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 Tuesday, August 20 2013

Hrant Bagratyan: Let’s draw and live?

Hrant Bagratyan: Let’s draw and live?

 Before the crisis the key driver of economic growth in
Armenia was construction, today, it appears to be agriculture. This is
progress, this means diverse economy, food security, low inflation. But some
figures from our national reports look suspicious if not fake. The key opponent
here is the former Prime Minister of Armenia, MP Hrant Bagratyan, who has
shared his concern about this “juggle show” with ArmInfo.

 Mr. Bagratyan, you often criticize the reports of the
National Statistical Services in the parliament. Some people say this is normal
for an oppositionist, others agree with you. The statistics for 2012 and the
first half of 2013 say that economic activity in the country is stable, with
agriculture being in the vanguard. Are you still suspicious of these figures?

 I have repeatedly raised my doubts about the 7%
economic growth recorded by our statistical authorities last year, but I have
received no clear answer to my question what methods they used in calculating
this figure. They got this 7% growth by comparing the 3.8tln AMD GDP in 2011
with the 3.9tln GDP in 2012. The National Statistical Service reports that GDP
deflator was -5% with inflation being more than 4%. But there can’t be such a
big gap between these indices. I asked them to show me their calculations, but
they piled me up with some methodological stuff. A strange way to act, isn’t
it? If everything is clear, if our economy and assessment methods are unique,
why don’t they share them with me? Especially as they are obliged to do it
because I am an MP!

Do you mean they fake the figures?

 I am sure they do! If they didn’t, they would not keep
their calculations secret. Simply they know that their figures are in an absurd
contrast with basic figures and economic rules. And they are not alone in
faking figures. Recently I found no smaller absurdities in the World Bank’s
statistics on Armenia. The point is that for the last 20 years, Armenia on
average used to grow by 7-8% per year, that is to say, with higher rates than
Russia, or for instance Georgia. In the 1990-s the per capita national income
was 2,900 Soviet roubles, in Russia – 4,500, that is to say, by about 40% more.
Today, the GDP per capita is a little bit more than $3,000 in Armenia, and  more than $12,000 - in Russia, by 4 times
more. Last year Armenia exceeded the level of the 90-s on this indicator by
62%, while Russia - just by 8%. "I informed the World Bank about that
absurdity.  Armenia was among the most
backward republics of the USSR at the WB website with GDP per capita - $660.
Can you imagine?! When I was Armenia's premier in 1993, I owned huge
statistical information, but has never come across such an open stupidity, I am
sorry.  Such is the result of the
retrospective re-calculation of the WB experts, which re-calculated from the
National Income to the GDP, as that time GDP was not calculated, only the
National Income. So, it turned out that the GDP per capita in Russian Soviet
Socialistic Republic was $3,600, that is to say, by 6 times less than in
Armenia, and $1,800  - in the Soviet
Georgia.  It means that Georgia lived
three times better than Armenia. It is funny that Armenia with its National Income
2,950 roubles per capita was ahead of Georgia with its 2,730 roubles. And Azerbaijan
turned out to live by 2.5 times better Soviet Armenia. It is hard to imagine
absurdness of such figures. I can't understand, why the WB made such an open
forgery today. This is a theater of absurd. This is simply inadmissible

As far as I remember you speeches in the parliament,
in agricultural statistics we also have some abracadabra. 

Yes, we do. They say that in 2012 we produced 812,000
tons of vegetables and very insignificant exports. This is 812mln kg. We have
3,000,000 people. So, it turns out that each Armenian eats 240 kg a year or
almost one kg a day. The same year we produced 645,000 tons of potato, that is,
645mln kg or 212 kg per capita. Do you eat so much potato? One more example,
last year we are reported to have produced 241mln kg of grapes. Of this
quantity only 100mln kg was processed. So, it turns out that we ate the rest –
almost 47 kg per capita a month! I can’t say why the Agriculture Minister lied
so openly. The National Statistical Service said it was not responsible for the
figures as they were provided by the Ministry and regional administrations. Is
this right? I was one of the authors of our agrarian reforms and I know this
sphere. So, I can’t help wondering at the cynicism of those faking the figures.
This reminds me of the Brezhnev times. In 2012 the share of agriculture in GDP
was 240% of the level of 1990. I should be happy to see the results of my
reforms. But I am not because I know what mistakes our government has committed
and what problems our agriculture has. Yes, we have a growth in this sector,
but it cannot be so high. One Armavir region cannot produce as many plants as
whole Armenia did in 1990. Otherwise, this would be a world record! This is a
whitewashing, and they are doing it with pleasure! This is like that well-known
children’s song, “Let’s draw and live!”

