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МИРОВАЯ ЭКОНОМИКА
SARGSYAN K.S.
ARMENIAN ECONOMIC DEVELOPMENTS IN THE CONTEXT OF THE WORLD FINANCIAL CRISIS
Аннотация. В статье обосновывается, что в Республике Армения негативное влияние кризиса стало более ощутимым с последнего квартала 2008 года. Также отмечается, что основной особенностью этого кризиса явился не крах финансового рынка или кризис ликвидности. Вместо этого наблюдались вторичные влияния финансового кризиса, и как их следствие в экономике Республики Армения уже в 2008 году был зафиксирован экономический спад. В первом квартале 2009 года экономика Армении находилась в глубоком кризисе — тогда спад ВВП составил порядка 9,7 процентов. Одновременно в статье анализируются сущность, особенности и негативные проявления современных финансово-экономических кризисов, а также характер и направления антикризисных мероприятий. В статье также представлены основные антикризисные мероприятия, проводимые правительством Республики Армения. Так, для предотвращения дальнейшего распространения и углубления кризиса правительство Армении начало осуществлять стимулирующую широкомасштабную денежно-кредитную и налогово-бюджетную политику. С целью минимизации отрицательных последствий экономического кризиса был реализован ряд основных мероприятий: осуществление проектов по развитию инфраструктуры с целью создания новых рабочих мест, целенаправленное содействие предприятиям, имеющим временные финансовые затруднения, улучшение бизнес-среды, содействие малому и среднему бизнесу, упрощение и улучшение налогового администрирования. На основании вышеизложенного с целью повышения эффективности антикризисных мероприятий в статье предлагается использовать передовой мировой опыт управления финансовыми рисками экономики. Ключевые слова: кризис, государство, национальная экономика, антикризисная политика, управление, финансы, рынки, эффективность.
SARGSYAN K.S.
ARMENIAN ECONOMIC DEVELOPMENTS IN THE CONTEXT OF THE WORLD FINANCIAL CRISIS
Abstract. The article justifies that Armenia had started experiencing the negative impact of the crisis since the fourth quarter of 2008. The article states that the one of the peculiarities of the crisis wasn't the collapse of the financial markets or liquidity crisis. Instead, the second wave of the crisis was crucial, resulting in the downturn of economy of the Republic of Armenia in 2008. In the first quarter of 2009, the economy of Armenia was in a deep crisis: a 9.7% decline of GDP was reported. Moreover, the article analyzes the meaning, characteristics and the aftermath of the contemporary financial and economic crisis, the role and specifications of the crisis response (anti-crisis) measures. The article presents the main crisis response measures implemented by the Republic of Armenia. In order to prevent further transmission and deepening of the crisis, the Government of Armenia started implementing wide-scale discretionary fiscal and monetary policies. For minimizing the negative impact of the economic crisis, the Government of Armenia implemented many main programs and measures: public works programs with the aim of improving the infrastructure and creating jobs, targeted assistance to private companies experiencing temporarily difficulties, improvement of business climate, assistance to small and medium-sized business, simplification and improvement of tad administration procedures. Based on the above stated and for the purpose of increasing the efficiency of crisis response measures, the article proposes to apply and utilize the bests crisis risk management practices worldwide. Keywords: crisis, state, national economy, anti-crisis policy, management, finance, markets, efficiency.
The investigations of contemporary economic developments show that the regular activity of modern economy cannot be imagined without state's macroeconomic regulatory mechanisms. Having explored the considerably rich experience on overcoming economic crises it has become evident that the crucial role in soothing the negative impacts of economic crises and in successfully overcoming them should be ascribed to the state, which, due to its anti-crises economic policy brings the economy back to balance. It is no accidental that during financial crises society puts more hopes on state active economic policy, than on the grounds of capitalism: liberalism, free competition, etc. [1] To obtain a more specific opinion of the Armenian economic developments and anti-crisis
measures of government in the context of the world financial crisis and it is expedient to first refer to the economic developments in pre-crisis phase. In this respect, let us mention that beginning from 2001 in the world developed countries, particularly in the United States and in several EU member countries the economies were at the height of development, which was mainly the result of expansionary economic policy conducted by these countries.
Particularly, one of the specific features of the latter is the fact that the Central Banks of these countries, wishing to provide liquidity in financial markets, cut down their interest rates. This phenomenon could be well observed in the United States.
In line with the above-mentioned, the governments of the developed countries began to implement expansionary policy, which resulted in the rapid growth of deficit of the state budgetary means.
