Tag Archives: armenian recession

Is Armenia’s Economic Crisis Really Over?

I just read an interesting report on RFE/RL about what is being pawned off as the end of an “economic crisis” in Armenia. I guess that depends on who you ask and where in Armenia you live.

Below are excerpts from the article:

Armenia’s worst recession since the early 1990s has come to an end, a senior government official claimed on Monday, citing official statistics that show the Armenian economy growing last month for the first time in over a year.

According to preliminary data released by the National Statistical Service (NSS), Gross Domestic Product (GDP) increased by 2.4 percent year on year in January after shrinking by 14.4 percent in 2009.

The reported growth was twice faster than the one forecast by the Armenian government for 2010. A senior official from the International Monetary Fund (IMF) said last week that the full-year growth rate may well reach 2 percent.

The NSS data show that a 6.5 percent rise in industrial output was the main driving force behind the unfolding recovery. That seems to have primarily resulted from rallying international prices of copper and other non-ferrous metals, Armenia’s main export item. Armenian exports jumped by 57.5 percent to almost $54 million in January.

Armenia’s macroeconomic performance was also positively affected by a 3 percent growth in agriculture reported by the NSS. By contrast, the construction sector, which has born the brunt of the recession, contracted by about 11 percent during the same period.

Trade and Economic Development Minister Nerses Yeritsian portrayed the latest macroeconomic data as a clear indication that the economic crisis in the country is over. “And I want to assure you that we have come of out that crisis well,” he told journalists.

In Yeritsian words, the recovery is facilitated by what he described as substantial capital investments that have been made in public infrastructures in the last two years. “They could not have failed to have an impact on the diversification of the economy and this growth figure,” he said.

Yeritsian also insisted that financial assistance provided by the government to the crisis-hit construction industry has not been a waste of money. “The government measures against the construction decline have been limited,” he said. “The government has never even tried to fully make up for the construction decline.”

Finance Minister Tigran Davtian likewise asserted in late December that Armenia is emerging from the recession with minimal losses. Davtian downplayed the sharp GDP drop which has increased unemployment and poverty in the country.

According to World Bank estimates, the number of Armenians living below the official poverty line rose by 90,000 to make up 28.4 percent of the population in the first half of 2009.

If you ask me, Armenia did not go through a temporary crisis that lasted for about a year and only recently rebounded. Maybe Yerevan perhaps (I don’t believe this) but not the entire country. On the contrary, the economic situation of Armenia has been in crisis mode since it declared independence in 1991.

And it’s really surreal to keep reading that construction was in a decline in 2009 while high-rise apartment buildings are being erected across Arabkir and in central Yerevan. Sure, the construction of certain buildings is slow-going. Some of them have been going up for as long as five years, with construction ceasing for several months then starting again until the developer’s cash runs out. What has that to do with the “crisis?”

Do I need to mention all the new shiny supermarkets, exclusive boutiques and expensive restaurants that have been popping up everywhere in central Yerevan?

Let’s see how Laura Tadevosyan is coping with things in Aragatsotn at the end of the “economic crisis,” as reported by Hetq:

When [w]e visited the abandoned hut, Laura came out to greet us. The elderly woman was covered in soot and her cheeks were swollen from the cold. The clothes she wore were old and tattered. She spoke in a straightforward and lucid manner with us and said that the family had always encountered hardships and that they had now adjusted to their new situation.

The family owned a one room apartment in the town of Kapan, Syunik Marz. They used the money to rent and lived in different places until they wound up here, at the garbage dump.

“My son-in-law is from Masis and he wanted us close by. We sold the apartment and came to Yerevan with the hope of buying a place here to live. He got arrested for a robbery. We moved around for a while and then found ourselves here. We first lived in Ashtarak, but an acquaintance brought us here,” said Mrs.Tadevosyan. “When money falls into your hands, you get flustered and don’t know how to spend it all. It was my daughter and her husband that managed the house money. We spent it all and wound up on the street.”

She and the kids live in a metal “tnak” (hut) that is falling apart and the roof is missing in spots. When we stepped inside, the place was engulfed in smoke. Soot and grime was everywhere. Even the bed sheets were blackened by the soot. They had been burning garbage from the dump, plastic bottles, pieces of wood and shoes, to stay warm.

The hut consists of two small rooms with two metal beds and a few chairs.

“We live in a pretty awful state. I’m ashamed to even show you how we live,” Laura said. For the past two years the family has used candle to light the house.

Mrs. Tadevosyan said they have no relatives in Armenia. They’ve all moved to Russia. Her son also lives in Russia and she says he sends money when he can.

Washing glass bottles is their only source of income. Laura said that there’s a soda plant in Ashtarak. They get the bottles from the plant and wash them for 2 drams a bottle. Workers from the plant then come and collect the bottles.

“I don’t wind up washing many bottles when it’s cold like this. At best, I can wash 1,500 a day. When the kids are home they help me out and I can wash more. The girl is just a child but she’s in water the whole day washing bottles for money. What else can I do?” Laura asks.

Exactly.

Armenia’s Financial Woes

recessionAn interesting article about the current financial situation in Armenia that appeared in business new europe was reprinted on Hetq Online. Although I  am not a financial adviser or banker, I can’t say that I agree with everything that was reported in the article.

Here is one excerpt that is interesting to note:

The growth of banks like AEB [Armeconombank] has slowed considerably, but they are still in profit and see 2009 as a hiccup rather than a disaster. Armenian banks find themselves in a frustrating position now: they have the liquidity to make loans, but they can’t find anyone to lend to.

