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Hrant Bagratyan: Let’s draw and live?

ArmInfo’s interview with Hrant Bagratyan, oppositionist MP, former prime minister of Armenia, to share his views on the issue (part 2), (part 1)

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  • Tuesday, August 20, 14:05

 Before the crisis the key driver of economic growth in Armenia was construction, today, it appears to be agriculture. This is progress, this means diverse economy, food security, low inflation. But some figures from our national reports look suspicious if not fake. The key opponent here is the former Prime Minister of Armenia, MP Hrant Bagratyan, who has shared his concern about this “juggle show” with ArmInfo.

 Mr. Bagratyan, you often criticize the reports of the National Statistical Services in the parliament. Some people say this is normal for an oppositionist, others agree with you. The statistics for 2012 and the first half of 2013 say that economic activity in the country is stable, with agriculture being in the vanguard. Are you still suspicious of these figures?

 I have repeatedly raised my doubts about the 7% economic growth recorded by our statistical authorities last year, but I have received no clear answer to my question what methods they used in calculating this figure. They got this 7% growth by comparing the 3.8tln AMD GDP in 2011 with the 3.9tln GDP in 2012. The National Statistical Service reports that GDP deflator was -5% with inflation being more than 4%. But there can’t be such a big gap between these indices. I asked them to show me their calculations, but they piled me up with some methodological stuff. A strange way to act, isn’t it? If everything is clear, if our economy and assessment methods are unique, why don’t they share them with me? Especially as they are obliged to do it because I am an MP!

Do you mean they fake the figures?

 I am sure they do! If they didn’t, they would not keep their calculations secret. Simply they know that their figures are in an absurd contrast with basic figures and economic rules. And they are not alone in faking figures. Recently I found no smaller absurdities in the World Bank’s statistics on Armenia. The point is that for the last 20 years, Armenia on average used to grow by 7-8% per year, that is to say, with higher rates than Russia, or for instance Georgia. In the 1990-s the per capita national income was 2,900 Soviet roubles, in Russia – 4,500, that is to say, by about 40% more. Today, the GDP per capita is a little bit more than $3,000 in Armenia, and  more than $12,000 - in Russia, by 4 times more. Last year Armenia exceeded the level of the 90-s on this indicator by 62%, while Russia - just by 8%. "I informed the World Bank about that absurdity.  Armenia was among the most backward republics of the USSR at the WB website with GDP per capita - $660. Can you imagine?! When I was Armenia's premier in 1993, I owned huge statistical information, but has never come across such an open stupidity, I am sorry.  Such is the result of the retrospective re-calculation of the WB experts, which re-calculated from the National Income to the GDP, as that time GDP was not calculated, only the National Income. So, it turned out that the GDP per capita in Russian Soviet Socialistic Republic was $3,600, that is to say, by 6 times less than in Armenia, and $1,800  - in the Soviet Georgia.  It means that Georgia lived three times better than Armenia. It is funny that Armenia with its National Income 2,950 roubles per capita was ahead of Georgia with its 2,730 roubles. And Azerbaijan turned out to live by 2.5 times better Soviet Armenia. It is hard to imagine absurdness of such figures. I can't understand, why the WB made such an open forgery today. This is a theater of absurd. This is simply inadmissible

As far as I remember you speeches in the parliament, in agricultural statistics we also have some abracadabra. 

Yes, we do. They say that in 2012 we produced 812,000 tons of vegetables and very insignificant exports. This is 812mln kg. We have 3,000,000 people. So, it turns out that each Armenian eats 240 kg a year or almost one kg a day. The same year we produced 645,000 tons of potato, that is, 645mln kg or 212 kg per capita. Do you eat so much potato? One more example, last year we are reported to have produced 241mln kg of grapes. Of this quantity only 100mln kg was processed. So, it turns out that we ate the rest – almost 47 kg per capita a month! I can’t say why the Agriculture Minister lied so openly. The National Statistical Service said it was not responsible for the figures as they were provided by the Ministry and regional administrations. Is this right? I was one of the authors of our agrarian reforms and I know this sphere. So, I can’t help wondering at the cynicism of those faking the figures. This reminds me of the Brezhnev times. In 2012 the share of agriculture in GDP was 240% of the level of 1990. I should be happy to see the results of my reforms. But I am not because I know what mistakes our government has committed and what problems our agriculture has. Yes, we have a growth in this sector, but it cannot be so high. One Armavir region cannot produce as many plants as whole Armenia did in 1990. Otherwise, this would be a world record! This is a whitewashing, and they are doing it with pleasure! This is like that well-known children’s song, “Let’s draw and live!”