The policy implemented by key-role players in world economy brought forth a drastic growth of gross demand in world market. There have been registered engaging developments with respect to financial markets as well. The most interesting development to be mentioned in this respect is the rapid expansion of securitization, which enabled the banks to convert the loans on their balances into securities and sell them to the participants of the financial market imposing on them the risks arising from not paying back the loans.
On their turn, other participants of the financial markets were issuing their own securities and selling them in the financial markets. Such kind of activities resulted in the growth of financial influx and made the markets more active.
The next major peculiarity of the developments was the unprecedented drastic expansion of the economy and the processes, which started with the magnification, and consolidation of financial institutions. All these processes gave birth to the establishment of mega-giant financial institutions, which can be well observed in case of the United States. The existence of such giant institutions also influenced the expansion of financial inflows. This situation was full of risk in light of the fact that high-speed globalization of the financial market contributes to financial instability that any form of which could be transmitted all over the world with a very short period of time being transformed into a Global Financial and Economic Crisis [2].
It is evident that all the developments occurring in the world financial markets influenced the expansion of fiscal and monetary policies implemented by the governments. As a consequence, beginning from 2004, the first signs of overheating could be observed in the developed economies, which resulted in overheating of the whole world economy. From that time on the GDPs began to grow at a still quicker pace, which continued up to 2007.
Because of the above-mentioned developments huge surpluses of financial resources is quite natural. The surpluses accumulated and centralized in this or that sector of economy. The role of that kind of a sector was the real estate market, where the surpluses created artificial "bubbles" contributing to rapid growth of prices.
As a consequence of all the expansionary processes described above made the developing countries, including Armenia, face serious problems. Developing economies had considerable inflows, which was the result of growing demand of goods, services and assets produced in the developing countries as well as the increasing volumes of transfers interflowing into the developing economies, including the Armenian economy.
At the background of the world economic developments Armenian economy also underwent logical developments. Beginning from the year of 2002 the Armenian economy was blooming having registered a two-digit index of economic growth.
In line with the afore-mentioned, as an immediate result of global economic developments, Armenia also started to face the problem of significant increase of financial inflows into the private sector of economy, which in its turn resulted in the additional growth of demand and triggered inflationary pressures. In this situation with a view to providing economic balance, the Central Bank of Armenia (the CBA) proceeded from its principle function set by the RA legislation that is to provide price stability. With this view, the CBA adopted the policy of floating rates, which could provide both domestic and external economic balance.
It should also be mentioned in this context that in 2006 the CBA was exercising the policy of money aggregates targeting. Nevertheless, in the light of the fact that as a result of the on-going structural shifts inflation - money aggregate relations have loosened and that money aggregates had
SargsYan ks
_ARMENIAN ECONOMIC DEVELOPMENTS IN THE CONTEXT OF THE WORLD FINANCIAL CRISIS_
stopped functioning as nominal anchors, starting from 2006 the CBA adopted the policy of inflation targeting.
One of the major particularities of the latter was the realization of the "future-aimed" policy, which meant that the CBA was to carry out its activities proceedings from the expectations from the future, which provided additional effectiveness.
In the context of the mentioned strategy, beginning from the second half of the year 2006 it was the growth of financial market's sensitivity toward newly formulating exchange rates. The latter allowed the CBA to gradually pass from quantitative regulation to the regulation of rates and prices.
Alongside the afore-mentioned, with the view to enhance the effectiveness of inflation targeting strategy, the CBA betook to intensifying the communication between financial markets and society. Monthly, quarterly, and annual press releases were published and meetings with the representatives of financial markets were organized. The latter enabled the CBA to effectively influence the expectations in economy.
Still another peculiarity of the CBA policy in pre-crisis period was the release of its own securities, the primary aim of which was to soothe all the negative impacts of financial inflows as well as the prevention of drastic appreciation of exchange rates. Thus, this process can be ascribed as a classical case of sterilization in case of which currency was bought in the financial market and the surplus money was withdrawn by placing the CBA securities. Let us mention that in 2-year period the CBA stock of securities reached up to 90 billion AMD.
Though it is to be taken into account that the RA financial market because of its smallness could not consume the huge emission volumes, that it why was impossible to carry out a wide scale sterilization. Moreover, the increasing interest rates could bring in their negative impacts on the investments in the real sector of economy.
As can be concluded from the world experience in the context of different economic cycle developments the fiscal policy, as one of major macro-economic tools, gains significance as well. It is evident that in the condition of the economic overheat great amounts of financial influx causes an unprecedented growth of demand, which could not be effectively controlled only by the tools of monetary policy. It was necessary to implement a rather restrictive fiscal policy with the view to preventing the unprecedented growth of demands in markets.
