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Development Challenge The USAID Program Other Program Elements Other Donors Program Data Sheets Summary Tables USAID Search: Armenia Previous Years' Activities 2002, 2001, 2000, 1999, 1998, 1997 Last updated: 27     (text taken from the FY 2003 Congressional Budget Justification) THE DEVELOPMENT CHALLENGE: The Development Challenge: Like other countries of the former Soviet Union, Armenia's economic transition has been hampered by the legacy of central planning, severe economic shocks arising from the collapse of the USSR, and reluctance of national decision-makers to undertake critical reforms to restructure and privatize the economy. An additional impediment to Armenia's emergence as a prospering free market democracy has been the conflict with Azerbaijan over Nagorno-Karabakh, a disputed enclave located within the territory of Azerbaijan. A cease-fire has held since 1994, but Armenia and Azerbaijan have yet to resolve the status of Nagorno-Karabakh. As a result, Armenia does not have normal trading relations with Azerbaijan or Turkey. Successful resolution of the situation would allow the reopening of borders and facilitation of trade, making Armenia more attractive to potential investors. Although Armenia's macroeconomic indicators are among the best of the Former Soviet Union countries, conservative estimates indicate that some 55% of the population live below the poverty line. Fairly impressive economic growth figures in recent years coupled with low inflation is now helping to reverse the decline in the standard of living of Armenians that began with independence in 1991. According to official figures, in the first nine months of 2001 the Armenian economy posted unprecedented 9.9% GDP growth compared to the same period in 2000. Official unemployment has decreased from 11.9% in 1999 to 10.9% in 2000 and 10.1% in 2001, although these figures do not include underemployment and are widely thought to underestimate the actual level (estimated at 30%). The external debt-to-GDP ratio stood at 44.9% in 2000 and the Central Bank of Armenia (CBA) projects it to decrease slightly to 44.5% in 2001. The external trade deficit for 2000 stood at $585 million. Despite these economic indicators, 55% of the population subsist below the official poverty line, and the Government does not provide an adequate social safety net. Armenia is an important country to U.S. security and economic interests. Due to U.S. interest in the energy resources of the Caspian Sea Basin, regional stability and security are necessary to enhance the investor confidence needed for the development and transport of these resources. This stability and security rests, however, on the peaceful resolution of regional conflicts such as Nagorno-Karabakh. Continued stalemate discourages foreign and domestic investment, economic development and job creation and the establishment of a free market democracy while encouraging continued emigration abroad. Potential military escalation of the Nagorno-Karabakh conflict could invite outside intervention by regional powers that could undermine Armenia's independence. THE USAID PROGRAM: FY 2002 Estimate: $90.0 million FY 2003 Request: $70.0 million The Program Data Sheets provided below cover the six strategic objectives for which USAID is requesting funds to assist Armenia. These objectives focus on helping Armenia to establish a vibrant market economy within a democratic society, while easing the impact of this transition on its populace. In particular, USAID assistance focuses on: economic restructuring and private sector development; restructuring and reform of the energy sector to promote economic and environmental efficiency; improving water quality and water management; strengthening democratic governance; improving social welfare and health systems; and facilitating recovery from the 1988 earthquake in Lori and Shirak provinces, including improving housing opportunities for families still living in temporary shelters. USAID also has a special cross-cutting objective that supports efforts under the other six objectives, including enhancing the regional dialogue on water management issues, promoting small business development, good governance and strengthened civil society, and improving media and communications capacity. In FY 2002, USAID efforts in the economic sector will focus on: improving the tax, fiscal and customs systems; improving the legal and regulatory environment for trade investment and economic growth; and reforming and developing Armenia's accounting and auditing infrastructure. USAID will also increase access to financial capital through capital markets development; improving bank supervision; and providing small loans for micro-entrepreneurs and small and medium-sized enterprises (SMEs). In the are of democracy, USAID will begin two new activities focused on fighting corruption and strengthening the legislature. In FY 2003, funds will be used largely to implement the on-going programs described above. OTHER PROGRAM ELEMENTS: In addition to the bilateral program described in this document, USAID is carrying out a farmer-to-farmer assistance program in Armenia that provides short-term, U.S. volunteer technical assistance to increase farming and agribusiness productivity and incomes. OTHER DONORS: The United States is the largest bilateral donor. Other bilateral donors, in order of levels of assistance, include Germany (energy, infrastructure development, small and medium enterprise development, health), Japan (energy, health, agriculture), the Netherlands (agribusiness, energy), United Kingdom (customs, social sector, public sector reforms), Italy (health, culture). The largest multilateral donor is the World Bank (enterprise development, energy, water, education, health, agricultural reform, municipal development, and judicial reform). The World Bank and USAID activities complement one another in most sectors. Other multilateral donors include International Monetary Fund (macroeconomic policy), the European Bank for Reconstruction and Development (credit and energy), European Union (civil society, social sector, energy, education, private sector development, land titling, agriculture, statistics and transport), and the United Nations network of agencies, e.g. UNDP (poverty reduction, democracy and governance), UNHCR (refugee support), UNICEF (health, education, social sector), World Food Program and World Health Organization. Most donors, including USAID, participate in monthly donors' meetings. Sector specific donor groups also meet periodically. There are also several Armenian Diaspora donors, the largest of which is the Lincy Foundation (SME development, road network, Yerevan city public works restoration and improvements, tourism and earthquake recovery). The Soros Foundation is also active in Armenia (civil society, education, public health, culture, media, and judicial reform). Program Data Sheets 111-0130  Growth of a Competitive Private Sector 111-0150  A More Economically and Environmentally Sustainable Energy Sector 111-0160  More Sustainable Water Management for Enhanced Environmental Quality 111-0210  More Transparent, Accountable and Responsive Democratic Governance 111-0340  Mitigation of the Adverse Social Impacts of the Transition 111-0411  Households living in inadequate Shelter as a Result of the 1988 Earthquake Reduced 111-0420  Cross-Cutting Programs Country Background Information Resources     CIA Factbook Library of Congress National Geographic Country Maps State Dept. Country Information

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