I cannot but ask you about our industry. Yet a young journalist in the 1990s I used to slate the IMF and the WB for their attempts to convince our authorities that Armenia needed no industry and would prosper with services, tourism and agriculture. In those times Armenia was a developed science-intensive industrial republic. I am not trying to take digs at you, but let’s admit that our short-sightedness has proved costly for us. Today we are trying to create something new, but you cannot build a strong house without firm foundations and professional constructors, can you?

At those times we were aware of what you are talking about now, but we were moving along an unbeaten track. Our country was facing an energy and transport crisis and a war. We tried to save our industrial companies but managed to save very few of them. We committed lots of mistakes. We sacrificed a lot for the sake of macro-stability. We were idealists. But not all of our present problems are the fruits of those times. Today we must restore our industry, but we need new schemes, we need to make it science-intensive, based on bigger additional value margin and wider internal cooperation. This is a hard job. There has been a lot of talk about this in the last years, but there is no progress so far. The key obstacle is our chronic economic problems. I first of all mean very high monopoly. Our economy is in the hands of clans, who have men in the Cabinet and the parliament. They are competing with one another and are unwilling to cooperate. Built by our second President Robert Kocharyan in the late 1990s-the early 2000s, this oligarchic system keeps SMEs in tight grip. Our billionaires can be found in Forbes lists but still continue producing and selling pizza, lemonade, roses as if our SMEs are unable to do this. Moreover, they enjoy tax preferences for this trifling activity. Most of our oligarchs have highly diversified businesses – a small factory, a bank, a hotel, a restaurant, a café. Medium-sized businessmen are debarred from these sectors and would face all kinds of obstacles, should they persist and try to compete. As a result, we see no truly industrial high-tech company in Armenia except for those owned by big foreign investors. In meat, fruit and vegetable processing and dairy production things are much better. Here we are keeping pace with the world. We are doing quite well in egg and chicken production. Our Yerevan Brandy Company has long improved the Soviet-time level in terms of both production and technology. But there are sectors whose problems are very hard to explain. Our shoe and light industries are declining despite their good traditions. So, I think our authorities must give a serious through to how they can revive those sectors, especially as the times when we preferred consuming cheap but low-quality Turkish and Chinese analogues have passed and the niche is vacant. In machine tool building we have almost nothing. Here we have a high-tech accumulator plant, but its problem is that it is faced with a monopoly of rival importers. I think the Government must help such projects and protect them from “import mafia” and its aggressive attacks.

How can we break that oligarchic synergy of big business and politics? The Government is promising to do it, but what we see instead are yet new takeover deals. The swelling oligarchic capital is swallowing more and more SMEs. Sometimes, they do it using administrative rather than market rules. We have lots of examples of this. You cannot hide an eel in a sack, can you?

Yes, we have such a tendency, and it is quite dangerous. I have repeatedly suggested developing and applying popular capitalism principles, based on tough regulation and peaceful coexistence of big, medium-sized and small businesses. We could do it by adopting a new taxation regime. Otherwise, we will continue losing 50,000 jobs per each new 40,000 ones. Just remember how many small lapidary companies we had. And all of them have been closed. In fact, we have lost a whole industry, a field of activity where we were among the world’s leaders. We have also lost our light industry. As a result, we are losing our economically active citizens and are forced to feign a growth.

 In fact, we don’t have a serious economic infrastructure in Armenia. Nor have we real stock and commodity exchanges or successful investment companies and funds. In fact, we don’t have anything of what makes a real market economy.

 In the mid 1990s we had all of that. But as oligarchy was growing, it was feeling no more need for a classic market economy. But there is one more serious problem that curbs the growth of any business in Armenia. I mean the constantly growing energy costs. Just look what is going on with the gas price. The Russians raised it by 15%, while for our consumers the price was raised by 18%, with the electric power price increased by as much as 27%. In our country only 1/3 of power generating capacities work on gas, with the other 1/3s being the nuclear power plant and hydro power stations. This means that the electricity tariff should have been raised by no more than 5-6%. This will have very bad consequences for our economy. Our products will become noncompetitive. Why did we create an energy monopoly in a small country like Armenia? There was no such a need, was there? Now we are blaming the Russians for this. I have friends in Russia who are involved in these processes and they say, “Dear Armenians, please don’t lay the blame on us. You better look at what is going on in your country.” We, the Armenians, are like the Serbs: we believe that every day before going to bed each man in Moscow or St. Petersburg spends at least one minute to think about our hard lot. Our constant claims are becoming much too obtrusive and are beginning to annoy them. We are ready to blame for our troubles anybody but our own selves!

