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Armenia
>> Regional Overview >> Armenia Overview
Program Summary
Previous Years' Activities
2001, 2000, 1999, 1998, 1997
Last updated: 02
Introduction
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 South Caucasus Region, surrounded by Georgia, Azerbaijan, Iran and Turkey. In September 1991, Armenia opted for independence from the Soviet Union. However, the break-up of the Soviet Union brought an end to the commercial ties and protected markets that had helped make Armenia among the most prosperous of the former Soviet republics. Furthermore, the dissolution of the Soviet Union 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, tensions remain high and Armenia's borders with Azerbaijan and Turkey remain closed. 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 deaths and rendered 500,000 homeless.
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 economic growth and democratic development, to include regional economic integration and political cooperation-most notably a peaceful and mutually acceptable settlement of the Nagorno Karabakh conflict. This approach is designed to: contribute to regional stability and security in the South Caucasus, as a counterweight to the ongoing crisis in the North Caucasus areas within the Russian Federation; ensure unfettered access to the region's natural resources and products, especially Caspian energy supplies; and strengthen Armenia's linkages to the world economy. Furthermore, Armenia's importance to the U.S. emanates in part from the two nations' strong cultural ties-including a very active and committed Armenian-American Diaspora community.
Development Challenge
Armenia's transition to a market economy has been hampered by the legacy of central planning, severe economic shocks arising from the collapse of the Soviet Union and then the ruble crisis, ongoing regional conflicts -including the associated closure of borders, and the limited ability and/or political will of decision makers to undertake the critical steps needed to restructure the country's economic and governmental systems. The turmoil that Armenia experienced in the early- and mid-1990s had a negative impact on the living standards of its population. For example, it is estimated that GDP in 1997 was 38% of the 1989 level (per capita income in 1997 was approximately $432); official unemployment stood at nearly 11% in 1997 (unofficial employment is generally estimated to run 2-3 times higher than official figures); and by 1996, 55% of the population lived below the poverty line. Currently, neither the State nor the private sector can provide adequate social protection or delivery of services to those most in need. In addition, Armenia's checkered post-independence election history combined with continuing economic stagnation, declining living standards, crumbling public services and endemic corruption have undermined the public's confidence in government and engendered widespread cynicism regarding economic reform and democratic processes. This situation was exacerbated by the October 1999 assassinations of the Prime Minister, Speaker of the Parliament and six other senior officials.
As of February 2001, Armenia's external debt stood at $836 million; the level is expected to increase as delayed IMF and World Bank loans are provided later this year. Approximately 69% of the debt is to multilateral donors (mainly the IMF and World Bank). Due to the concessional nature of these loans, debt servicing has not become a major issue, and there are no planned debt relief programs for Armenia. During the period 2001-2003, debt service payments are expected to remain at a level of no more than 15% of annual exports, and the total external debt will not exceed 50% of GDP. The most problematic aspect of Armenia's debt situation relates to the $118 million owed to Russia, which has led to conjecture that the debt might be paid via energy sector asset swaps, which could undermine the long-term commercial viability of the sector, as well as Armenia's energy security.
Despite the obstacles that it faces, Armenia's 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 are assets that can facilitate economic growth and democratic development. Assistance from the United States Government and other donors has played a key role in this development process, first in the form of humanitarian aid during the early- and mid-1990s, and increasingly through longer-term programs that support the transition to a free-market democracy. In recent years, the Government of Armenia (GOA)-with USG and other-donor support-has pursued policies that have resulted in improved macroeconomic trends. Unlike anywhere else in Eurasia, annual GDP growth has been positive since 1994. Likewise, to a higher degree than most if not all Eurasian countries, Armenia has experienced low inflation rates and stable exchange rates. Armenia has made substantial progress toward creating a viable private sector through such policies as early privatization of agricultural land, housing, shops and restaurants; employee buy-outs of small enterprises; and privatization of larger enterprises through cash sales. However, foreign investment and exports remain below the levels needed for sustainable growth, employment figures have not improved, public support for democratic and market reforms has diminished, the social safety net is inadequate, and out-migration continues at an alarming rate.
