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Armenia: Parliament Approves Economic Austerity Measures

Yerevan, 30 August 1999 (RFE/RL) -- The Armenian parliament (Aug. 28) overwhelmingly endorsed a package of austerity measures aimed at combating a higher-than-projected budget deficit which has put the recently formed government of Prime Minister Vazgen Sarkisian in a difficult financial situation.

The move paves the way for the disbursement of fresh loans from Western lending institutions which are vital for maintaining a relative macroeconomic stability in Armenia.

A shortfall in budget revenues and an urgent need to repay a huge public debt to the energy sector have meant an extra spending gap of 31,000 million drams, or $58 million. This is more than half of the deficit projected for this year.

The budget crisis has led to the freezing of some $55 million in new loans from the World Bank and International Monetary Fund (IMF) which Yerevan hoped to receive last June. Sarkisian told the National Assembly, controlled by his Miasnutyun (Unity) bloc, that the loans will not be released unless his cabinet balances the budget.

In the most significant step, the Sarkisian government wants to divert 17,000 million drams, or $32 million, in budget funds to the partial repayment of state enterprises' debts to power stations and distributing companies. A corresponding amount of other planned expenditures will have to be cut as a result.

The accumulating consumer debt threatens to disrupt the work of the energy sector - a key component of the Armenian economy. An IMF official in Yerevan said earlier that "restoring the "financial viability" of the sector is one of the IMF's key requirements.

The government last month raised excise duties on cigarettes and gasoline in a bid to offset the revenue shortfall worth 13,500 million drams, or $25 million.

"These are painful but right steps. The international financial organizations won't give us loans unless we take these steps," Sarkisian told lawmakers. Analysts say the money will not be made available earlier than late September.

The Armenian premier said Yerevan and the Western lenders have "reached agreement on all principal issues" and "there are now no major differences" between them. He said his government opposed the IMF's demands to raise electricity fees and make even more spending cuts.

Ninety-six of the 131 members of the Armenian parliament voted for the austerity package. Most of the opposition deputies refused to back the budget changes criticizing successive Armenian governments for failure to come up with correct budget estimates.

Seyran Avakian, a deputy from the opposition National Democratic Union (AZhM), said he does not believe in the government's ability to meet the new targets.

The parliament majority mainly represents Miasnutyun, co-headed by Sarkisian and Karen Demirchian, Armenia's Soviet-era leader and currently parliament speaker. The bloc swept to a landslide victory in the May 30 parliamentary elections largely owing to Demirchian's populist charisma.

But the first steps of the new Miasnutyun-led cabinet, appointed in June, indicated that there will be no major shifts from the hitherto pursued policy of economic liberalization agreed with the IMF and World Bank.

Formerly a defense minister, Sarkisian is seen as the most powerful Armenian prime minister since 1991. The budget crisis - Sarkisian's first serious challenge in the new post - has underscored his dominant role in tackling the country's day-to-day problems.

Although Armenia's constitution gives the head of state sweeping powers, President Robert Kocharian has kept an unusually low profile in the latest economic developments. Kocharian was not present at today's emergency session of parliament. Sarkisian today repeated his pledge of a tougher crackdown on the shadow economy and more efficient governance.

The Armenian economy grew 4.5 percent in the first half of the year under a 4 percent consumer price inflation, according to official statistical information. But economists say higher growth rates are need for a rapid economic improvement in Armenia that saw a drastic decline in living standards following the collapse of the Soviet Union.