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Armenia, IMF To Open Talks On New Loan

By Emil Danielyan

The Armenian authorities will start negotiations with the International Monetary Fund on March 3 over the terms of receiving a fresh multimillion-dollar loan three months after completing a similar IMF lending scheme designed to bolster the country’s macroeconomic stability.

James McHugh, head of the fund’s Yerevan office, told RFE/RL on Friday that a high-level IMF mission will meet President Robert Kocharian and other senior Armenian officials to discuss conditions for the release of the credit. “It will likely be another three-year program with two tranches a year,” he said.

The IMF’s governing board disbursed last December the final, sixth installment of its $105.3 million Poverty Reduction and Growth Facility (PRGF) that was launched in May 2001. Its members praised the Armenian government for its “prudent” fiscal and monetary policies. They also urged the authorities to eliminate “arbitrary practices” in the collection of taxes and import duties and at the same time achieve a sizable increase in its budgetary revenues.

According to McHugh, that will be the IMF’s key preoccupation at the upcoming talks. “The focus of the new program will be on tax, customs and the financial sector,” he said “In terms of tax and customs, we are going to focus our efforts on administration, rather than legislative changes. We believe that while the current tax code is not perfect, it is sufficient for the needs of Armenia.”

McHugh added that the IMF officials will be specifically pressing the government to crack down on large companies which he described as Armenia’s “genuine tax evaders.” In an extensive report on the Armenian economy released last November, the IMF suggested that profit taxes paid by them could easily be tripled.

Many of the big businesses are owned by government-connected individuals and are believed to be highly lucrative. However, they routinely post financial losses. Economists regard them as the prime beneficiaries of Armenia’s economic growth which, according to official figures, continued at a robust rate of 10.1 percent last year.

Meeting with the country’s leading businessmen in late December, Kocharian warned that they will no longer get away with tax evasion. He also held separate meetings with top officials from the government’s tax and customs agencies in early January, telling them that rampant corruption within their ranks will not be tolerated anymore.

“The recent pronouncements by the president focusing on tax and customs have been noted with great interest in Washington,” McHugh said. “We welcome them very much.”

The government collected a total of 20.3 billion drams ($43 million) in taxes and customs fees last month, an almost 22 percent increase from the January 2004 level. Proceeds from corporate profit tax shot up almost threefold but still made up only 10 percent of the overall revenues. The government also posted a 50 percent surge in the collection of social security tax.

The IMF loans have always been channeled into the Armenian Central Bank that manages Armenia’s external hard currency reserves. With national currency, the dram, remaining stable and even considerably appreciating against the U.S. dollar and the euro since the beginning of 2004, some analysts ask whether Yerevan needs more IMF money.

“I don’t think that the Armenian government is coming to the IMF because it needs financing,” McHugh explained. “It comes to the IMF because of the credibility that a fund program gives its reform effort.”

McHugh also largely endorsed the Central Bank’s assurances that the dram’s highly unpopular strengthening resulted from objective factors such as increased inflows of dollar remittances into Armenia, rather than financial speculation.

“When I hear the word conspiracy I think that one is saying that the exchange rate is being manipulated for personal gain,” he said. “I’m sorry, I just do not see that.”

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