 The financial analysis of the biggest companies of Armenia carried out by our agency shows that the revenues of ordinary producers are dropping unlike the incomes of natural and artificial monopolies.

 And things will be getting even worse. First of all, the rise in energy bills will cause a growth in domestic prices. Producers will face a shrinking demand and the need to curtail their activities and to cut their staffs. The Central Bank has already been forced to raise its rate to 8.5% in order to avoid inflation even though the economic situation requires softer slending terms. This is a kind of a vicious circle, a growing whirlpool that can eventually suck our economy down. Another big problem is continuing emigration and the consequent lack of labor force. It’s strange to say but even though our wages are very low, our statistics report them to be 15% higher than in Ukraine and 30$% higher than in Georgia.

 Yes, I see, and it seems quite strange to me as well… 

 The reasons of that I have already brought above. Here in Armenia people avoid agricultural jobs for 5,000 drams daily pay. In the meanwhile, I met a Georgian woman in Noyemberyan who worked as a waitress in a restaurant and had to cross the border everyday to get to work. Why are salaries relatively higher in our country? - Simply, because up to 50,000 people leave our country every year. That is why the salaries are relatively higher here. Even if demand for labor remains the same, supply falls 2%-3% a year. The problem runs deep. Actually, no one cares why and how many people leave the country. In the meanwhile, what we have are empty homes, uncultivated lands, shrinking demand for products and transport throughout the country. On the other hand, economic concentration grows and a question arises: who to produce for? In the wake of migration, the country is facing also capital outflow. It has not reached catastrophic proportions yet, but it has grown to 700 million dollars over the last years. A few years ago, it was some 500 million dollars.

 Incidentally, our statistics unlike those of many other countries does not publish data on capital drain.

It shows inflow of capital but not outflow. However, there are primary income distribution accounts, secondary income distribution accounts, and capital transaction accounts in the system of national accounts where a professional would clearly see how much money really flows out of the country. So, what’s good in the idea of investing the surplus capital in economy amid shrinking consumer market and monopolized field? 

 There is another painful issue that is much spoken off but still remains untackled. I mean the possibilities of raising the national capital of Armenia from all over the world. For that purpose, they have established the PanArmenian Bank that proved worthless. The idea was promoted, then devaluated and diluted.

There was no need to create any PanArmenian Bank. It was a “dead-born” project. It must be a PanArmenian Investment Fund. You invest in it and the country guarantees, for instance, a 5% yield. The plan is a follows: you either invest in the purchase of shares of a specific project through the fund or purchase a common share of the Investment Fund. It can be considered as an idea to democratizing investments. Who in the country can make investments? - Only oligarchs and wealthy people. In the meanwhile, many our compatriots abroad have idle resources. I have repeatedly said that assets of the Armenians worldwide – that is 10 million people at the working age – amount to 700 billion US dollars. Annual profit from those assets is some 100 billion dollars. Average income of a representative of the Armenian Diaspora is higher than the average income in the country he lives in due to his genetic living and business activity and the fact that his not burdened with any civil obligations. The overwhelming majority of our compatriots would like to make their contribution to the revival of their Motherland, but they do not know how to do that to overcome hidden dangers and avoid being deceived by Armenian oligarchs and the government, as it usually happens in our country.

They live in their countries working day and night. They have neither time nor opportunity to start business in Armenia. Hence, the Pan-Armenian National Investment Fund, based on a classic system of corporate management, where the government holds no more than 10% of the statutory capital, can undertake a kind of mediation mission. There is no need to invent anything new for efficient operation of the Fund. Such mechanisms are widely practiced in the world. Hayastan All Armenian Fund is playing out, though the donations it raises are very important. However, these donations are used to settle vital social and strategic problems. In the meanwhile, we don’t need to boost the economy. Let’s give the people guarantees of return on investments, build a really working democratic mechanism of management and operation of the given structure, and, be sure, the Fund will become an important component of the country’s economic rehabilitation.

Thank you

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