I cannot but ask you about our industry. Yet a young
journalist in the 1990s I used to slate the IMF and the WB for their attempts
to convince our authorities that Armenia needed no industry and would prosper
with services, tourism and agriculture. In those times Armenia was a developed
science-intensive industrial republic. I am not trying to take digs at you, but
let’s admit that our short-sightedness has proved costly for us. Today we are
trying to create something new, but you cannot build a strong house without
firm foundations and professional constructors, can you?

At those times we were aware of what you are talking
about now, but we were moving along an unbeaten track. Our country was facing
an energy and transport crisis and a war. We tried to save our industrial
companies but managed to save very few of them. We committed lots of mistakes.
We sacrificed a lot for the sake of macro-stability. We were idealists. But not
all of our present problems are the fruits of those times. Today we must
restore our industry, but we need new schemes, we need to make it
science-intensive, based on bigger additional value margin and wider internal
cooperation. This is a hard job. There has been a lot of talk about this in the
last years, but there is no progress so far. The key obstacle is our chronic
economic problems. I first of all mean very high monopoly. Our economy is in
the hands of clans, who have men in the Cabinet and the parliament. They are competing
with one another and are unwilling to cooperate. Built by our second President
Robert Kocharyan in the late 1990s-the early 2000s, this oligarchic system
keeps SMEs in tight grip. Our billionaires can be found in Forbes lists but
still continue producing and selling pizza, lemonade, roses as if our SMEs are
unable to do this. Moreover, they enjoy tax preferences for this trifling
activity. Most of our oligarchs have highly diversified businesses – a small
factory, a bank, a hotel, a restaurant, a café. Medium-sized businessmen are
debarred from these sectors and would face all kinds of obstacles, should they
persist and try to compete. As a result, we see no truly industrial high-tech
company in Armenia except for those owned by big foreign investors. In meat,
fruit and vegetable processing and dairy production things are much better.
Here we are keeping pace with the world. We are doing quite well in egg and
chicken production. Our Yerevan Brandy Company has long improved the
Soviet-time level in terms of both production and technology. But there are
sectors whose problems are very hard to explain. Our shoe and light industries
are declining despite their good traditions. So, I think our authorities must
give a serious through to how they can revive those sectors, especially as the
times when we preferred consuming cheap but low-quality Turkish and Chinese
analogues have passed and the niche is vacant. In machine tool building we have
almost nothing. Here we have a high-tech accumulator plant, but its problem is
that it is faced with a monopoly of rival importers. I think the Government
must help such projects and protect them from “import mafia” and its aggressive

How can we break that oligarchic synergy of big
business and politics? The Government is promising to do it, but what we see
instead are yet new takeover deals. The swelling oligarchic capital is
swallowing more and more SMEs. Sometimes, they do it using administrative
rather than market rules. We have lots of examples of this. You cannot hide an
eel in a sack, can you?

Yes, we have such a tendency, and it is quite
dangerous. I have repeatedly suggested developing and applying popular
capitalism principles, based on tough regulation and peaceful coexistence of
big, medium-sized and small businesses. We could do it by adopting a new
taxation regime. Otherwise, we will continue losing 50,000 jobs per each new
40,000 ones. Just remember how many small lapidary companies we had. And all of
them have been closed. In fact, we have lost a whole industry, a field of
activity where we were among the world’s leaders. We have also lost our light
industry. As a result, we are losing our economically active citizens and are
forced to feign a growth.

 In fact, we don’t have a serious economic infrastructure
in Armenia. Nor have we real stock and commodity exchanges or successful
investment companies and funds. In fact, we don’t have anything of what makes a
real market economy.

 In the mid 1990s we had all of that. But as oligarchy
was growing, it was feeling no more need for a classic market economy. But
there is one more serious problem that curbs the growth of any business in
Armenia. I mean the constantly growing energy costs. Just look what is going on
with the gas price. The Russians raised it by 15%, while for our consumers the
price was raised by 18%, with the electric power price increased by as much as
27%. In our country only 1/3 of power generating capacities work on gas, with
the other 1/3s being the nuclear power plant and hydro power stations. This
means that the electricity tariff should have been raised by no more than 5-6%.
This will have very bad consequences for our economy. Our products will become
noncompetitive. Why did we create an energy monopoly in a small country like Armenia?
There was no such a need, was there? Now we are blaming the Russians for this.
I have friends in Russia who are involved in these processes and they say,
“Dear Armenians, please don’t lay the blame on us. You better look at what is
going on in your country.” We, the Armenians, are like the Serbs: we believe
that every day before going to bed each man in Moscow or St. Petersburg spends
at least one minute to think about our hard lot. Our constant claims are
becoming much too obtrusive and are beginning to annoy them. We are ready to
blame for our troubles anybody but our own selves!

