Armenia is unscrupulous debtor: Quo vadis?

The great Alexander Nikolayevich Ostrovski was the author of the popular expression: “Poverty is  not a vice.” It hard not to agree with this aphorism. But it is even harder to find people willing to suffer poverty voluntarily. So, it is incredible that not one person, but rather all the citizens of an entire country are agreeing to undertake this burden…

Poverty is on the threshold…

We have talked about Armenia’s economic plight many times. Today, we will speak about how the country’s economic downturn will deepen which, of course, will have a devastating effect on lives of Armenia’s ordinary citizens and almost no effect on its oligarchy.

So, head of the World Bank Yerevan Office Aristomeneh Varoudakis stated recently that Armenia’s foreign debt will reach 50 percent of GDP by 2011. How can they avoid this? According to Varoudakis, Armenia needs to reform the tax administration urgently and collect more taxes because most of this money will be spent to pay off external debt from 2012.

What does all this mean? It means that Armenia faces tax collection problems. This could have two reasons: either taxes are not collected due to the lower profits of companies, businesses and other taxpayers, or they evade taxes which testifies to rife corruption and the inaction of laws in Armenia. This is an extremely chilling factor for small investors already thinking twice about investing in Armenia's economy.

Permanent Representative of International Monetary Fund in Armenia Nienke Oomes also confirmed tax evasion by large taxpayers in Armenia.

“The problem is that most of these large taxpayers do not pay taxes in the proper manner, in other words, they do not pay the amount they are expected to pay,” he said.

This statement proves that Armenian oligarchs shift the entire burden of having to fill the budget for small taxpayers, which leads to a significant decrease in their income, which shows that Armenia is on the threshold of impoverishment. Armenian oligarchs amass wealth by ignoring laws and concealing revenues that could fill Armenia’s budget to a certain degree. That is why Varoudakis noted that 80 percent of Armenia's population is at risk.

Of course, many countries have foreign debt. For example, Germany's foreign debt amounts to 65 percent of the national income, while the figure is higher in some other countries. However, Armenia, unlike other full-fledged countries, has no reserves to cover these debts.

In other words, Armenia risks getting the image of an unscrupulous debtor in the next few years, which in turn will lead to a precipitous drop in its rating and investment attractiveness, which we have already mentioned. This can prevent Armenia from obtaining new loans on favorable terms.

In the case that the country refuses loans, the situation inside the country, which survives exclusively on loans and the diaspora’s assistance, could get worse. In this case, the country will be obliged to save on education, health and infrastructure.

We see here a vicious circle. What is it fraught with? As you know, "a bankrupt state" is unable to effectively control its territory. The authorities do not represent interests of majority of population and the state is unable to provide necessary level of security and social benefits.

Furthermore, such a state loses its monopoly on use of force, which means that illegal armed groups appear in the country. There is often violence in the "bankrupt countries" with extremely high probability of an armed conflict or civil war. This is a possible scenario of the situation in Armenia. This scenario is predicted not by Azerbaijan, but representatives of international financial institutions.

But at the same time, the Armenian leadership has a chance to prevent this scenario. To do this, it just needs to enforce international law in terms of settling the Armenian-Azerbaijani Nagorno-Karabakh conflict and no longer pursue a policy of a "besieged fortress," making permanent territorial claims to Azerbaijan, Turkey and Georgia. Only in this case a true neighborhood environment will be established in our region enabling Armenia to participate in all regional projects, through which the country can fight the poverty that is rapidly sweeping through the country, which, of course, is no vice, but highly undesirable, especially when there is every opportunity to eliminate it.

Akbar Hasanov