October 12, 2009
IMF and World Bank see positives in Turkish-Armenian Border opening
ON THE sidelines of the ongoing International Monetary Fund and World Bank meetings in Istanbul, senior officials from the two multilateral lending institutions welcomed the economic implications of the unprecedented softening of Turkish-Armenian relations, which will result in the signing of key fence-mending agreements between Ankara and Yerevan, Armenia Liberty.org reported.
The officials strongly supported the reopening of the Turkish-Armenian border, saying that its positive impact on the recession-hit Armenian economy could be felt as early as the beginning of next year.
The signs of economic recovery apparent around the globe should also reflect positively on the economy of Armenia, claimed the officials. IMFs recent prognosis at the global forum unveiled that the Armenian economy will grow by 1.2% next year after enduring one of the steepest declines in the world during 2009.
The World Bank also expects renewed modest growth in the South Caucasus country in 2010. Ratna Sahay, deputy director of the IMFs Middle East and Central Asia department, said that the growth rate could increase if the Turkish-Armenian frontier is opened for commerce and travel soon. There would also be a lot of indirect impact through trade in goods and services with Turkey, she added.
Indermit Gill, the World Banks chief economist for Europe and Central Asia, said that positive repercussions of border opening could occur soon, because there are entrepreneurs on both sides that are very eager to take advantage of business opportunities on the other side of the border. Both officials emphasized the fact that Armenia is a landlocked country with high transportation costs that hamper economic activity and badly needed foreign investment.
Therefore, to have access in terms of transportation through Turkey would be of great benefit to Armenia and also to Turkey in terms of cross-border trade and tourism, said Sahay. The IMF official added that an open border with Turkey would also lure foreign investors to Armenia, which has many advantages vis-à-vis the level of education and skills of the Armenian people.
The border opening would also decrease the disproportionately high cost of shipping cargos to and from Armenia, according to many local businesspeople and analysts. Some Armenian economists believe that it would take years before the country starts reaping tangible benefits, while local political groups, notably the opposition Armenian Revolutionary Federation, claim that an open border with Turkey would actually hurt the economy.
The groups believe that the opening of the border would flood the domestic market with cheap Turkish consumer goods and hurt many Armenian manufacturers.
Statement by IMF Executive Directors at the Conclusion of their Visit to Armenia
Statement by IMF Executive Directors at the Conclusion of their Visit to Armenia
Press Release
No. 09/360
October 12, 2009
A mission of Executive Directors of the International Monetary Fund (IMF) comprising Ms. Meg Lundsager, Messrs. Age Bakker, Ambroise Fayolle, HE Jianxiong, Thomas Moser, and Klaus D. Stein, issued the following statement on October 12, 2009 in Yerevan at the conclusion of its visit to Armenia:
“We are grateful for the opportunity to visit the country and thank the people of Armenia, President Serzh Sargsyan, Prime Minister Tigran Sargsyan, Chairman of the Central Bank Arthur Javadyan, Minister of Finance Tigran Davtyan, and Minister of Economy Nerses Yeritsyan for their warm hospitality and productive discussions.
Our visit has offered us a unique opportunity to hold discussions with a wide range of stakeholders, including representatives of the public and private sectors, the civil society, and development partners.
“Armenia has been severely hit by the global crisis, with real GDP expected to decline by about 15 percent in 2009. Foreign inflows have fallen and tax revenues have dropped, which have weakened the balance of payments and the public finances. These developments posed additional hardships on the Armenian population.
“We commend the authorities for efficiently addressing these challenges. Fiscal policy continues to be expansionary, given that, with the help of the IMF and other donors, the government has been able to keep expenditures close to the original 2009 budget, while increasing spending on priority infrastructure projects.
“The financial system remains stable and the return to a floating exchange rate on March 3, 2009 has been a success. The Central Bank (CBA) has expanded its instruments to provide liquidity to the banking system in order to stimulate credit to the private sector. At the same time, inflation is on track to meet the authorities' end-2009 target of 4+1.5 percent.
“Continued progress in tax and customs administration reforms will be critical to ensuring sound public finances, and a fair and equitable tax burden. Once the economy recovers, the government will need to reduce the fiscal deficit to preserve medium-term fiscal and debt sustainability, while continuing to support needed public spending and investment.
“We welcome promising signs for regional cooperation, which will help economic development in the region. We support the IMF continuing excellent relationship with the Armenian authorities.”
