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ISLAMISTS DETAINED IN AZERBAIJAN. Azerbaijani security officials have arrested six members of a cell of the banned Islamic organization Hizb ut-Tahrir, Turan and Western news agencies reported on 2 January. Five of those detained are citizens of Azerbaijan and one of Ukraine. The group's leader was identified as Abdulrasul Abdurahimov, a citizen of Uzbekistan wanted on charges of calling for the overthrow of the Uzbek leadership. Turan quoted an Azerbaijani National Security Ministry official as saying that the detainees were planning terrorist attacks on the U.S. Embassy in Baku and the offices of unnamed international organizations. Hizb ut-Tahrir, however, generally eschews violence; its members in Uzbekistan and Kyrgyzstan advocate the establishment of an Islamic state by exclusively peaceful means. LF

When a country sees its gross domestic product soar by over 9 percent, making its economy one of the most rapidly growing in the world, it should presumably have cause for celebration. But jubilation is the last thing most Armenians care to indulge in as they enter the 11th year of painful social and economic transformation, for the simple reason that the unprecedented upswing claimed by the government's statistics has hardly improved their plight.

The official figures are impressive indeed. They showed the Armenian economy growing at a record-high rate of 9.1 percent with 3 percent inflation from January through November this year. Exports were up 14 percent, while imports remained virtually unchanged during the same period, putting Armenia's huge current account deficit on track to fall from 14.5 percent to 11 percent of GDP in 2001. Equally important is a 13 percent rise in retail sales.

"Despite how unhappy people seem to be with the situation, there is a definite improvement here," said a Western diplomat in Yerevan. "Even if the statistics are not really entirely reliable, no one should question that there is a macroeconomic improvement going on."

Armenia's macroeconomic performance is described as encouraging by the International Monetary Fund, a key driving force behind the decade-long reforms. But IMF officials are also quick to point out what analysts and some government officials alike would agree with: the Armenian growth has so far benefited mainly the rich and widened income disparity. At least half of the population remains mired in poverty, and unemployment is still extremely high.

"There is a robust growth in Armenia, but we don't see the level of poverty declining as there is only one small class that enjoys its fruits," said Garbis Iradian, the IMF representative in Armenia.

President Robert Kocharian's chief economic adviser painted a similar picture in a recent interview with RFE/RL. Vahram Nercissiantz, who headed the World Bank office in Yerevan in the 1990s, argued that raising low living standards is seriously hampered by poor tax collection and the resulting low level of public spending.

Indeed, tax revenues are expected to make up less than 15 percent of Armenia's $2.1 billion GDP this year. This ratio is two times higher in some other ex-Soviet states like Russia and Ukraine. As a result, Armenia gets an annual budget of less than $500 million, which is nowhere near enough to meet its basic needs. Economists warn that the meager amount of public funds spent on education and health care may cost the country dearly in the years to come.

The government's tax revenues increased last year, but not enough to meet the revenue targets set by the 2001 budget. The government is now scrambling for funds to offset a shortfall in third-quarter revenues. This fact gives critics reason to assert that the growth is either not being fully taxed or is not as rapid as the authorities claim.

Hrant Bagratian, the liberal former prime minister, believes that the real growth rate is unlikely to be more than 5 percent. "It's hard to believe in the credibility of these figures," he told RFE/RL.

The more dominant view is that the bulk of the extra wealth generated by the economy ends up in the pockets of wealthy businessmen, many of them with close links to the ruling regime. Otherwise, the argument goes, the authorities would not have trouble implementing their modest budget.

The fiscal problems highlight the existence of a huge informal or shadow economy based on tax evasion. Some analysts suggest that the shadow economy may account for up to half of all economic activity.

Hidden employment is one of its by-products. Hundreds of thousands of Armenians are thought to have jobs that are not listed in the document registry of the tax authorities. This makes it difficult to gauge the real impact of the growth on people's lives.

President Kocharian has recently announced the creation over the past year of more than 40,000 new jobs -- a figure questioned by his political opponents. But even if that is true, the situation on the ground has not improved markedly, with Armenia's GDP still at 70 percent of its 1990 level.

"Such a growth -- from 8 to 9 percent -- has to continue for at least four or five more years in order to make a difference to the economy," Iradian said.

Kocharian's opponents also point to the structure of the GDP growth. With industrial output rising by just 3 percent during the 11-month period, the economy has been largely pushed up by the construction and agricultural sectors. The latter has simply recovered from last year's severe drought due to a better harvest.

Skeptics also cite the continuing lack of foreign investment in the Armenian economy. They are unlikely to exceed $100 million this year. The figure does not include the substantial money remittances from the diaspora and Armenian nationals working abroad, mainly in Russia and the United States. The Armenian Central Bank estimates that the total amount of the private transfers has reached $300 million this year. But the real figure could be even higher.

