IMF, World Bank, USAID Representatives in Armenia on Achievements, Challenges, and Growth.

By Adrineh Der-Boghossian, Julya Sahakyan, Syuzanna Smbatyan, and Vanuhi Matevosyan, CRRC-Armenia Junior Fellows

A three-part series. 

CRRC-Armenia Junior Fellows Julya Sahakyan, Syuzanna Smbatyan, and Vanuhi Matevosyan on September 29 and October 3 met with the heads of three major institutions in Armenia: International Monetary Fund (IMF) Resident Representative to Armenia Teresa Daban Sanchez, USAID Armenia Mission Director Karen R. Hilliard, and World Bank Country Manager Laura Bailey to ask them about their institutions’ priorities and achievements in Armenia, challenges that were particular to their experience in the country, and what they liked the most and the least in Armenia.

Part 1. Priorities, Achievements, and Assistance to Armenia

The World Bank and USAID's priorities in Armenia are manifold: for the World Bank, these include fostering an investment climate and working not only on economic policy, but also in such sectors as education, health, social protection, and regional development, among others. USAID Armenia, in turn, identified priorities in the areas of private sector competitiveness, improvement of the business environment, financial services for small and medium enterprises, improved primary health care and social services, rural development (particularly in remote corners of Armenia), tourism, civil society development, and local governance. Past USAID activities include cross-border business promotion, civil society and cultural exchanges, but recently, Hilliard said, USAID has decided to focus on the business aspect, leaving the cultural and political aspects to the Public Affairs Section of the US State Department.

Dr. Karen Hilliard, USAID/Armenia Mission Director, presents to the public the USAID assistance strategy for Armenia for the years 2013-2017 at an official event on December 11, 2013. Photo: M.Khachatryan

Hilliard also highlighted the USAID’s endeavors in the energy sector; specifically, helping Armenia link its energy grid more closely with that of Georgia, so that Armenia is not dependent on one source of electricity and the two countries can actually help each other when they have shortages. She mentioned Armenia’s relationship in the energy sector with Iran, but said USAID is not involved “for geopolitical reasons.” However, she added, USAID believes that by forging business and cultural ties to increase tourism, it is preparing for the day when Armenia will no longer be blockaded.

Bailey, in turn, mentioned some of the more tangible areas of the World Bank’s work in Armenia, identifying the reintroduction of preschools and improved access to health (by rehabilitating 10 regional medical centers). “But it’s also important the things that are invisible: like changing the tax law. Sounds very abstract but it turns out that having a good modern tax code is incredibly important to getting businesses to grow,” she added.

The issue of energy dependence was also mentioned by IMF Resident Representative to Armenia Teresa Daban Sanchez, who identified it as a key priority of the IMF’s agenda with the Armenian authorities. Under the IMF-supported program, the authorities are encouraged to develop a strategy to improve the sustainability and efficiency of the energy sector. Preserving macroeconomic stability and working with the authorities on structural reforms were the other priorities of the IMF in Armenia that Daban Sanchez identified.More specifically, she cited economic growth, job creation, and tax reform as areas in which the IMF focuses and works with the Armenian authorities.

(left to right): Armenian President Serzh Sargsyan, IMF mission chief for Armenia Mark Horton, and IMF Resident Representative to Armenia Teresa Daban Sanchez. Sept. 30, 2014. Photo: IMF Office to Armenia.

Asked in which areas their institution made the greatest strides, Bailey, the World Bank representative, identified competitiveness, while Hilliard, the USAID representative, mentioned disaster relief (following the 1988 earthquake) and growth of civil society, in addition to significant structural reforms such as the modernization of the energy sector, management of natural resources (particularly water), “transitioning from a Soviet-style health system to a more modern primary healthcare system,” and strengthening the pension system.

Ms. Sanchez also mentioned Armenia’s transition from the Soviet period, saying the IMF supported Armenia’s efforts to overcome the challenges of transitioning to a market-based economy and more recently Armenia’s recovery from the global economic crisis. However, despite these achievements,  she said, significant challenges remain. “Growth and inflation remain volatile. Real interest rates are high. Financial markets are under-developed and highly-dollarized. Business climate remains challenging. Poverty and migration continue to be high. Therefore, the IMF is determined to continue to support Armenia with a new three-year arrangement approved in March 2014, which includes policies to ensure macroeconomic stability and structural reforms,” she said.

Regarding the World Bank’s assistance, Bailey mentioned helping Armenia “change the way the economy is structured by reforming the government regulations and providing the incentives for businesses to create jobs.” Though this work is invisible, what is visible, she said, is addressing vulnerability, as the results are more immediate. The World Bank, she said, works with the government on social protection schemes such as the family benefit scheme. In addition, as a result of projects supported by the World Bank, pensioners receive their pensions in a timely manner, and 1 out of every 4 people throughout the country benefitted from temporary employment, many of whom later transferred to a permanent job.

(left to right): World Bank Country Manager Laura Bailey, World Bank Regional Director for South Caucasus Henry Kerali, and RA Prime Minister Hovik Abrahamyan. Sept. 11, 2014. Photo: The World Bank.

The World Bank’s assistance to Armenia has been growing; however, there was a “brief dip” from 2013 to this year. Bailey said the reason for this was technical. There are two “buckets” of funding that the World Bank provides: one to middle income countries; the other, to lower income countries. Until last year, Armenia was eligible for assistance from both funds; however, this year, it is no longer eligible for funding provided to lower income countries. The World Bank believes this is a sign of maturity and evidence of Armenia’s growing economy. It has compensated for a little bit of the loss of funding by offering other resources specific to countries interested in investing in renewable energy resources.

The overall support USAID provides to Armenia also decreased; however, Hilliard said this “reflects the natural evolution of things.” The USAID’s assistance to Armenia in the early years of independence was greater simply because the country’s needs were greater. Over time, Armenia has progressed, and “it’s now about to graduate from lower middle income country to middle income country status. So it’s only natural that foreign assistance would decrease proportionally,” she said.