 The financial analysis of the biggest companies of
Armenia carried out by our agency shows that the revenues of ordinary producers
are dropping unlike the incomes of natural and artificial monopolies.

 And things will be getting even worse. First of all,
the rise in energy bills will cause a growth in domestic prices. Producers will
face a shrinking demand and the need to curtail their activities and to cut
their staffs. The Central Bank has already been forced to raise its rate to
8.5% in order to avoid inflation even though the economic situation requires
softer slending terms. This is a kind of a vicious circle, a growing whirlpool
that can eventually suck our economy down. Another big problem is continuing
emigration and the consequent lack of labor force. It’s strange to say but even
though our wages are very low, our statistics report them to be 15% higher than
in Ukraine and 30$% higher than in Georgia.

 Yes, I see, and it seems quite strange to me as

 The reasons of that I have already brought above. Here
in Armenia people avoid agricultural jobs for 5,000 drams daily pay. In the
meanwhile, I met a Georgian woman in Noyemberyan who worked as a waitress in a
restaurant and had to cross the border everyday to get to work. Why are
salaries relatively higher in our country? - Simply, because up to 50,000
people leave our country every year. That is why the salaries are relatively
higher here. Even if demand for labor remains the same, supply falls 2%-3% a
year. The problem runs deep. Actually, no one cares why and how many people
leave the country. In the meanwhile, what we have are empty homes, uncultivated
lands, shrinking demand for products and transport throughout the country. On
the other hand, economic concentration grows and a question arises: who to
produce for? In the wake of migration, the country is facing also capital
outflow. It has not reached catastrophic proportions yet, but it has grown to
700 million dollars over the last years. A few years ago, it was some 500
million dollars.

 Incidentally, our statistics unlike those of many
other countries does not publish data on capital drain.

It shows inflow of capital but not outflow. However,
there are primary income distribution accounts, secondary income distribution
accounts, and capital transaction accounts in the system of national accounts
where a professional would clearly see how much money really flows out of the
country. So, what’s good in the idea of investing the surplus capital in
economy amid shrinking consumer market and monopolized field? 

 There is another painful issue that is much spoken off
but still remains untackled. I mean the possibilities of raising the national
capital of Armenia from all over the world. For that purpose, they have
established the PanArmenian Bank that proved worthless. The idea was promoted,
then devaluated and diluted.

There was no need to create any PanArmenian Bank. It
was a “dead-born” project. It must be a PanArmenian Investment Fund. You invest
in it and the country guarantees, for instance, a 5% yield. The plan is a
follows: you either invest in the purchase of shares of a specific project
through the fund or purchase a common share of the Investment Fund. It can be
considered as an idea to democratizing investments. Who in the country can make
investments? - Only oligarchs and wealthy people. In the meanwhile, many our
compatriots abroad have idle resources. I have repeatedly said that assets of
the Armenians worldwide – that is 10 million people at the working age – amount
to 700 billion US dollars. Annual profit from those assets is some 100 billion
dollars. Average income of a representative of the Armenian Diaspora is higher
than the average income in the country he lives in due to his genetic living
and business activity and the fact that his not burdened with any civil
obligations. The overwhelming majority of our compatriots would like to make
their contribution to the revival of their Motherland, but they do not know how
to do that to overcome hidden dangers and avoid being deceived by Armenian
oligarchs and the government, as it usually happens in our country.

They live in their countries working day and night.
They have neither time nor opportunity to start business in Armenia. Hence, the
Pan-Armenian National Investment Fund, based on a classic system of corporate
management, where the government holds no more than 10% of the statutory
capital, can undertake a kind of mediation mission. There is no need to invent
anything new for efficient operation of the Fund. Such mechanisms are widely
practiced in the world. Hayastan All Armenian Fund is playing out, though the
donations it raises are very important. However, these donations are used to settle
vital social and strategic problems. In the meanwhile, we don’t need to boost
the economy. Let’s give the people guarantees of return on investments, build a
really working democratic mechanism of management and operation of the given
structure, and, be sure, the Fund will become an important component of the
country’s economic rehabilitation.

Thank you


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