Armenia - Economic development

Development planning in Armenia has been aimed at counteracting the effects of three devastating blows to its economy: the earthquake of 1988; open warfare and economic blockade over Nagorno-Karabakh; and the combination of hyperinflation and industrial collapse following its separation from the Soviet Union. The government has been aggressive in launching economic reform, beginning with its privatization of agricultural land in 1991, which boosted crop output 30% and resulted in a 15% increase in agricultural production. In December 1994, Armenia embarked on a series of ambitious programs of economic reform guided by the International Monetary Fund (IMF) that have resulted in nine years of positive growth rates. On its present course, Armenia will achieve its preindependence level of per capita income by 2005. By 1997, privatization of most small industry, as well as an estimated 70% of larger enterprises, was complete. Progress has been slower with larger state-owned enterprises (SOEs), not least because the government has had difficulty finding bidders at its cash sales auctions. In 1997, the ministries controlling the SOEs were merged, and their functions changed from direct control to general supervision and special support. The Ministry of Industry and the Ministry of Trade, and certain parts of the Ministry of Economy and the Ministry of Privatization and Foreign Investment were also merged in order to streamline the bureaucracy.

In late 1997, eleven large enterprises were offered for sale and in 1998 the parliament passed a law allowing for the sale of the state electricity transmission and distribution networks. Viable bidders were not immediately forthcoming and on 5 December 2000, as a means of supporting the privatization program the European Bank of Reconstruction and Development (EBRD) agreed to take 20% shares in each of Armenia's four electricity distribution companies, with provision for the Armenian government's right to buy back the shares if the agreements were abrogated. The privatization process of the distribution networks stalled in 2001 and 2002 as twice the government failed to attract any final bids. To make the offer more attractive, the government merged the four distribution companies into one closed-end joint stock company, Electricity Networks of Armenia, and on 31 October 2002, 100% of the shares were acquired by the English company, Midland Resources Holding, Ltd. Midland in turn contracted with Daewoo International of South Korea to manage the newly privatized company. By 2002, only a small fraction of a total 100 larger SOEs had been privatized, according to the US Agency for International Development (USAID).

The republic has substantial deposits of gold, copper, zinc, bauxite, and other minerals, which could be developed with Western capital. The government is currently exploring alternative trade routes, and seeking export orders from the West to aid production and earn foreign exchange. Much of Armenia's industry remains idle or operating at low capacity utilization in large part because of the country's political isolation from oil and gas supplies.

Armenia's determination to create a market-oriented economy and democratic society has engaged (in addition to the IMF) the World Bank and EBRD as well as other financial institutions and foreign countries. Nevertheless, Armenia continues to remain economically isolated in comparison with its Caucasian neighbors.