by Peter Tomsen
Foreign diplomats and their wives often concentrate only on issues that are of importance to the country they represent but not U.S. Ambassador Peter and Kim Tomsen. Since their arrival in Yerevan, the Tomsens have spearheaded a number of projects benefiting Armenia. In the following article, exclusively written for AGBU News Magazine, Ambassador Tomsen shares his overview of the social, economic and industrial climate in Armenia.
Armenia is navigating through a difficult transition: from a commercial to a private sector economy; from a communist dictatorship to a democracy; from rule by party to rule by law.
It is making more rapid progress than the other independent states which emerged out of the Soviet Union. Inflation is under two percent a month. The Armenian Dram has maintained a stable exchange rate against the Dollar for the last two years and is internally convertible.
Armenia's Gross Domestic Product (GDP) grew by 5.9 % in 1995 -- the highest increase among the newly independent states. American aid plus IMF, World Bank, and EBRD credits have allowed Armenia to reduce its budget deficit and begin a number of infrastructure projects aimed at reviving and developing the country's energy, construction, transportation and agriculture sectors.
This past year has seen real progress in energy and banking (the first Western bank, Midland, has opened in Yerevan.)
Three agreements have been signed by the United States and Armenia: a bilateral trade agreement granting Armenia Most Favored Nation (MFN) status, an Overseas Private Investment Corporation agreement on OPIC guarantees for Armenia and a Bilateral Investment Treaty protecting American investments have already been ratified.
Armenia has progressed further than any other newly independent state in creating a favorable climate for business. More than 18 U.S. firms were registered in 1995, and this number should double in 1996.
An AT&T affiliate has initiated a joint venture to provide Armenia with long distance service and is engaged in an ambitious project to modernize the country's entire communications network.
Armenia and an American gold mining firm just signed an agreement which could lead to 70 to 80 million dollars worth of gold extraction per year. The International Communications Technologies Inc. has started production of hi-tech video surveillance systems at MARS, Armenia's most sophisticated electronics plant. The Coca-Cola bottling plant is nearing completion and negotiations between Armenia entities and U.S. companies are well underway or completed on a number of ventures including a horticulture export project.
With macro-economic stability achieved, Armenia is now steadily building a legal and regulatory environment for private sector growth. Special emphasis has been placed on the preparation and passage of laws and the establishment of extensive branch regulations for modernization of financial, budgetary, energy, telecommunications, taxation, judicial, real estate and agriculture sectors. This radical restructuring faces a legion of obstacles -- seventy years of communist legacy, Soviet-era bureaucrats who do not easily surrender their turf, delayed or only partial privatization, corruption, blockades and the ever present danger that the Karabakh war will start again.
Bureaucratic and political snags resulted in the slowing down of privatization -- the 1995 privatization plan is still being completed in May 1996, and the 1996 privatization plan has not yet begun. In the second half of the year, the government plans to advance privatization, political liberalization, including judicial and media reforms, and administrative de-centralization.
To date, the Government of Armenia has also eliminated export duties and licenses and restrictions of profit repatriation. It has eliminated restrictions on currency exchange. It allows foreigners to own buildings and structures. Armenia is poised this year to enter the World Trade Organization.
I am sometimes asked by Armenian-Americans what they can do to assist Armenia at this stage of its transition to a free market economy. In response, I list three general areas:
Firstly, in humanitarian programs, where Diaspora Armenians have already devoted so much. There remains great needs, for instance in orphanages, for the elderly out of the safety net, for the cold in the winter, and for those horribly disabled for life by the earthquake. Over eighty percent of American aid remains humanitarian.
Secondly, Armenian-Americans can also contribute development aid for the historic economic restructuring effort which is described above. Contributions to the American University of Armenia and to individual schools around the country, for example are splendid investments which will reap profound long term benefits for Armenia's future. The future will be built by today's younger generation which is in school now. Armenian-American agricultural/PVOs are providing seed, fertilization and fuel to farmers' organizations and communities, which have contributed to the market increases in development of Armenian grain production capability.
The third dimension of assistance is trade and investment, with emphasis on Armenia's export sector, in particular hi-technology, horticulture, mining, textiles and services.
There have been many notable cases of economic success and failure in the post World War II era. All of the successes, beginning with Japan and continuing with other Asian and European states have stressed the creation of export industries. The failures (the most recent in North Korea) have all bogged down in overcentralization, both political and economic, plus the stifling of political liberties and individual economic incentive.
Armenia's economic future depends on trade and investment, with a strong accent on export potential. Armenia's domestic market is too small to produce sustainable growth. Exports will generate foreign exchange, more investment, more production, more employment, ever increasing self-sustainability.
To date, over half of the American investment in Armenia has come from Armenian-American individuals or firms. Factors contributing to their decision include: an Armenian leadership willing to give its personal attention to facilitate foreign investment; a highly educated workforce (especially in electronics, software, textiles, precision machinery, jewelry, food processing, mining); low labor costs; and thanks to the Armenian General Benevolent Union, a growing cache of local, western-style management, marketing and financial specialists educated and trained by the partly AGBU-supported American University of Armenia.
AUA offers bright, creative young employees for U.S. firms along with Armenian government departments and foreign agencies. The value of this contribution to Armenia's development will be a key factor in the country's creation of a modernized political and economic system.
The humanitarian and developmental areas of assistance are vital for Armenia's future. Trade and investment, however, will be absolutely necessary to break a potentially debilitating over-dependence on foreign food donations, a situation where over fifty percent of the government budget is from foreign aid, and where a psychology of "hand outs" can be destructive in both tangible and intangible ways.
All three levels of assistance, however, play important roles. They are self-reinforcing. We have, for example, at the suggestion of the Prime Minister, begun to monitor our humanitarian aid. Working with him and his Cabinet, we direct the proceeds towards strengthening the government's development strategy. In turn, development programs lay the basis for success in trade and investment. Eventually, a "take off" in trade and investment will progressively lower the need for humanitarian and development assistance.
Not surprisingly, the U.S. Embassy in Armenia is heavily involved in all three areas. The Embassy Economic Section, AID, the U.S. Department of Agriculture, the State Department's Aid Coordinator, and Department of Treasury officials attached to the Ministry of Finance are working very hard to assist Armenia in navigating the difficult economic transition.
Regarding investment, our two Embassy Commercial officers can locate Armenian business partners and provide comprehensive, up-to-date information on trade and investment.
And don't forget, the Ambassador is always there to offer his assistance. He and the U.S. mission in Armenia have made commercial goals and objectives a top priority.
Image
Armenia: A New Era
