Ukraine Crisis Threatens Armenian Economy

A Russian navy ship patrols the harbor of Sevastopol, Crimea. March 6, 2014. (Photo: AFP)

YEREVAN (RFE/RL)—The crisis in Ukraine and its resulting negative economic impact on Russia could have spillover effects on Armenia, Economy Minister Vahram Avanesian admitted on Thursday.

Russian stocks plummeted immediately after Moscow resorted to military intervention in Crimea at the weekend, with investors ditching assets in Russia to guard against economic sanctions threatened by the West. The Russian ruble has since lost around 2 percent of its nominal value against the U.S. dollar. The Russian Central Bank has spent billions of dollars and raised its benchmark interest rate to prevent the national currency from weakening even faster.

With no solution in sight to the Kremlin’s worst standoff with the West since the end of the Cold War, there might be more trouble in store for the Russian economy. Analysts in Yerevan warn that the Armenian economy also risks taking a battering due to its dependence on Russia.

“Yes, the events in Ukraine and the depreciation of the Russian ruble may have negative consequences for Armenia’s economy,” agreed Avanesian. He singled out the weaker ruble’s impact on dollar-denominated remittances sent home by hundreds of Armenian migrant workers in Russia.

Data from the Armenian Central Bank shows that those remittances accounted last year for roughly 90 percent of overall non-commercial cash inflows into Armenia totaling $1.55 billion, a figure equivalent to 14 percent of the country’s Gross Domestic Product.

Avanesian argued that the ruble depreciation could also make Armenian goods more expensive in the Russian market. “Our exporters could have problems because we should keep in mind that the ruble’s depreciation would not facilitate our exports,” he told a news conference.

According to the National Statistical Service (NSS), Russia absorbed around 23 percent of Armenian exports worth almost $1.5 billion in 2013.

Avanesian said that despite the alarming signs the Armenian government does not yet plan to revise its economic growth projections for this year. “We need to understand just how long-term those changes will be,” the minister explained. “If the impact [of the Ukraine crisis] is short-term, there will be no major change in our economic policy. If it becomes a long-term problem, the economic policy will definitely have to be reviewed.”

Economic growth in Russia was slowing down even before the outbreak of the crisis. This was one of the reasons why the Armenian expanded by 3.5 percent in 2013, much slower than was predicted by President Serzh Sarkisian. NSS figures released this week show that growth was mainly dragged down by a continuing decline in the Armenian construction sector and sluggish retail sales.

In its budget bill approved by the Armenian parliament in December, the government forecast a growth rate of over 5 percent for 2014. The International Monetary Fund offered a more cautious macroeconomic outlook for Armenia last month.

“Downside risks include adverse geopolitical events and external shocks, including a weakening of [remittance] inflows in the context of a protracted slowdown in Russia,” a senior IMF official warned in a February 4 statement.


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  1. Armenian said:

    I don’t think we’ve done enough- let’s get more integrated with Russia. Clearly the solution to our problems to become more incorporated with the country that has been at the source of the problem, and has been making us isolated and dependent for years. When Russia self-destructs, then what are we going to do?

    I just wonder, have any of you who are advocating for making Russia interchangeable with Armenia ever thought about what it means for Armenia to take on the growing burden of countries seeking to hinder Russia and every thing/country related to it? If this isn’t the most explicit example of the immense peril a country can be put in when it doesn’t’ diversify its relations, I don’t know what is.

    • Gurgen said:

      Actually the most devastating damage to the Armenian economy has been caused over the last 20 years by the blockade of western/NATO backed Turkey and Azerbaijan. This is the number one reason for Armenia’s poverty and immigration and not the “oligarcs” or “corruption”.
      The next most devastating damage to the Armenian economy came from the 2008 crash of the western economies due to the high level corruption in the US/European banking systems.
      Yes I agree, we haven’t done enough to rid ourselves of the decay and corruption that has become the US/European social and economic models. Luckily I see that changing soon.

      • Armenian said:

        Turkey and Azerbaijan’s blockade don’t hurt Armenia as much as Armenia hurts itself through its corrupt and inept practices.

        The US/European model is not the problem, and if you think “ridding” Armenia of that is going to solve our problems, you’re mistaken and in for a very unpleasant surprise, as things in Armenia are only going to get worse and worse under Russia and the CU.

  2. Avetis said:

    The crisis in Ukraine does indeed pose a threat to Armenia in more ways than just the economy. A Western victory in Ukraine will strengthen Turkish/Islamic interests throughout the region. We all need to pray for a Russian victory in Crimea and pray for Armenia’s quick entrance into the Eurasian Union.

  3. karakeuz said:

    Geography is destiny. Our geographic position is imperilled by the USA-Nato imperialistic expansion towards the east. The sooner they are stopped in their expansion eastwards it is for Armenias benefit and advantage. The only power that can thwart the eastward expansion is Russia . We have two turkish states simply waiting to swallow us and eradicate every vestige of Armenia. These two turkish states are the thuggish clients of the West. The West’s ( USA-Nato-EU) geopolitical interest can never be aligned with Armenia’s national aspirations and interests. We are a small, but very pivotal nation in our geographic position. The peace and security in Trancaucasia is dependent in Armenias stability. Armenian stability can only be guaranteed through the medium of our armed forces. We have to work toward strengthening our bonds of friendship, and strategic partnership with the Russian federation. Rusia’s and Armenian militaries are to a large degree integrated in the strategic defence of the Southern Caucasus; our economies are also intertwined. The accession to the Eurasian Union , from a geopolitcal perspective, will be a reassuring factor .

  4. said:

    I find it interesting that Crimea is a very important place of Armenian military victories. The legendary Armenian Taman Division participated in the liberation of Crimea from the Nazi occupation.

    The people who came to power in Kiev now represent Western Ukraine where Western Ukrainians volunteered to serve in the Nazi army forming two SS divisions. The Crimean Turks (aka Tartars) were busy killing Russian inhabitants of Crimea in collaboration with Nazis during the years it was occupied.