Armenia and the Global Financial Crisis

YEREVAN (RFE/RL)–The chairman of the Central Bank of Armenia (CBA) on Friday echoed government assurances that the global financial crisis will not spill over into the Armenian banking sector, echoing assurances made earlier this week by Armenia’s Prime Minister that Armenia would be able to "weather the storm," caused by worsening downward spiral of the global economy.

Artur Javadian told President Serzh Sarkisian that Armenian banks continue to be trusted by the population and have sufficient capital to avoid major losses. “The CBA assured that Armenia has sufficient potential to cope with and prevent crises,” Sarkisian’s press service said in a statement.

Prime Minister Tigran Sargsyan, who headed the CBA until last April, said on Thursday that the crisis poses no immediate threat to Armenia’s banking sector because “the reliability of our financial sector is extremely high.” Sargsyan cautioned at the same time that the crisis could ultimately hurt the Armenian economy if it hits the European Union and Russia, Armenia’s main trading partners, harder.

Javadian was reported to tell Sargsyan that the CBA devised three contingency plans of “pre-emptive measures.” With the presidential office giving no details, it was not clear if those measures are in tune with steps suggested by Armenia’s main opposition alliance earlier this week.

Sargsyan instructed the CBA chief to brief him on “developmen’s in the international markets” on a weekly basis.

Sargsyan argued that Armenian banks and other finance institutions have sufficient liquidity to weather the storm sending shockwaves through the world markets. “In that sense, the reliability of our financial sector is extremely high and gives us no reason to worry,” he told a news conference.

Sargsyan cautioned at the same time that the crisis could ultimately hurt the Armenian economy if it continues to deepen in the European Union and especially Russia, Armenia’s main trading partners. A recession in Russia “could immediately affect us” by slashing multimillion-dollar remittances sent home by hundreds of thousands of Armenia’s working there, said the former longtime governor of the Armenian Central Bank.

“If economic growth in Russia’slows, the incomes of our compatriots will decrease and so will their private remittances sent to Armenia,” he warned. “That could have a negative impact on our financial sector and the level of consumption in general because 80 percent of the remittances are channeled into consumption.”

The remittances, which reached a new high of $1.32 billion last year and continued to rise rapidly in the first half of this year, have been a major factor behind Armenia’s robust economic growth. The growth rate looks set to main in double digits for the seventh consecutive year.

Meanwhile, Artsvik Minasyan, a member of the Armenian Revolutionary Federation Parliamentary bloc, warned the National Assembly Thursday that Armenia’s state budget was not enough to meet the challenges facing Armenia.

Minasyan, who is also the vice chairman of the parliament’s standing commission on finance and budget, said the 2009 budget was weak and did not have any earmarks for wages, especially the base salary of civil servants, saying it is essential for parliament to adopt a strategy for public servants and their wages. He urged for parity in wages for all civil servants.

He also said that Armenia’s inflation was being addressed through a taxation policy, which even if government spending were to be cut, it would not be sufficient to control the rising inflation.

Minasyan also introduced several resolutions, one that would prohibit employers from terminating individuals over 65.

According to Sargsyan, the Armenian government believes the best way to reduce the country’s dependence on the cash transfers is to “drastically increase” lending to small and medium-sized businesses. “We have a relevant understanding with the World Bank and need to attract additional resources to neutralize possible negative effects,” he said without going into details.

Sargsyan met senior officials from the World Bank and the International Monetary Fund during a five-day visit to Washington that ended on Tuesday. As well as attending annual meetings of the two lending institutions, the Armenian premier met U.S. President Dick Cheney and Secretary of State Condoleezza Rice. He confirmed that Armenia’s recent rapprochement with Turkey and the unresolved Nagorno-Karabakh conflict were high on the agenda of the talks.

Sargsyan said he told Cheney and Rice that Yerevan is disappointed with Turkish President Abdullah Gul’s and Azerbaijani Foreign Minister Elmar Mammadyarov’s speeches last month at the UN General Assembly. “I said that the Turkish president’s and Azerbaijani foreign minister’s speeches at UN General Assembly were like a cold shower for us because they contradicted the spirit of the meetings and agreemen’s that we had before,” he said. “In particular, we find dangerous the phrase ‘occupied territories’ that was used by the Turkish president.”

The prime minister said Rice assured him that the United States is opposed to changing the format of the Karabakh peace process spearheaded by the so-called Minsk Group of the Organization for Security and Cooperation in Europe. He cited Rice as also saying that Washington hopes to achieve “serious progress in this negotiation process” after Wednesday’s presidential election in Azerbaijan.

Opening a weekly meeting of his cabinet earlier in the day, Sarkisian said he won “the full backing of the U.S. administration” for his ambitious economic agenda that calls, among other things, for a sweeping reform of Armenia’s tax and customs bodies.

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