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Armenia: IMF Directors Say Country Recovering from 1997 Setbacks

Washington, 13 March 1998 (RFE/RL) -- The Board of Executive Directors of the International Monetary Fund (IMF) has told Armenia that the setbacks to the country's reform program in 1997 were serious and damaging, but that Yerevan has made "significant progress" in recent months and is moving ahead.

In its annual review and consultation with Armenia, completed in early February, the 24 Executive Directors "expressed concern" about the situation in 1997 -- the abrupt cutbacks in reforms, the acceleration of inflation to almost 22 percent, the stalled current account deficit and the slowed growth of the economy.

The directors represent, individually or in groups, all 181 member nations of the IMF.

Mostly, it said, the directors "regretted" Armenia's easy macroeconomic policy at the end of last year and the loss of momentum in structural reforms.

That is why the directors said they "warmly welcomed" recent Armenian government efforts to put the reform program "back on track." Specifically, the IMF directors praised tightened macroeconomic policies, and steps taken to accelerate and deepen structural reforms which they said are already beginning to produce some positive results.

The directors said that while there was some uncertainty created by the recent resignation of senior government officials, the IMF is encouraged by Armenian leader's reaffirmation of their continuing commitment to the program worked out with the IMF.

Armenia is in the final year of a three-year, about $136.7 million, extended loan program with the IMF. It has about $68 million left that has not yet been drawn.

The IMF directors stressed to Armenian authorities the importance of maintaining what they call a "prudent fiscal policy" and for improving fiscal management. They noted the government's efforts at improving tax administration, broadening the tax base and enforcing payments discipline, but said Armenia must work to address the problem of tax arrears.

Armenia's recent decision to cease the government's net borrowing from the central bank this year was praised as a particularly important move as was the recent decree to stop providing government guarantees on domestic commercial borrowing by state enterprises.

The IMF directors said that although some structural elements of the program have fallen behind schedule, positive actions have been taken particularly in privatization. The introduction of a cash privatization program this year should, said the directors, reestablish the momentum of privatization of small and medium-sized enterprises and enhance the scope for foreign participation in the privatization of larger enterprises.

The IMF says Armenia's economy as measured by the gross domestic product (GDP) grew by just over three percent in 1997, but should recover to over five percent growth in 1998. Inflation this year is expected to decline to nine percent by December and the state budget deficit is expected to be 5.5 percent of the GDP.