Armenia - Economy

As part of the Soviet Union, the Armenian economy featured large-scale agroindustrial enterprises and a substantial industrial sector that supplied machine tools, textiles and other manufacturesd goods to other parts of the USSR in exchange for raw materials. Trade with its neighbors, on which resource-poor Armenia relies heavily, was jeopardized by the outbreak of conflict over the Nagorno-Karabakh enclave in 1988, and by political instability in Georgia and Azerbaijan. Also, in December 1988, a severe earthquake did considerable damage to Armenia's productive capacity, aggravating its regional trade deficit. The physical damage had not been repaired when the economy suffered the implosion that accompanied the break-up of the Soviet Union in 1991. With independence, as real GDP fell 60% from 1992-93, small-scale agriculture came to dominate in place of the former agroindustrial complexes, with crops of grain, sugar beets, potatoes, and other vegetables, as well as grapes and other fruit. Growth was not registered until 1994, at 5%, when, in July, a ceasefire was signed by Armenia, Azerbaijan and Nagorno-Karabakh, and, in December, the government embarked on a comprehensive IMF-monitored program of macroeconomic stabilization and structural reform. By 1996, growth was in double digits and inflation in single digits, although set-backs which began in late 1996 reduced real GDP growth to 3% in 1997, while inflation resurged to 27%. In 1998, real growth reached 7.3% while inflation fell to a single digit 8.7%, despite the negative impacts of the Russian financial crisis and a continuing Azerbaijan-led economic blockade over the unresolved Nagorno-Karabakh issue. Growth in the first nine months of 1999 was at an annual rate of 6%, but this was reduced to 3% for the year in the disruptions following the hostage-takings and assassinations of the prime minister and parliamentary speaker in October, a stated motive for which was the large proportion of Armenians living in poverty (at 55% in 2001 by CIA estimates). Inflation was held to 0.7% in the crisis, due to policy changes that have continued to keep inflation at a low level. Moderate GDP growth of 6% was achieved in 2000 while prices, as measured by the consumer price index, actually declined an estimated 0.8%. In 2001, targeted real growth under the IMF-guided program was 6% but actual growth was about 10% (CIA est.) as the effects of economic reforms, the privatization of small and medium-sized enterprises, and increased foreign investment began to impact performance. IMF and CIA estimates for 2002 were for real growth between 12.5% and 12.9%, with stable price levels. Barring major disruptions (only too likely as the war in Iraq, launched 19 March 2003, added another source of instability to the region), Armenia was expected to attain its pre-independence level of per-capita income by 2005. Growth sectors include telecommunications, assembly of electric and electronic appliances, agriculture and food processing, energy generation and distribution, construction, coal and gold mining, and international air communications.