 armenia little has been achieved in combating crisis tuesday april 28 2009 event real gdp will contract by 5 this year the imf s april world economic outlook predicts significance economic activity is falling to a record low as the economy undergoes an abrupt decline in activity reflected among other things in lower government budget income analysis according to preliminary data from the national statistical service in the first quarter of 2009 real gdp contracted by 61 yearonyear this is the worst performance since 1993 all the main branches of the economy plunged compared with the yearearlier period industrial output in volume terms by 95 gross agricultural output by 51 and gross construction by 219 the service sector was the only one to show a slight increase mainly thanks to a 39 increase in retail trade the contraction is an obvious consequence of the global economic crisis which has resulted in a decline in investment in construction the main engine of gdp growth in the past five years and restricted demand for armenian exports mainly metals foreign trade has shrunk drastically with exports at a mere 527 of the level of a year ago and imports 778 imports now exceed exports more than fivefold in dollar terms 659 million and 123 million respectively budget crisis state budget revenues have also fallen in januaryfebruary the latest period for which data are available they came to 846 billion drams 277 million dollars at the thenexchange rate this is 15 less yearonyear and about 28 less than 2009 budget plan which adopted last november envisaged some 20 growth in revenues compared with 2008 in addition it has become known that the 500 million dollar loan from russia initially expected in april will not arrive before endjune in these conditions the government decided to reallocate budget expenditure on a quarterly basis on march 26 the cabinet restructured the budget by moving expenditures totalling some 131 billion drams 354 million dollars into the fourth quarter of 2009 from earlier periods this concerns mainly purchases for state bodies which may for the first three quarters buy no cars furniture or real estate the government does not see any need as yet to adopt a reduced budget counting on borrowing the imf approved in march a 28month standby arrangement for 540 million dollars of which 240 million is available now or an upturn in revenues remittances another difficulty is the decline in the level of private transfers from abroad mainly from russia according to estimates in januaryfebruary they decreased by 30 yearonyear however this factor has not yet had a very significant influence on the market as mentioned above retail market sales increased in januarymarch moreover after the central bank cba ceased intervening in the currency market on march 3 which resulted in the immediate depreciation of the dram from 305 to 370 to the dollar pressure on the currency market has been low in particular the population s sale of dollars near 40 million a week has exceeded its purchases by more than 5 from march 10april 15 forecasts in an amended monetary policy document released in late march the cba expected real gdp to fall by about 30 yearonyear by end2009 and estimated inflation at 59 in december moreover in march inflation was fairly low 10 yearonyear 7 since december 2008 and 20 over the first quarter compared with the yearearlier period this enabled the cba to lower the refinancing rate on april 7 by 25 percentage points to 75 it also decided to increase its purchases of government bonds to inject more liquidity into the market the world bank has warned that the economic crisis may result in an increase in the poverty level from 227 in 2008 to 279 in 2010 above the level in 2006 265 both the bank and the imf have urged the government to maintain a high level of social payments to limit impoverishment as far as possible in particular the imf insists that the government increases social payments by 3 of gdp as envisaged in the programme approved by the fund the government said it would protect social security expenditures in the state budget among the measures aimed at protecting the poor is a government programme of public works worth 700 million drams so far allowances pensions and other social payments have been paid without delay anticrisis measures the government has prepared the following anticrisis measures to boost business activity and create jobs under a bill adopted on march 19 valueadded tax payments due on imported investment equipment are postponed for three years the process of simplifying the taxation accounting and reporting rules for small and mediumsized enterprises smes has started under a legislative package adopted last year but its implementation is controversial five mining companies producing copper and molybdenum one of which stopped work altogether late last year have resumed operations at least for the time being and are to be working fulltime by endapril this has saved 6000 jobs which are important especially for syunik province in the south thanks to a partial recovery in metals prices their operations are nearly profitable and the government is providing assistance in particular the kajaran plant which is the biggest in this sector has obtained a shortterm 10 million dollar credit for modernising its equipment the government is subsidising businesses so far 18 companies have received some 25 billion drams in different forms of assistance ranging from loans and credit guarantees to the government s purchase of shares these companies activities include food processing textiles software and machinetool production one of the principal steps aimed at reviving construction is the provision of loan guarantees for developers finishing off buildings that are 50 or more complete the total sum of guarantees declared as of april 13 is 20 billion drams on april 2 the sme credit programme began with a 50 million dollar world bank loan the results of these measures are not yet evident in particular interest rates are still too high at 1520 per year the government is looking for other sources of credit besides such international financial institutions as the european bank for reconstruction and development and the asian development bank hopes are pinned on a domestic mortgage agency and a new bank which are to be created later this year however the cba is cautious about reducing interest rates further out of concern for inflation conclusion the government s anticrisis measures are unlikely to bring any quick improvement those taken so far are small with the only actions likely to stimulate investments totalling less than 70 million dollars planned infrastructure projects have not yet started other actions are only just getting under way and their impact will not be seen rapidly keywords ee rucis armenia imfworld bank international russia economy industry politics social debt exchange rate fiscal government growth monetary poverty prices agriculture balance of payments capital flows construction corporate foreign trade investment manufacturing metals mining public sector retail services welfare  