"It's a lot of money -- hard currency generated say from Moscow or Los Angeles that's somehow getting here," one Western diplomat said. "Where it is going is not clear. Sometimes I think a lot of the wealth in this country is driving around the streets of Yerevan in $90,000 cars."

Only a small proportion of that money gets into the local banks. No wonder that most business transactions in Armenia are done in cash.

Trying to understand what really drives an economy where growth is not fueled by the banking system and capital markets is a mindboggling task. Nor is it easy to assess its growth prospects.

The Western donors' recipe for sustained growth is the improvement of the business climate, which still leaves to be much desired in Armenia. Throughout 2001 they increasingly urged Yerevan to clamp down on endemic corruption and ensure the rule of law.

In Bagratian's view, the current authorities could have secured a double-digit growth if they had kept up the momentum in structural reforms of the health care and pension systems, taxation and licensing policies, and the energy sector. He said they should also find a way to channel the huge cash resources into the legal economy.

No less important, it appears, is peace and stability in the South Caucasus. Each of its three impoverished countries is too small a market to be attractive to large foreign investors, not including several oil multinationals developing Azerbaijan's oil reserves. The reopening of borders and the free movement of capital and goods across the region is hardly possible without the settlement of the conflicts in Nagorno-Karabakh and elsewhere in the region. The current status quo thus harms both Armenia and neighboring Georgia and Azerbaijan.

"We risk being left on the sidelines of globalization," said Eduard Aghajanov, a former government minister who now runs a private economic think tank in Yerevan. "The regional states will be of little interest to international business unless they act together."

UKRAINIAN COMMUNISTS WIN 'GREAT VICTORY' AS COURT REJECTS 1991 BAN. A Ukrainian high court on 29 December rejected as unconstitutional a decade-old, blanket ban on the Soviet-era Communist Party, Reuters and other agencies reported. A communist leader and the speaker of the Crimean parliament, Leonid Hrach, said, "Despite huge regret that we needed 10 years to come to this natural and evident truth, this is a great victory," Reuters reported. Interfax said Hrach called it a "victory for common sense." In its ruling, however, the Ukrainian Constitutional Court rejected calls for communist assets -- which included dozens of government buildings, rest homes, and health facilities -- to be returned to the party. Only the courts have the power to exclude political parties, the court said. The prohibition has been largely ignored since it was imposed on the country, where the revamped Communists are the largest party in the 450-seat assembly. AH

UKRAINE DROPS VISA REQUIREMENTS ON FORMER SOVIET CITIZENS. Nationals from throughout much of the former Soviet Union were allowed visa-free entry to Ukraine beginning on 1 January, agencies reported the same day. The move implements a cabinet decision from May to lift the requirements on citizens from Azerbaijan, Armenia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, according to Interfax. Citizens of Belarus, Russia, Georgia, and Turkmenistan already could travel without a visa to Ukraine. Citizens of the Commonwealth of Independent States need only to present their passports to enter the country, ITAR-TASS added. AP reported that an agreement on visa-free travel also came into effect between Ukraine and Moldova on 1 January, although ITAR-TASS cited a Ukrainian official as saying that talks are still underway on that issue. AH

UKRAINIAN COURT DELAYS CONTROVERSIAL BROADCAST DECISION. A Ukrainian court on 28 December postponed its decision on whether to allow independent Radio Kontinent to continue broadcasting in a case that the Council of Europe has called a test of media freedom, AP reported. The court was expected to issue its ruling some eight months after Ukraine's National Television and Broadcast Council revoked Kontinent's license, citing an outstanding debt. Others, including Council of Europe Secretary-General Walter Schwimmer, have suggested the move was politically motivated. "Radio Kontinent challenged this decision in court almost a year ago, and no court action has been taken since then," Schwimmer said in a statement issued from Strasbourg and quoted by AP. He urged authorities to allow the station to broadcast until a decision is made, the agency added. AH

WEATHER, STORMS BLOCK ROADS, LEAVE HUNDREDS OF UKRAINIAN TOWNS WITHOUT ELECTRICITY. Heavy snow left highways and minor roads impassable and left huge numbers of people in four regions of Ukraine without electricity, Interfax and other agencies reported on 2 January. Interfax cited the Emergency Situations Ministry as saying that some 289 towns and villages in the west of the country were without electricity, while more than 400 settlements suffered power outages at some point. An international battalion made up of Ukrainian, Romanian, Hungarian, and Slovak troops was helping clear roads in the aftermath, AP reported. AH