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ARMENIA
>> Regional Overview >> Armenia Overview
Development Challenge FY2001 Program /
Activity & Budget InformationSummary Tables
Program Summary
Previous Years' Activities
2000, 1999, 1998, 199717
Introduction
Since its independence, Armenia has emerged as a strategically important republic in the Caucasus, whose progress towards a democratic political order and free market economy is critical to U.S. interests in the region. Specifically, U.S. engagement in Armenia is focused on promoting a settlement of the Nagorno-Karabakh conflict, as well as regional economic integration and political cooperation. This approach is designed to contribute to regional stability and security in the Southern Caucasus; ensure that countries in the region have access to world markets for their natural resources and products, especially Caspian energy supplies; and strengthen Armenia’s linkages to the world economy. Furthermore, Armenia’s importance to the United States emanates in part from the two nations’ strong cultural ties – including a very active and committed Armenian-American Diaspora community. The current USAID program is an integral part of the U.S. Government’s broader efforts in Armenia to address a range of U.S. national interests including conflict resolution, democracy and human rights, economic prosperity and social sector development.
The Development Challenge
Armenia is a small, landlocked, mountainous country with few natural resources. About the size of Maryland (29,800 square kilometers), it is situated in the Caucasus Region, surrounded by Georgia, Azerbaijan, Iran and Turkey. The break-up of the Soviet Union in 1991 brought an end to the commercial ties and protected markets which had helped make Armenia among the most prosperous of the former Soviet republics. The dissolution of the Soviet Union also exacerbated ethnic and national tensions in the region, contributing to the outbreak of armed conflict between Armenia and Azerbaijan over Nagorno-Karabakh. Although a cease-fire has held since 1994, Armenia continues to face a trade embargo and closed borders imposed by Azerbaijan, as well as closed borders with Turkey.
Armenia’s early years of independence were characterized by severe economic decline and energy shortages. This situation precipitated a new humanitarian crisis, while the country was still recovering from the economic and social fallout of the 1988 earthquake that had resulted in over 25,000 people dead and 500,000 homeless.
Armenia's economic transition has been hampered by the legacy of central planning, severe economic shocks arising from the collapse of the Soviet Union, and limited will on the part of national decision makers to undertake critical reforms to restructure and privatize the economy. The continuing impasse with Azerbaijan (and indirectly with Turkey) over Nagorno-Karabakh limits Armenia’s access to many of its traditional, and prospective, new trading partners.
While the Parliamentary and local elections in the spring and fall of 1999 were considered to be the most free and fair conducted in Armenia thus far, the shortcomings of previous elections and perceptions of widespread government corruption undermine public confidence in the political process. The October 1999 slayings of the Prime Minister and several key government officials represent a dramatic setback for the country. The new government – formed by the late Prime Minister’s brother, Aram Sargsian – has promised to continue the efforts started by Vazgen Sargsian to reinvigorate economic restructuring, fight corruption, and pursue peace negotiations with Azerbaijan.
In recent years, the Government of Armenia -- with U.S. support -- has pursued policies that have resulted in improved macroeconomic trends. Growth has been positive since 1994, including 7.2% GDP growth in 1998 and projected growth of 5% in 1999. Inflation has also stabilized,
falling from 176.7% in 1995 to a 4.9% target for 1999. Moreover, from 1995-1998, the budget deficit declined, contributing to lower interest rates and exchange rate stability.
While foreign direct investment and exports remain below the levels needed for sustainable growth, modest gains have been made in these areas. Overall, the pace of structural reforms, leading to a market economy, has lagged behind earlier expectations that were based on progress achieved in the mid-1990s. With USAID assistance, mainly since 1998, there has been reasonable restructuring progress in conversion to International Accounting Standards, tax and fiscal reforms, banking, the energy sector, and land privatization. Comprehensive privatization and capital markets development have made little headway in last two years. However, late in 1999 three privatization decrees were issued that can accelerate privatization and the Government of Armenia is giving the capital markets security law, very high priority for passage in 2000. The Government of Armenia must be more vigorous and focused in its efforts to complete comprehensive privatization and to develop its capital markets.
