Deputy Prime Minister Avinyan Focuses on the Economy

During the following two presidencies of independent Armenia, there were some positive advances in certain fields though the overall legacy is not a positive one. As an example, Avinyan pointed to fairly intensive work in the last ten years on digitization of public services and making them easier of access (e.g. cadaster), but these are very small achievements, he said, compared to the negative effects of the lack of democratic elections and democracy in general.

Avinyan declared that the ideal economic model for Armenia would be the free market but life shows that comparatively poorer countries would incur greater losses than profits since they do not have sufficiently developed human capital and a knowledge economy with which to compete with developed countries.

He said that all “isms” or traditional ideological approaches to the economy today are combined. In other words, in the same economy there are some spheres in which the market must be freely allowed to take its course with no intervention, in the way the British political economist David Ricardo envisioned. On the other hand, there are spheres in which very strict arrangements must be made, with very severe interventions, which directly contradict the logic of a free market. Avinyan declared, “This mixed policy approach is what is effective today and this model is what we rely on.”

Furthermore, to speed up Armenia’s economic growth, Avinyan said, there are two strategies. The first is to look to your comparative advantage and strengthen or increase what you do well already. For Armenia, that would include agriculture, because of great weather, water and suitable soil. However, he said, “I don’t know any country that has done well and become rich by promoting agriculture too much.” In Armenia, agriculture composes around 15 percent of the gross domestic product (GDP), which implies, he said, a not so developed infrastructure.

The second approach is emulation of successful industries in developed countries. GDP is produced, he said, mainly through industries. You must find the technology, bring it to Armenia and start production. Avinyan took as his model the so-called Asian tiger economies. He gave as one example high tech industry in Armenia, which has been growing for an average of 28 percent annually over the last 7 to 8 years. That of course also means Armenia now has the comparative advantage in this industry. Armenia, he said, must look at other niches or industries that could be emulated in countries like Singapore, Korea, the European Union and the US. For this reason, Armenia is negotiating with the US to increase its access to a lot of technological knowhow in the trade framework.

Avinyan said that in general the government advocated the second approach, but in certain fields still followed the first, as a single approach cannot be applied throughout the economy. He added that the approach to agriculture would be changed through the application of new technologies. The government no longer just provides assistance for maintaining agriculture, which is ineffective, but instead subsidizes capital investments in fields like drip irrigation, intensive gardening and smart farms.

He noted that tourism was an important sector of the economy that grows practically on its own if the infrastructure is renovated. A general strategy is being developed for this sector, which last year had 16-17 percent growth and this year possibly more. However, Avinyan stressed again that “We need to focus on industry…industry should be the main basis for the economy of Armenia.”

When asked about the role of labor unions in Armenia, Avinyan replied that they are not well established there but they have received a new impetus in certain spheres after the Velvet Revolution of 2018. He said: “I cannot insist they are working as serious defenders of workers rights, but this is something that the government is encouraging.”

Issues

Environmental concerns have been raised for many years about mining in Armenia, and in particular in Amulsar, as well as issues of corruption. All mines in Armenia belong to the state which leased them out to investors under the prior governments. Avinyan said that in order to find out the truth about the situation, a new investigation was initiated by the current government with international specialists. He said that experts who were previously sent by environmentalist groups stated that the mining was risky but could not provide certainty about the risks.

Avinyan said, “It was very normal, very natural, that the environmental movements fought against mines. It is very understandable since the history of mining in Armenia has a scandalous history, so that created a situation in which confidence is lacking.” He continued, “I think involving independent experts was an important process also for us. To receive answers to these questions was very important.”

He said the motives of the environmentalists was understandable, “but I think the government must work to keep a certain balance…one-sided approaches cannot be a guidepost for the government because in our country in all cases the supremacy of the law must be applied independently of everything.”

The final decision regarding Amulsar will be made after the results of the expert international assessment will be ready. Avinyan also noted that there will be fundamental reforms made to mining laws, including some limitations, along with privileges to those companies ready for production.

Mining is one of those economic areas, Avinyan said, in which the state must carry out some interventionist policies. Aside from environmental issues, there is the question of creating added value in the country. That would mean that raw materials not be exported but refined or worked on in Armenia. Avinyan said the appropriate conditions for this must be established.