Let us mention at this point that from 2004 up to 2008 the RA tax-budgetary policy was mainly described as restrictive and anti-cyclical, which means that the state budget has accumulated more liquidity in the period of economic rise than instilled into the economy. As a result of this policy the ratio of debt - GDP marked consistent downfall. In the year 2000, the foreign debt, which constituted 45 percent of GDP in 2008 reached 13.2 percent. Despite the anti-cyclic feature of tax-budgetary and monetary policy, Armenian economy, like many other economies, was overheated. Otherwise, a more restricting macro-economic policy would have entailed unanticipated results.
Particularly, if a more rigid monetary policy would be exercised, then the high interest rates would have negative influences on the investments. Meanwhile, in the sphere of the fiscal policy there was a need to raise the tax rates and the level of tax collection. The rise of taxes was not desirable in view of all the possible negative impacts, and in case of tax collection, it was necessary to realize a wide-scale improvement in taxation policy. The latter was carried out, though the results are not that satisfactory. Besides the afore-mentioned, there were several sectors in the Armenian economy, which were devoid of competitiveness. Hence, the prices were rather rigid. It is natural to conclude that all the mentioned circumstances had their essential influence on the restrictive essence of state macro-economic policy.
As for the Global Financial and Economic Crisis of 2008 the main cause-roots were the follow-ings:
1. The issues specific to the American economy being reflected in lack of liquidity and interest rate policy [3].
2. Loose supervision and regulation of financial markets.
3. Systemic and fundamental issues of contemporary economic development [4].
4. Gradual increase of property prices in the United States and the real east bubble (or housing bubble).
The reasons why economic crises penetrate into the real sector of economy are different, e.g. for
the United States and European countries the reason of the economic crises was the crisis of liquidity in the banking system, while for Russia, China and Japan it was the rapid reduction of gross demand in the world markets [5].
As for Armenia, the negative impacts of the crisis became more visible in Armenia starting from the last quarter of the year 2008. The basic peculiarity of those impacts was that neither collapse of financial markets nor crisis of liquidity was observed. Instead, there emerged secondary influences of financial crisis, which were as follows:
1) reduction of foreign private transfers;
2) fall of investment into the Armenian economy as a result of fall of liquidity of financial means of the world market;
3) reduction of metal prices in international markets;
4) fall of prices on goods and services exported to world markets.[6]
As a result of the afore-mentioned there was registered a downfall in the Armenian economy already in the year 2008, the economic growth amounted to only 6.8%. In 2009, the Armenian economy was in deep crisis with 9.7% economic downfall in the 1st quarter1.
To avoid further intensification of crisis and its effects the RA Government started the policy on expansionary macro-economic policy both in monetary and tax-budgetary directions.
The situation with high inflation persisted until the end of the third quarter of 2008. Though beginning from the fourth quarter the inflation gradually appeased. This majorly resulted from the drastic reduction of gross demand and consequently that of prices in world markets. The first impulse of expansionary policy was the gradual reduction of repo rate. The latter was reduced by 0.5-percentage points (7.25 from 7.75) in December and was reduced further by 0.25 percentage points during the following 2 months2. Though it should be mentioned that despite these impulses, RA commercial banks demonstrated quite conservative and passive behavior by rejecting any crediting. The major reason for this was the gradual collapse of demand in economy and growth of riskiness. As a result, monetary aggregates demonstrated tendency for downfall beginning from the fourth quarter of 2008.
To react the situation in May of 2009 the CBA abruptly reduced the repo rate by 1 -percentage points and meanwhile the Government has extended the tax-budgetary tool set. Moreover, in the context of providing effective tax-budgetary and monetary policy the CBA purchased state securities. The latter was done with the aim of providing assistance to the rapid extension of release volumes.
Taking into account the economic developments during that period the CBA was already to choose between the rate, or the financial stability. It is quite natural that the preference was to be given to financial stability. Though until the March of 2009 the rate remained fixed so as to enable the participants of the financial markets to stabilize their position and prepare themselves for new developments caused by further devaluation. Otherwise, the financial crisis could be unavoidable in Armenia. In 2009, the RA CBA resorted to a drastic rise of refunding rate by 1 point with the view to suppressing the possible negative manifestations caused by the rate devaluation.
It is quite essential that the abrupt downfall of gross demand necessitated systemization of monetary and fiscal policy. Particularly, only by the means of the monetary policy the reduction of interest rates was not sufficient to significantly boost the demand. In the condition of reduction of demand and increase of risks the banks switched to a more cautious crediting, the latter in its turn impeded the effectiveness of the impacts caused by reducing the interest rates.