The economic and political turmoil experienced by Armenia in recent years has had a negative impact on living standards. For example, per capita income fell from approximately $2,500 in 1991 to $500 in 1998; official unemployment increased threefold from 1992-1997; and more than half the population now lives below the poverty line. Maternal mortality climbed nearly 70% between 1991 and 1997, and there is evidence of increased abortion rates. A recent World Bank report suggests that Armenia’s poor typically experience periods of malnutrition, have insufficient heating in winter months, and have less access to educational and health services than before the fall of the Soviet Union.
Nevertheless, Armenia has significant assets on which to build a stable democracy and sustainable economy. A skilled and educated workforce (e.g., 99% literacy and 22.8% higher education), strong national identity, and political and financial support from the Armenian Diaspora help facilitate economic recovery and growth. Assistance from the U.S. Government and other donors has played a key role in this process, first in the form of humanitarian aid during the early- and mid-1990s, and increasingly through longer-term programs which support the transition to a market democracy.
In the spring of 1999, USAID approved a new, five-year, program strategy. At a macro-level, USAID will continue to support Armenia’s transition to a free-market economy, governed by democratic principles and providing for the basic needs of its citizens. This work will be balanced by USAID’s renewed emphasis on community-level initiatives to increase income and employment opportunities, encourage grass-roots participation in resources management and systems of governance, and improved delivery of social services. Specifically, USAID’s objectives focus on employment, promoting private sector growth and investment, ensuring an economically and environmentally sustainable energy sector, supporting civil society’s expanded role in decision-making processes, facilitating the impartial adjudication and enforcement of laws, and strengthening the social safety net.
External Debt
Despite concerns about Armenia’s future ability to service its foreign debt (which currently stands at approximately $900 million), the Government of Armenia has successfully maintained the classification of a low debt-burden country. Its levels for ratio of foreign debt and debt service are projected to be 46% and 2.6% of GDP, respectively, at the end of 1999.
Humanitarian Assistance
About $2.114 million in PL480 II (commodities and transportation) were budgeted in FY 1999 by USAID’s Office of Food for Peace for emergency feeding needs in Armenia. An additional $1.127 million is estimated for FY 2000.
Other Donors
Between 1994-1998, it is estimated that more than $450 million in assistance was provided to Armenia through multilateral mechanisms and approximately $825 million by bilateral donors. The United States has been the largest single donor, providing $425 million during the same five-year period. Major sources of multilateral financing include the International Monetary Fund (IMF), World Bank, International Development Agency, United Nations and European Union. Major bilateral donors include France, Germany, Great Britain, Japan, the Netherlands, Sweden and Switzerland.
In each sector in which it is active, USAID has coordinated its activities with those financed by other donors. Likewise, policy priorities related to the USAID portfolio have been developed and pursued in consultation with other donors. For example, USAID has been instrumental in influencing World Bank conditionality, and leveraging large World Bank loans through targeted technical assistance, especially in the areas of privatization and energy. IMF recommendations on monetary policy and systemic problems are integrated into USAID technical assistance activities. The World Bank’s assistance in civil service reform is a key component of the reform process and impacts all of USAID’s programs, particularly in the fight against corruption. The European Union’s technical assistance program for the Commonwealth of Independent States complements USAID programs in a number of areas, including agriculture, regional energy policy, judicial training, and social security. USAID’s technical assistance program has mobilized the support of the IMF, World Bank and the European Bank for Reconstruction and Development – in terms of loan conditionality and advocacy – to initiate the privatization of Armenia’s energy sector, starting with the power distribution companies through a transparent international tendering process.
Country Background Information Resources CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: December 12, 2000 |
