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Armenia: Bringing The Economy Into Daylight

By Vahan Hovanissian

Yerevan, 26 February 1997 (RFE/RL) -- The Armenian government is moving to deal with one of the country's most pressing issues, namely how to bring the economy into the daylight, out of the pervading shadows of undeclared, and untaxed, activities.

It's estimated that as much as 70 percent of Armenia's economy operates on the "black," with little or no external control of either the revenues generated or of the ethical aspects of business dealings. Government officials are in many cases thought to be involved in a web of corrupt practices.

As in other transition economies, the Armenians are finding out that the money needed by the government to meets its commitments, including investment to help stimulate economic growth, can't be found without a solid revenue base resulting from efficient tax collection.

For instance, official statistics show Armenian imports of coffee running at the level of one or two cups of coffee a year per capita -- a ridiculous figure in a coffee-loving society. This means--as with most commodities--that Armenia is missing out on major customs duties, as well as the later taxation on the importing companies' income. Cigarette and alcohol statistics show the same pattern.

Recently-installed Prime Minister Armen Sargsian has signalled a determination to change this state of affairs. Previous prime minister Hrant Bagratian failed to tackle the problem, which requires cutting across many established economic interests.

An RFE/RL correspondent in Yerevan reports that the opening shot of the clean-up campaign was Sargsian's announcement in parliament that he plans to submit a comprehansive program of economic and political reforms to the legislature by the middle of the year. In view of this promise, the legislature on February 18 passed an interim budget which can be described as a "survival" measure.

Few details are available so far on the concrete steps Sargsian plans to take in the mid-year reform budget, but our correspondent says it can be seen as a measure which will try to carry Armenia beyond patch-work survival towards overall development.

The interim budget for 1997 shows some of the preoccupations of the young state. For instance, defence spending is one of the largest single items in the document, projected at about $65 million. That's practically as much as the spending on social security, education and science combined, and a good deal more than public health expenditures, foreseen at $26 million.

Of the total expected revenues of almost $257 million, a full 20 percent of this will be derived from humanitarian and technical assistance from the United States and the European Union.

With total expenditures foreseen at over $330 million, there will be a hefty deficit, and the government is hoping to cover this partly through millions of dollars worth of new foreign credits, and through privatization.

The process of privatization is among the main domestic resources of covering the deficit. The government hopes to draw over $30 million to the budget through international tenders.

Our correspondent however reports that experts consider this an overly optimistic estimate in view of the lacklustre performance of privatisation so far. And the experts criticise as short-sighted and basically unproductive the government's practice of paying salaries and pensions from privatization earnings.

On inflation too, our correspondent says the interim budget estimate that it can be held to about 10 percent is probably unrealistic, in view of the fiscal difficulties facing the government this year.