Setting the scene

Armenia was a member of the Union of Soviet Socialist Republic (USSR) until September 1991, when it declared independence. However, it was not until the dissolution of the USSR in December of the same year that the country gained international recognition.

Armenia made its transition to democracy relatively smoothly, but like many other countries from the former Soviet Union, it was struggling with the post-communist legacy, political problems and a weak economy.

In the early 1990s, the Government implemented a radical economic reform programme, aimed at creating the legal, institutional and economic basis for a market economy. The reforms, which impressed the International Monetary Fund (IMF), the World Bank and the European Bank of Reconstruction and Development (EBRD), included the liberalisation of prices, stabilisation of the national currency, reduction of the budget deficit, promotion of privatisation, and rationalisation of the taxation system. Both the IMF and the World Bank granted Armenia with a few credit lines, which totalled US$220 million by 1994; these were adjusted by another $212 in 1996, as recognition of the progress of the reforms. However, there were a few difficult moments in recent history which were first considered to be a catastrophe for the young market economy, but which in fact became a catalyst for reforms.

Firstly, there was the introduction of an economic blockade by neighbouring Azerbaijan and Turkey, which exacerbated the sharp decline in output. Gross Domestic Product (GDP) in real term decreased by 10.8 per cent in 1991, 52.4 per cent in 1992, and a further 15 per cent in 1993. Secondly, a 1998 earthquake which destroyed the northern part of the country and which required costly reconstruction works. Thirdly, the cost of supporting the Karabakh Armenian conflict, which was born with the establishment of this ethnic Armenian enclave within Azerbaijan in 1921, and which was estimated at 30-50 per cent of the Government budget before the May 1994 cease fire.

In July 1995, President Levon Ter-Petrossian and his allies won a second consecutive term in office, following the country's first post-Soviet general election. The privatisation programme introduced by his Government was considered to be among the most radical in the former Soviet Republics. By late 1993 most retail trade had been transferred to private ownership and almost 80 per cent of agricultural land went to private farmers. In 1995 the Government put the privatisation of industrial sectors of the economy within the frame. By the end of 1996, about 4,000 small and medium-sized enterprises had been privatised, with more than 1,000 medium and large enterprises converted into joint stock companies. In March 1996 the Government approved a new two year privatisation programme intended to increase economic activity.

When in 1994 Russia decided to exclude most of the former Soviet Republics from the rouble zone, it forced Armenia to introduce its own currency, the dram, which has proved to be a success after a shaky start. Since March 1994, the nominal exchange rate has been stable. Another success of the Government was lowering the inflation rate. According to the EBRD, the inflation rate was 25 per cent in 1991, 1,341 per cent in 1992, 1,996 per cent in 1993 and started to decline from 1,885 per cent in 1994 to 25 per cent in 1995, and to 20 per cent in the following year. Armenia would need to continue with its economic reforms in order to encourage foreign direct investment (FDI).

In April 1998, Robert Kocharian, a reformist Prime Minister, was confirmed as winner of the new presidential elections. With his Government led by the former Finance Minister, Arben Darbinian, he will continue to lead the programme of stabilisation.

Key economic indicators
Capital	YEREVAN
Area (Sq km)	29,800
Population (m)	3.7
GDP/Capita (1995)	US $ 388
President	Robert Kocharian
Currency	dram /:1US$ 502.4 (FT 29/05/98)

Robert Kocharian, Prime Minister of the Republic of Armenia
The role of foreign investments in the Republic of Armenia

Armen Darbinian, Armenian Minister of Finance and Economy
Investment in Armenia

Avetik Kalantaryan, Head of the Minister's Administration, Ministry of Privatisation of the Republic of Armenia
Resumé on privatisation in Armenia

Central Bank of Armenia
Development of the Armenian banking system

Enterprise Development and Foreign Investment Promotion Armenian Agency
The Armenian investment climate