It all started with “Electric Yerevan” and its demonstrations opposing the third time utility rates were being jacked up in Armenia in four years. Then there was the government’s overreaction and, ultimately, its pledge to conduct an audit of the electric utility and subsidize the higher electricity prices for those in need through “off budget” funds, whatever that means.
Coincidentally, just as street demonstrations were simmering down, someone sent around an article from the Guardian titled, “14 countries are spiraling towards government debt crises,” which included, you guessed it! Armenia! This led to some research and discussion with an economist friend to grasp what was going on, and, of course, it wasn’t clear. But, a little bit of explanation is bound to be better than none, so here’s my attempt.
It turns out that the 14 countries in question are at risk because of their high foreign-debt-to-GDP (gross domestic product) ratio, which puts them at severe risk of disaster if their economy takes a turn for the worse or interest rates on international markets go up. What matters in all this gobbledygook is that the Republic of Armenia is at risk because this ratio is high for a country such as itself.
Why is it high? There are a number of reasons. This ratio has increased ever since the 2008 worldwide economic downturn, and has not started going back down as things have improved slightly. Armenia is highly dependent on remittances from expatriates, primarily in Russia and the United States, but other countries as well. Thus, if economies slow down in those countries, no matter what’s happening economically in Armenia, things will get worse for people. Basically, think of what has been happening to Greece, and you’ll have a good idea of what might happen to our homeland. You might also remember the troubles that South American countries had in the 1990’s; those stemmed from similar debt situations.
Yet, high debt/GDP levels aren’t necessarily bad. If that debt is coming from building up physical (roads, factories, energy sources) or human (education, health) infrastructure, then it is generally considered acceptable to have higher debt levels since the money was invested in things that will pay off later. Another reason why high debt might not hurt too much is that the country has a good tax-revenue-to-GDP ratio.
But…Armenia does not have a good tax/GDP ratio. The “tax” part of this includes all taxes (such as social security, state, local, and anything else the government collects). This ratio (as a percentage) lies in the mid-30s in the developed world. The U.S. is an outlier at around 25 percent over the course of the last half century (it is considered a tax haven!). Countries that have, extract, and export a lot of natural resources (especially oil) tend to have a lower percentage because they get a lot of money from the sale of the resources. For example, Saudi Arabia’s is under 4 percent! Getting back to Armenia, the percentage is in the low-20s, and that’s up from the mid-10s a decade ago.
Simultaneously, because of the corruption that is rife in Armenia, the money that has entered the country by way of international loans has not been optimally used. So the infrastructure benefits that might have otherwise accrued cannot be expected to the same degree.
Where does that leave us? It gives us one more front in the battle to improve the condition of our homeland. It leaves us with even more urgency to expose, confront, and reduce the corruption that is sapping the country’s economic vitality. It leaves us with the reinforced conundrum of whether to support, oppose, or be indifferent to international loans that come up and are made to Armenia. Imagine how much worse it would be for the average person in the country if a Greece-like situation were to develop there.
Garen Yegparian
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If only Mr. Yegparian was in charge of RoA, everything would be Great.
{“It gives us one more front in the battle to improve the condition of our homeland.”}
Sir, can you please find the time to write an article listing the many things you personally have done to improve the condition of our homeland ? (writing articles criticizing everything Armenia’s leaders do and have done, since Independence, does not count).
{“It leaves us with even more urgency to expose, confront, and reduce the corruption that is sapping the country’s economic vitality. “}
If you think corruption is the primary reason Armenia’s economic vitality is allegedly being sapped, then how do you explain this:
Corruption Perception Index (lower number is _perception_ of higher corruption)
Belarus: 3.1
Armenia: 3.4
Georgia: 5.2
GDP per capita (PPP) (source: CIA Factbook)
Belarus: $18,200 (2014)
Armenia: $7,400 (2014)
Georgia: $7,700 (2104)
Belarus is the most corrupt of three (by perception), yet has 2.5 times more economic vitality.
Hard numbers: not perception.
Georgia is perceived to be about 2 times less corrupt than Armenia, yet both have about the same economic vitality.
Please explain that conundrum, if you can.
{“It leaves us with the reinforced conundrum of whether to support, oppose, or be indifferent to international loans that come up and are made to Armenia. “}
“support, oppose, or be indifferent”
The fact that you have a conundrum is telling: you either love and support Armenia unconditionally, or you don’t.
There is no in between.
{“Imagine how much worse it would be for the average person in the country if a Greece-like situation were to develop there.”}
Imagine how much worse it would be for Armenia if every Diaspora Armenian spent their available time endlessly criticizing Armenia instead of actually _doing_ something to help.
Great article Mr. Yegparian! It’s great to see how you’ve been consistently speaking out against the abundant corruption that’s threatening the existence of our homeland. That’s the kind of leadership we need in Armenia, who will always be concerned about the well-being of our homeland and its citizens, as opposed to the current Russian-controlled mafia leadership who doesn’t care the slightest bit about the well-being of our homeland and its citizens.