Nuclear energy is another issue which raises environmental and safety concerns. Avinyan said that the government understands that the Medzamor 400 megawatt nuclear station is in a seismically dangerous zone but has taken all possible protective measures. He declared, “We are persuaded that atomic energy producing stations must form an indivisible part of our energy system.” After ending the use of Medzamor a new nuclear plant must be brought on line.

However, he said that energy diversification policies were being followed, including solar, wind and water based. A few weeks ago an agreement was made with a company in the United Arab Emirates to invest jointly with an Armenian state fund in a 500megawatt renewable energy field. Solar energy can produce eventually up to 20-25 percent of energy needs and by 2036 at least 4,000-megawatt solar energy stations are planned, which will allow export of electricity.

Hydroelectrical plants are being modernized and thermal energy stations with high efficiency are being built with Italian firms. There are even some explorations continuing for gas and oil deposits.

Eliminating Poverty and Improving Quality of Life

“The fundamental goal of the revolution,” Avinyan said, “is the formation of a human-centered and citizen-centered society. This is a longer-lasting process which we are working towards.”

The new government has taken some short-term measures. It raised the minimum for pensions and benefits. It raised the level of the value of the basket of minimum consumption to 25,500 dram, which, Avinyan said, is still a very low sum. Nonetheless, those who received pensions below this level now will receive this amount. There are also some modest raises being made to teachers starting in September and soldiers’ salaries.

The creation of the new pension system, with those born in 1976 and after paying from their salaries and the state supplementing that amount, dates from 2014, and Avinyan called it “a great achievement for the Armenian state.” The amounts of contributions may still be subject to discussion but this is a technical point, he said.

Another field important for the well-being of citizens for which the government is planning reform is the healthcare system. The Soviet on-demand system to a certain extent still operates, and the ministry of health has done well in renovating their old programs in the current framework, but Avinyan said the system will be changed to a health insurance system. Some pilot programs have already been carried out.

At this point, the only question that remains is of choosing a model. The German or Israeli models have greater state involvement and the US is more private based. During the next 4-5 years it will become clearer which type of model is appropriate for Armenia, taking into consideration its population and size.

However, “If we talk about the battle against poverty in general,” Avinyan said, “it is only possible through the development of the economy.” Unemployment must be reduced, and possibilities of education and the possibility of self-realization provided. To help achieve these goals, the cabinet developed a program called Work Armenia, which was launched in mid May this year.

It is composed of three principles. Development of human capital is the first. This will provide workers to sectors of the economy that need them, and will require fundamental educational changes. Women also must be brought into active sectors of the economy. Second is stimulation of employment in Armenia through concrete methods, and third is fundamental institutional reforms.

“If we are very frank with each other,” Avinyan related, “we can say the educational system is very inefficient.” There are schools with 22 teachers for only 5 children. Despite some changes in several universities, or TUMO’s extracurricular programs, he said, “what we have now is still the heritage of the Soviet Union.” In the following years, teachers must be educated better and efficiency improved. The salaries of teachers, which are really low, he admitted, are going to be raised starting in September.

As far as private schools are concerned, though there are positive developments and examples, Avinyan said that the Armenian constitution provides the right of citizens to education, and must be secured through public schools.

On the university level, a major issue pointed out by Avinyan is that there are too many graduates in liberal arts such as philosophy or history. A large portion of the unemployed today have such degrees, whereas there is a need for workers trained in other fields like electricians or IT. The universities ideally should therefore change their focus and decrease the numbers of liberal arts field graduates.

The money for the various aforementioned state programs and increases in salaries is available because of unexpected tax revenues in the budget. This is, Avinyan said, a result of a successful fight against corruption, which will hopefully continue to bring in new revenue. He said, “There is a huge grey economy in Armenia and we still have a lot of places to disturb them [tax evaders] and bring them to the new culture of paying taxes.”

Faith in the Future

At the July 19 public event in Boston, Avinyan was asked by an audience member when would the economy improve so that people would not have to emigrate. He said that this requires changes that take longer than political ones, which can shift on a dime. Armenia has to deal with 20.6 percent unemployment, over half of its women being inactive, and many people being forced to leave Armenia for seasonal work. However, significantly, he said that he believed that it is possible to change conditions in the Armenian economy within five years so that people will no longer emigrate. He concluded by declaring that the most important thing that has happened after the revolution is that the people have begun to believe in the future of Armenia.