Armenian Economy | Armenia-Azerbaijan Negotiations | French Senate Slams Azerbaijan | Opposition Back in Parliament [EP179]

Show Notes

How is Armenia’s Economy Doing?

Tiger Economy?

Armenia’s economy is “raging forward”, according to Pashinyan. Based on statistics from the first 9 months of 2022, Armenia recorded a 14.1% growth in the economy, which is ahead of the 10% inflation the country is predicted to experience in 2022. Pashinyan also touted 143,000 new jobs created in Armenia since he took power in 2018, and a 75.1% increase in state budget revenues from 2018 to his projected 2023 budget.

So he says that Armenia has overcome the economic problems of the Covid pandemic and the war of 2020.

• What is not to like here?

Ukraine War Dividend

According to minister of finance Tigran Khachatryan, they think that Armenia’s real potential for growth in 2023 is around 7%. I’m going to read between the lines here and say that if that potential is similar to this year, then there’s a 7% artificial boost that’s flowing into the economy as an artifice of the war in Ukraine. As a result of the influx of long, and short-term immigrants or tourists, their businesses, bank accounts, their direct expenditure in Armenia’s economy, it has led to hyper-inflation in some areas such as real estate, and common consumer basket goods.

• Is this sustainable? What are the risks?

Fiscal Policy

The Central Bank of Armenia (CBA) has continued raising the refi rate, which now stands at 10.5% in Armenia. They seek to bring inflation down to around 4% in 2023, from the current 9-10% levels.

Pashinyan believes that while inflation is real, it’s more of a global phenomenon, instead of being particular to the Armenian economy. So his government wants to see lower rates in order to spur on economic activity.

• What’s your assessment of this classic struggle between a government and its central bank? Is the CBA acting efficiently under the current circumstances?
• Are Armenia’s fiscal and monetary policies aligned and working synergistically? Basically, is the government helping the CBA in fighting inflation?

Industry Sectors

Despite all the good news announced, the Agriculture sector, which is very important in Armenia, was down 0.7%. I’ve seen a lot of complaints by farmers in the Armenian press about a lack of governmental support for their efforts.

Meanwhile, despite reports that many IT companies are losing money because of exchange rate fluctuations, the government is super bullish on the IT sector, claiming in 3-4 years it will become the largest sector in the Armenian economy, surpassing the mining industry. It looks like IT companies will receive some temporary tax-credits to lessen the impact of the appreciation of the Dram. But these are temporary measures and in the long term, unless the dram depreciates again, the cost of labor is now significantly higher and makes Armenian IT companies less competitive globally.

The IT sector is important, and we all want it to thrive, but it’s not a large part of the labor market in Armenia, at least today. Meanwhile the Agriculture sector affects a large segment of the population. So, it seems that in order to shift gears and modernize the Armenian economy, the government is applying shock treatment to the people.

• Are we reading this right? And if so, is the government supporting its vision with the appropriate infrastructure to support the modernization?
• One specific complaint heard frequently is the low availability of talent. Is anything being done to address this, given that this is a long-term project?

2023 Budget

OK, let’s briefly talk about the 2023 budget that was proposed by the Pashinyan government, and passed by the Pashinyan parliament. The priorities of the budget are:

1. Social assistance - Around 25% (+12%)
2. Security & defense - 20% (+35%)
3. Infrastructure - 11% (+9%)
   • Not clear what they want here, maybe they will increase the number of travel agencies and hotels in Armenia.
4. Education and science - 10% (+10%)

As we noted, the government projects 7% economic growth and has proposed a $6.4 billion spending budget, on an estimated budget revenue of $5.6 billion.

We are going to need to dedicate a show some time soon to drilling into this budget to understand it better.

• What stands out for you in this budget?

Armenian-Azeri Negotiations

After Sochi

In the past couple of weeks, the war of words between Pashinyan and Aliyev has become sharper and more strident. While Aliyev continues the usual barrage of threats, use of force and other “era of peace” tactics, Pashinyan, who usually does not respond in kind, has come back with his own salvo accusing Aliyev of plotting genocide against the Armenians of Artsakh, breaching their agreement to refrain from the language of threats and force, and making other arrogant statements.

Most of this newfound temerity comes since the trilateral summit in Sochi, where Putin stated that the Western peace proposals left Artsakh in Azerbaijan, but Russia’s plan postponed a status definition to a future generation. Putin also achieved a trilateral statement of non-use of force, and continuation of negotiations based on the existing agreements since November 2020.

• Did Sochi give Pashinyan some room to maneuver vis-à-vis Aliyev and the West?

In the past week US Secretary of State Blinken has called Pashinyan and Aliyev, separately, exhorting them to continue negotiations and to not miss the opportunity for settling their disputes.

• Has something led Blinken to believe that either Armenia or Azerbaijan is ready to give up on the Western mediated negotiations? Or negotiations, period?

Direct Negotiations Between Baku and Stepanakert

In this phase of discussions, while Pashinyan has been repeating his determination to sign a so-called peace agreement, he’s also saying that Baku needs to talk to the Artsakh authorities and reach an agreement that is acceptable to the Armenians of Artsakh.

Aliyev said they’re ready to negotiate directly with Stepanakert but not with Ruben Vardanyan whom he called a Russian agent. The authorities in Artsakh have rejected a bilateral format and have insisted on an internationally mediated platform.

Phil Reeker said during congressional hearings, that there must be “internationally visible” mechanisms for direct negotiations.

• Can this format have any success? Is it a replacement for the OSCE MG?
• How does this relate to the “Russian plan” which wanted to delay the status of Artsakh?

French Senate Decision

Last week the French Senate nearly unanimously passed a resolution on Artsakh. Among other things, it reaffirmed its previous recognition of Artsakh, called for sanctions against Azerbaijan and called for the opening of a cultural office in Stepanakert.

• What are your thoughts about this development?
• What real impact will it have on the ground, in the negotiations?

The Opposition Returns to Parliament

The opposition has now officially resumed its participation in the parliamentary discussions.

• Were they right to take this step?
• How should we assess their activities?

Wrap-up

We hope you found our Week in Review helpful. We invite your feedback and your suggestions. You can find us on most social media and podcast platforms. Thanks to Laura Osborn for the music on our podcasts.

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