According to AEB’s Web site, the bank is currently offering mortgages for five-year terms at an annual rate of 14 percent. These types of plans, plus or minus a percentage point payable in five or seven years, have been offered for a while now by Armenian banks, and they’re obviously not great offerings by any means. I’ve seen rates as high as 20 percent or even more being advertised for short-term loans.

By contrast, mortgage rates in the US are now around 5.25 percent for a 30-year term and that’s now considered on the high side. And the rate for a 15-year mortgage is only 4.69 percent.

Thus the Armenian mortgage lending business can best be defined as basically legitimized loansharking.

But really, who would agree to sign on to such terms? Cash poor businessmen most likely, or people who have come into lots of money quite suddenly and have diversified their funds into several different sectors, be it real estate, consumer trade or what have you.

Imagine the following scenario. A new house becomes available in a part of Yerevan where having a home is considered very trendy these days, like Nork-Marash where lots of expensive homes have been built. The buyer, finding himself short on cash but eager to buy a house in a prestigious area, takes out the loan. The percentage rate doesn’t necessarily make much of a difference to him, he just needs some cash handed over to him fast so he can buy the home. Five years gives him plenty of time to pay off the loan in monthly payments while most of his capital funds continue to be tied up elsewhere.

No ordinary Armenian citizen could ever afford such a loan, not with a $200 monthly salary on the low end or even $2000 at the top tier. It doesn’t make any logical sense to consider such a mortgage loan, and it is certainly not a viable option anyway. So these loans being offered by Armenian lenders have never made much sense.

What about the over $1 billion in loans coming from Russia and IMF? Some of it is supposedly going to soften the drop in the GDP while another chunk is trickling down to businesses via the banking sector, like construction companies, to help them offset losses as a result of the crisis. It’s true that housing prices have fallen considerably since the beginning of the year, but a three-room apartment in central Yerevan can still fetch around $150,000, depending on the specific location, perhaps even more. For a tiny landlocked country like Armenia, that’s astronomical. By comparison you can buy a villa in the coastal town of Guardamar, Spain for under 100,000 euros.

Yet despite the construction crunch, building continues unabated. A new crane has just gone up at the foot of the slope that reaches the “Monument” area. Sure, some sites seem to be dormant, but that’s been the case for the last five years. Construction of a building starts, then comes to a halt for months on end before it resumes again. The cycle continues over and over. That’s why it’s been taking so long for these high-rise buildings to go up. That’s been the case throughout the Yerevan construction boom, it’s nothing new. These same companies that are supposedly hurting are getting money to support their business efforts. But do they really need the money? No one can tell. Try performing an audit on them to find out.

What Recession?

Several official figures have been published recently suggesting that Armenia is in a downward economic spiral as a result of the global recession. In the first two months of the year, the economy receded 3.7 percent according to official statistics, and the dram devalued about 20 percent from 305 to 370 against the dollar in a single day. Armenian exports have been cut by 40 percent, not that there are many to begin with—they are mostly copper and ore exports. Some companies IT-related or otherwise have already shut down or have scaled back, but in the case of Lycos Europe, I know from a friend who used to work there that many of its employees, mostly software programmers, have already found work. In some companies, including the one where I work, employees were asked to take a pay cut, around 5 percent or less depending on the firm’s financial situation.

While the slowdown is supposedly continuing, Armenia is receiving a $540 million loan from the IMF, approved in April. And another $500 million is expected from Russia, as announced last month. The World Bank has pledged to provide $50 million in loans which will be redistributed to small and medium-sized banks via the banking sector. Between the World Bank and the IMF, $320 million in loans have been handed down since the beginning of 2009. A metallurgical company based in Syunik has already received a $10 million loan to help keep it afloat. Given these facts and figures things don’t seem that bleak.

During this economic “slowdown” Armenians continue to go about their business in Yerevan. Shops are thriving, the markets and minibuses are packed and the automobiles seem to keep increasing. Some stores and restaurants do close, but the spaces are rented to other businesses, sometimes in a matter of days or a few weeks, as was the case even before the recession. I only know of one person who is looking for work, but it’s just a matter of time before he finds something I think. Meanwhile, the situation in many rural areas, from what I have seem myself and what I have been reading on Hetq Online, isn’t changing much with poverty persisting unabated. Village life has never really improved despite Armenia’s economic boom, so for Armenia’s poor there is no noticeable difference in the quality of life.

Armenia’s GDP of has already contracted 6 percent because of the downturn in the construction sector. In April the National Statistical Service claimed that in the first quarter of 2009, construction had decreased 22 percent, yet when I look out the window or walk down the street in the Gomidas district I see that buildings continue to be erected. The government is distributing $54 million in loans to construction companies. But do they really need the money?

Armenians working abroad, especially in Russia, are losing jobs, but it won’t be long before they find something else to do somewhere, perhaps in another country, maybe even in Armenia.

So what’s going on here? Which segment of Armenia society is feeling crunched by the recession? And will it ever be made obvious? And where will all those hundreds of millions of dollars in loans go exactly? That hasn’t been made clear. I can’t see anything changing in spending habits. Armenian society has been polarized for well over a decade. People who have are spending, and people who are barely surviving on pensions or meager wages are not, but it’s been that way for years. So aside from official published statistics, there doesn’t seem to be any noticeable evidence of a recession in Armenia.