It is worth mentioning that tax-budgetary policy underwent several difficulties starting from the 4th quarter of 2008. Particularly, it found its manifestation in tax collection as far as the collapse of the economic activity resulted in more slow tax entries into the state budget. In the beginning of 2009, while examining the results of the tax profits it became clear that the world financial crisis negatively affected the tax collection. Attaching importance to the policy directed toward boosting economic growth, the government began to cover a considerable amount of budgetary expenses by augmenting the budgetary deficit. Thus, if for the beginning of the year the deficit of state budget was expected not to exceed 1 per cent of the GDP, later it reached up to 6.5 per cent, herewith extending the gross demand3.
Tax-budgetary policy became more active in 2009, in particular the release volumes of state
1 http://www. armstat. am/am/?nid= 126&id=01001
2 https://www. cba. am/am/SitePages/ statmonetaryfinancial. aspx
3 http://www. armstat. am/am/?nid= 126&id=01001
Sargsyan K.S.
ARMENIAN ECONOMIC DEVELOPMENTS IN THE CONTEXT OF THE WORLD FINANCIAL CRISIS
bonds considerably increased. Nevertheless, in order to realize a wide-scale boosting policy there was a need in huge amounts of financial means and in this respect the support of international structures and foreign countries that the RA Government received during this period gained importance.
Let us now briefly present the major lines of measures exercised by the RA Government toward soothing the consequences of economic crisis.
1. realization of infrastructural projects providing new workplaces, particularly:
- realization of road building projects, with overall amount of 110 billion AMD;
- reconstruction of disaster zone, with overall amount of 75 million AMD;
- upgrading of irrigation and drinking water, with overall amount of 100 billion AMD;
- construction of new atomic and railway stations.
2. Targeted support to industries undergoing temporary financial difficulties. As a result the economic activity of the latter was maintained, new workplaces were established, and the volume of export increased. State subsidies were applied in agricultural and other spheres.
3. Improvement of business environment and support to small and medium-sized businesses;
4. Maintenance of budgetary expenses directed toward social needs and of target use thereof. The latter loosened the social tension.
5. Improvement and simplification of taxing administration. Particularly, it is worth mentioning that the obligatory condition on accounting for companies with up to 100 million AMD total revenue was taken away. Tax report procedures were also simplified. 58.35 million AMD was fixed as the lowest threshold of ADT.
6. Extension of crediting volumes for small and medium - sized enterprises and creation of more favorable conditions for their activities [7].
The latter are those peculiarities inherent to the Armenian economy in the context of economic developments in pre and post - crisis periods.
Литература
1. Astapov K.L. Fiscal and monetary policies during the crisis // Finances. 2009. No. 6, P. 14-18 (in Russian).
2. Ershov M. V. The world financial crisis. What is next? Moscow: Economics, 2011. P. 19 (295 p.).
3. Kudrin A. The Global Financial Crisis and Its impact on Russia. Economy Questions. No. 1. 2009. P. 9 (in Russian).
4. Mau V. The economic Policy of 2007: success and risks. Economy Questions, 2008. No. 2. P. 10 (in Russian).
5. Sargsyan K. The essence and peculiarities of state anti-crisis economic policy. Annals of Agrarian Science, Tbilisi, 2013. Vol. 11. No. 4. P. 95 (93-95) (in English).
6. Harutyunyan V., Sargsyan K. The Financial Crisis and the State Fiscal Policy // Scientific proceedings, Giumri State Pedagogical Institute After M. Nalbandyan. No. 1. 2013. Issue A. P. 133 (126-137) (in Armenian).
7. The Anti-crisis measures of the Government of RA. 2009. http://www.gov.am/files/docs/1526.pdf.
References:
1. Astapov K.L. Fiscal and monetary policies during the crisis // Finances. 2009. No. 6, P. 14-18 (in Russian).
2. Ershov M. V. The world financial crisis. What is next? Moscow: Economics, 2011. P. 19 (295 p.).
3. Kudrin A. The Global Financial Crisis and Its impact on Russia. Economy Questions. No. 1. 2009. P. 9 (in Russian).
4. Mau V. The economic Policy of 2007: success and risks. Economy Questions, 2008. No. 2. P. 10 (in Russian).
5. Sargsyan K. The essence and peculiarities of state anti-crisis economic policy. Annals of Agrarian Science, Tbilisi, 2013. Vol. 11. No. 4. P. 95 (93-95) (in English).
6. Harutyunyan V., Sargsyan K. The Financial Crisis and the State Fiscal Policy // Scientific proceedings, Giumri State Pedagogical Institute After M. Nalbandyan. No. 1. 2013. Issue A. P. 133 (126-137) (in Armenian).
7. The Anti-crisis measures of the Government of RA. 2009. http://www.gov.am/files/docs/1526.pdf.