The current USAID/Armenia program is integral to the USG's efforts to achieve its broad strategic goals in Armenia, which include regional stability, democracy and human rights, and economic development. Through its support for macro-level reforms, USAID will continue to facilitate 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 increased emphasis on firm- and community-level initiatives to create income and employment opportunities, encourage grass-roots participation in resources management and systems of governance, and increase access to social services. Specifically, USAID's objectives focus on promoting private sector growth; ensuring an economically and environmentally sustainable energy sector; enhancing water management systems; facilitating the development of more transparent, accountable and responsive democratic governance; mitigating the adverse social impacts of Armenia's transition; and reducing the number of households living in inadequate shelter as a result of the 1988 earthquake.
Other Donors
Based on the most recent Development Cooperation Report for Armenia, 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 single largest 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 agencies, the European Bank for Reconstruction and Development (EBRD) and the European Union (EU). 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 efforts 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 through targeted technical assistance, especially in the areas of energy privatization. The International Monetary Fund (IMF) recommendations on monetary and fiscal policies are integrated into USAID technical assistance activities. The World Bank's assistance in civil service reform will have an impact across USAID's programs, particularly related to anti-corruption efforts. The European Union (EU) complements USAID programs in a number of areas, including agriculture, regional energy policy, judicial training and parliamentary support.
FY 2002 Program
USAID's FY 2002 assistance efforts will focus simultaneously on legal, policy and institutional restructuring, as well as on grassroots initiatives to promote concrete improvements in the quality of life of the population.
In the area of economic restructuring and growth, USAID is requesting funds to further commercial law and accounting reforms; modernize the tax, fiscal and customs systems; carry-out next-phase bank supervision and capital markets activities; establish an appropriate environment for growth of information technology (IT); improve the regulation of selected public utilities; enhance the role of the private sector in the real estate market; and provide financial and technical assistance to small, medium and micro enterprises in selected sectors.
USAID will continue its support for energy sector reform-including commercialization and privatization activities; USAID will increase its emphasis on the economic and environmental efficiency, as well as the development of alternate energy sources. FY 2002 funding will also allow USAID to continue support for limited-scale efforts to improve water management systems in Armenia.
USAID's support for democratic governance in FY 2002 will include ongoing/next-phase activities in the areas of civic awareness and participation, NGO strengthening, development of independent media, enhancement of local government functions, legislative support, rule of law activities and anti-corruption efforts.
In the social sectors, USAID will continue its recently initiated program to develop options for social insurance systems, demonstrate different approaches to increasing the efficiency and effectiveness of social assistance and health care systems, and design alternate mechanisms to meet the immediate needs of the most vulnerable populations. USAID will also provide funding in FY 2002 to further expand its program of recovery in the zone affected by the 1988 earthquake.
Ongoing support for participant training and the Eurasia Foundation's program, as well as multi-sectoral logistical requirements, will be funded under the Mission's special and cross-cutting objective. Likewise, USAID will continue to pursue options to promote regional cooperation, including in the area of water resources and environmental management, under this category.
Should a resolution to the Nagorno-Karabakh situation be reached, USAID -- in coordination with the Department of State -- would look at ways to build upon ongoing regional cooperation to support the peace process and to enhance bilateral activities to take advantage of new trade opportunities that are likely to accompany the normalization of relations between Armenia and its neighbors.
Activity Data Sheets
- 111-013 Growth of a Competitive Private Sector
- 111-015 A More Economically and Environmentally Sustainable Energy Sector
- 111-016 More Sustainable Water Management for Enhanced Environmental Quality
- 111-021 More Transparent, Accountable and Responsive Democratic Governance
- 111-031 Human Suffering Reduced
- 111-034 Mitigation of the Adverse Social Impacts of the Transition
- 111-0411 Households Living in Inadequate Shelter as a Result of the 1988 Earthquake Reduced
- 111-042 Cross-Cutting Programs
Country Background Information Resources
CIA Factbook
Library of CongressNational Geographic Country Maps
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Last Updated on: May 29, 2002 |
