ArmInfo’s interview with member of the Board of Armenian Pan-National Movement Hovhannes Igityan
by David Stepanyan
The ruling regime’s zeal in adopting more and more unpopular measures has put Armenia on the verge of a default, with the only solution they offer being the “accumulative” robbery or some ridiculous fines for no OMI policy...
It is very hard to speak of economic component of any issues in Armenia, given that the actions of the authorities contain neither macroeconomic components nor economic criteria. The bankruptcy of the authorities emerges in economy when they stake on indirect taxes and take indirect measures to replenish the budget. Imposing indirect taxes is the easiest thing today. Look at VAT on the vital foodstuffs, it is an additional load on consumers. It is interesting that we do not often notice it. If VAT turns insufficient for the budget replenishment, the authorities resort to excise tax, additional customs duties, property taxes, absurd fines for not having third-party liability insurance policy. After all, this burden lies heavy on the nation. What we see now in the country means that the authorities no longer have any natural methods to replenish the budget. Meanwhile 60%-65% of GDP of Germany is the share of SMEs. In Japan this indicator reaches nearly 90%. In other developed countries the major taxes are profit and incomes taxes - direct taxes collected from the real sector of economy. One needs no deep analysis to make sure that the Armenian authorities grab hold on the scandalous mandatory accumulative pension system to replenish the budget. At the latest meeting of Yerkrapah Union of Volunteers, Serzh Sargsyan made quite abstract statements, including on the pension reform. Nevertheless, the president declared quite sincerely that 'these money are necessary for our economy,' Considering that any economy is developed at the expense of anything but the government funds, the president probably meant the necessity to cover the budget deficit. Admitting that the 'authorities spend their political resource' being well aware that 80% of the population opposes the pension reforms, the president, actually, reaffirmed that the authorities are at the end of their tether.
For many years Armenia was moving towards Europe, was harmonizing its laws to European requirements, but all of a sudden, it decided to join the Customs Union. Let’s talk about this...
Whenever I ask my colleagues who are in power now about the Customs Union, they whisper to me that the Union is a guarantee of Nagorno-Karabakh's security. I don't like whispering as I think that in the 21st century politics must be open. My belief is that Nagorno-Karabakh's security cannot be based on a five-minute whisper between Vladimir Putin and Serzh Sargsyan. Security cannot be based on personalities, it must be fixed on paper. I doubt that the Customs Union will give Armenia economic benefits. Today almost all experts say that the growth in customs duties that will follow Armenia's joining the Customs Union will result in growing prices inside the country. And there is no guarantee that the collected duties will be used for our benefit. Part of it will be given in kickbacks, the rest will go to those in power. Direct investment of just one billion of USD would create at least 50,000-60,000 in Armenia and would make solvent almost 1/4 of the local population. Nobody seems to care though. They look to be happy enough at having just $3,000 per capita GDP and $4bln national budget.
Customs Union membership does not seem to imply independent investments in Armenia - unless they are politically motivated...
The Armenian authorities hope that Russia will grant their request to exempt from customs duties as many as 600-800 products imported into Armenia but Russia is aware how corrupt they are. Armenia is a pure consumer as it produces almost no goods. 30-50% of its population are poor. So, well aware of this the local authorities have kept import duties low so as to prevent any big growth in the consumer goods basket. Russia's economy is based on oil and gas exports and low-tech expensive production.
Do you mean that the only way for the Russians to protect their market is to keep their import duties high?
Yes, I do. Once Armenia joins the Customs Union, it will have to accept its home consumer-friendly model, so, it will be a road to an abyss for us. The Customs and Eurasian unions are not systematic projects. They are based on the personalities of Putin, Nazarbayev, Lukashenko and Sargsyan. Should at least one of them quit, the whole project may sink – or at least it will continue without Armenia. With Europe the Armenian authorities kept feigning commitment to integrate in hope that they were smarter than the Europeans. With Russia this will hardly work out as it is the Russians who want to see us as part of the Customs Union.
What will be the consequences of growing essentials prices?
I think this will result in a new wave of emigration. Once the consumer goods basket in Armenia grows, the earnings of the several hundreds of thousands of Armenia working in Russia will drop and they will no longer be able to transfer money to their families in Armenia and will prefer taking them to Russia. This may cause a social riot but they in the Kremlin do not care as the only reason why they 'invited' Armenia into the Customs Union was to show Europe who wears the pants in the post-Soviet area. Armenia was small fish in this game. Russia's key target here were Ukraine and the EU's Eastern Partnership program.
Will it be good for Armenia if Russia becomes even stronger due to its Eurasian integration projects?
The problem is that the Armenian authorities do not think strategically. For example, they are not asking themselves if Russia's strengthening in the post-Soviet area will be good for them. Theoretically, this will not be good for us. Practically, our authorities are not even thinking about this. We are consistently moving towards self-isolation from both regional and global processes. This notwithstanding, we are in a better geo-political situation than Azerbaijan and Georgia: Azerbaijan has bad relations with the West and Iran, Georgia is at odds with Russia, while we have good relations with all the parties. But what our authorities mostly care about is how to retain their power – this is the key reason why we are in isolation and why our people are becoming increasingly defiant. Armenia’s relations with Russia are based on bootlicking. As a result, we have ceased to be a serious factor for them in the Kremlin. All they need to do should any problem arise is just to call Serzh Sargsyan.