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Armenia Warned To End ‘Oligopoly’

Armenia will not reach a higher level of development unless its leadership changes the “oligopolistic” structure of the national economy, bolsters the rule of law and shows “zero tolerance” of corruption, the World Bank’s managing director warned over the weekend.

“I think you can only go so far with this economic model,” Ngozi Okonjo-Iweala told a news conference in Yerevan. “Armenia is a lower middle-income country. If it wants to become a high-income or upper middle-income country, it can not do so with this kind of economic structure. That is clear.”

The unusually blunt message came on the second day of Okonjo-Iweala’s visit to Armenia during which she met with Prime Minister Tigran Sarkisian and local business and civil society representatives and toured several rural communities to inspect the implementation of infrastructure projects financed by the World Bank. She also had a lunch meeting with President Serzh Sarkisian on Sunday.

The Armenian authorities’ efforts to mitigate the effects of the global financial crisis on the country was the main focus of the talks. Okonjo-Iweala reaffirmed the World Bank’s strong support for their anti-crisis measures which has translated into the disbursement of over $200 million in various low-interest loans so far this year. But she also stressed that the recession has exposed “some vulnerabilities” of the Armenian economy that need to be urgently addressed.

“Looking to the future, it is very clear that if Armenia is to come out of the crisis well and grow in the future, it has to confront some central challenges,” said Okonjo-Iweala. “It has to confront a challenge of competition. The economy needs to open up to more competition.”

“You strongly have to work to make sure that the economy is not captured by oligopolistic structures,” she added, apparently alluding to a widely held belief that many forms of large-scale and lucrative economic activity in Armenia have been effectively monopolized by a small number of wealthy individuals and their government patrons.

Okonjo-Iweala also called for a sweeping reform of tax and customs administration, the creation of a “strong and independent judicial system” as well as a tough fight against government corruption. “You have to fight corruption very strongly if this economy is to have a chance to grow in the future,” she stated.

The Armenian authorities claim to have stepped up their anti-corruption efforts in recent years, adopting various anti-graft programs and forming special bodies tasked with their implementation. However, anti-draft watchdogs and other civic group see no significant decrease in the scale of corrupt practices among various state officials.

In particular, the Armenian affiliate of the Berlin-based Transparency International believes that the country’s rulers are inherently disinterested in combating graft because they themselves have extensive business interests and are heavily reliant on the political backing of “oligarchs” enjoying privileged government treatment. Indeed, many government, law-enforcement and other officials in Armenia own lucrative businesses, both directly and through their cronies, and/or share in the profits of other firms sponsored by them.

When asked to comment on the perception that the Armenian leadership has a vested interest in preserving the existing economic system, Okonjo-Iweala said, “I think this is a question that the Armenian people will also have to work on and decide for themselves. But obviously … it will be in the self-interests of everyone in the country, both policy-makers and citizens, if more competition is introduced.”

The number two figure in the World Bank leadership suggested that Prime Minister Sarkisian is “strongly wishing to move on reforms.” “I think he fully realizes that these challenges are there and that if they are not tackled it will be an impediment for the economy,” she said.

Sarkisian’s commitment to reform is also acknowledged by local commentators. However, few of them think that the former governor of the Armenian Central Bank has the political clout and power to effect the kind of changes that are sought by the World Bank.

A statement issued by the Armenian government after Sarkisian’s meeting with Okonjo-Iweala on Saturday said the premier briefed her on “the course of ongoing reforms that are primarily aimed at improving tax and customs administration. He said she success of those reforms would significantly improve country’s business environment and expressed readiness to engage foreign experts in their implementation, the statement said.

“You can deal with the technical issues but what you need is a political will to say, ‘Look, we are going to have zero tolerance of corruption in these areas,’” Okonjo-Iweala told journalists the next day. “So we hope the prime minister will get support -- and I hope to meet with the president -- and that there will be support for this zero tolerance.”

Tigran Sarkisian declared tax reform a top priority shortly after being appointed prime minister in April 2008. He swiftly managed to reduce, with President Sarkisian’s assistance, bribery and favoritism within Armenia’s notoriously corrupt customs service.

However, some local entrepreneurs now say that corruption among customs officials, which is greatly facilitated by their discretionary power to determine the market value of imported goods, has been on the rise this year. “The customs may now be even more corrupt than it was under [former President Robert] Kocharian,” one importer alleged recently.

The businessman, who did not want to be identified, told RFE/RL that local firms importing goods can easily contact intermediary firms that can help them pay less import duties in return for a cash payment. Those firms have close ties with the leadership of the State Revenue Committee (SRC), he claimed.

Only one Armenian businessman has made such allegations publicly to date. Gagik Hakobian, one of the owners of the Royal Armenia coffee packaging company, claimed in 2004 to have been offered to engage in a fraud scam with senior customs officials, including Gagik Khachatrian, the current SRC chief. Hakobian was subsequently arrested and sentenced to six years in prison on controversial fraud charges.