Treaty.

    Meanwhile, piracy of video and audio materials, books and
software in the poorly controlled private sector is
widespread.  Items are copied locally, and some are imported
from neighboring states, mainly Russia.  No exports of pirated
materials from Armenia to other states have been observed.
Armenian state television and numerous illegal private cable
channels regularly air Western video materials, many of which
are unlicensed and of low quality.


8.  Worker Rights

    The 1992 Law on Employment guarantees employees the right
to form or join unions of their own choosing without previous
authorization.  At the same time, many large enterprises,
factories, and organizations remain under state control, and
voluntary, direct negotiations between unions and employers
without the participation of the government cannot take place.
The 1992 Law on Employment guarantees the right to organize and
bargain collectively.  Armenia's high unemployment rate makes
it difficult to gauge to what extent this right is exercised in
practice.

    The 1992 Law on Employment prohibits forced labor.  Child
labor is not practiced.  The statutory minimum age for
employment is sixteen.  The minimum wage is set by governmental
decree and was increased periodically during 1994.  Employees
paid the minimum and even average official wages cannot support
either themselves or their families and must look for sources
of additional income.  Most enterprises are either idle or
operating at only a fraction of their capacity.  Individuals
still on the payroll of idle enterprises continue to receive
two-thirds of their base salary.  The overwhelming majority of
Armenians are thought to live below the officially recognized
poverty level.