Sargsyan Announces New Measures to Overcome Budget Crisis

YEREVAN (RFE/RL)–Prime Minister Vazgen Sargsyan has announced his plan aimed at bridging a growing spending gap in his government’s budget for this year and a huge consumer debt to the energy sector.

In a televised address to the nation late on Wednesday–Sargsyan vowed to raise some taxes–crack down on widespread tax evasion and become tougher on domestic debtors to restore the fiscal discipline. He said budget revenues for the first half of the year were $61 million less than expected. This is equal to more than ten percent of the projected government expenditures for 1999. "The situation is extremely difficult but not hopeless," he said.

The budget crunch has led the International Monetary Fund and World Bank to delay the release of their planned loan transaction to Armenia worth a total of $55 million. The funds are vital for Yerevan to maintain a stable currency rate and cover the budget deficit. An IMF official said last week the government and the Fund have agreed on what should be done to put economic reforms "back on track."

The worse-than-expected revenue performance has fueled speculations about imminent cuts in Armenia’s already small budget. But Sargsyan insisted ambiguously that he will seek the parliament’s approval of budget "changes" rather than "reductions." He said the austerity measures will allow "to close a substantial part of the budget gap without a serious damage to poor and middle classes of the society."

The austerity measures will include an increase in excise duties on cigarettes and gasoline–which the government hopes will help raise an additional 11 billion drams by the end of the year. Sargsyan said he expects another 6 billion drams as a result of enhancing "internal order" within all-level government bodies.

In his characteristically straightforward manner–the Armenian premier pledged strong action to force various consumers– mostly industrial enterprises and water suppliers–to pay their debts to the energy sector which total about $180 million. The energy-related debts are responsible for half of the money the government has failed to collect. "I want to warn managers of all state-controlled and privatized enterprises: comply with your tax and contract obligations," he said.

Sargsyan said the previous cabinet’s "underestimation" of the effects of the Russian economic crisis has already cost the 1999 budget $18 million. "These figures are so big that we often lose the sense of reality and danger–as if it doesn’t concern us," he declared to TV viewers. "Together with you–we have no other way out–otherwise we will risk plunging the country into a swamp."

A former defense minister–Sargsyan was named to lead the government following the May 30 parliamentary elections that saw the victory of the Unity bloc which he co-heads along with Armenia’s National Assembly Speaker Karen Demirchian. The bloc campaigned on a largely populist platform of easing the economic hardships caused by the previous cabinets’ reform policies. Unity bloc’s control of the cabinet and parliament is seen as a major counterweight to President Robert Kocharian’s authority.

But Sargsyan’s speech again reinforced the belief that there will be no major shift in the economic policy. The premier ardently defended the role of Western lending institutions in Armenia’s transition to the market economy and dismissed criticism directed against them. "Let’s finally have the courage to admit that with our widespread irresponsibility and carelessness we ourselves are to blame for this [situation]," Sargsyan said.

While announcing an "uncompromising struggle against the shadow economy," Sargsyan said he will rule out illegal practices frequently used by government officials during tax collection as well as any kind of economic "monopoly." He also threatened to dismiss "with the help of the people" those chiefs of local administrations who will fail to meet their budget obligations to the central government.

However–analysts on Thursday expressed misgivings about the effectiveness of the government steps.

Vahagn Khachatrian–an economist and former Yerevan mayor–told RFE/RL that it is not fully clear how Sargsyan plans to clear the utility debts. He argued that a likely rise in the price of petrol may trigger a chain reaction of other price hikes. And raising the excise tax on cigarettes will make tobacco smuggling more attractive–Khachatrian said. A representative of the US tobacco giant Philip Morris’s local distributor echoed this comment predicting that the move will not bring more money to the state treasury.

But the minister for state revenues–Smbat Ayvazian–insisted that the substantial increase (more than 200 percent for tobacco and 44 percent for gas) in excise rates does not mean that retail prices of the two products will soar accordingly–because businesses dealing in them make "super-profits." He said cigarettes will cost only 20 percent more than they do now and the petrol price will grow by less than ten percent.

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