Announcement of World Bank Support for Economic Reform in Armenia on March 1, 1995

FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. * Telephone: (202) 477-1234 IDA Press Release 95/36ECA Contact: Jan Pakulski (202) 473-1797 WORLD BANK SUPPORT FOR ECONOMIC REFORM IN ARMENIA WASHINGTON, March 1, 1995 -- The International Development Association (IDA) approved yesterday a credit of SDR 41.5 million ($60 million equivalent) to help stabilize and restore growth to the Armenian economy. Armenia's development into a modem economy is constrained by the legacy of Soviet central planning. Like other countries in the region, Armenia is still experiencing severe economic difficulties arising from the breakdown of the trade, payments and financial system of the former Soviet Union (and the consequent severe terms of trade shock). In addition, the conflict over Nagorno-Karabakh has led to a trade and transport blockade (including Armenia's principal transit route for oil, gas and other products) and the closure of the Turkish border; the effects of which have been compounded by civil strife in Georgia. Since the winter of 1991, Armenia's effective isolation has resulted in highly constrained economic activity. There have been several recent positive developments in Armenia's relations with its neighbors. Of greatest importance is the progress towards peace in the 6-year-old Karabakh conflict. On July 27, 1994, Azerbaijan, Karabakh, and Armenia signed an agreement in Moscow formalizing the ceasefire (which has held since May 1994) and providing for the immediate commencement of negotiations of a comprehensive peace agreement. This development offers a real prospect of a lifting of the blockade in the near future. In addition, rapidly-growing trade with Iran, which is now second in importance only to that with Russia, and increasing stability in Georgia have significantly eased Armenia's isolation (the latter is of particular importance for improved transit of energy supplies). The rehabilitation credit supports implementation of structural reforms necessary to complete the transition to a market economy and alleviate poverty in order to resume economic growth and achieve higher overall living standards. Emphasis is placed on promotion of the private sector, and establishing a targeted system of social protection. To complement economy- wide efforts, sector specific interventions will focus on the delivery of social services, energy I The December 1994 meeting in Budapest of the Organization for Security and Cooperation in Europe (O.S.C.E.) decided to send a multilateral peacekeeping force to Nagorno-Karabakh and to enhance the coordination between the O.S.C.E. and Russia on the Nagorno-Karabakh issue. Archives/Records Center, H 61-001 ( 1) efficiency and the rehabilitation of other critical infrastructure. The main objective of the credit is to support the Government's reform program to stabilize the economy and create the conditions for a resumption of growth and an improvement in living standards. Other objectives include: (i) to provide foreign exchange for the purchase of critical imports, particularly for the private sector; (ii) to provide budgetary support, especially for the strengthening of the social safety net for the most vulnerable groups; and (iii) to provide a framework for urgently-needed financial assistance from other donors. The program includes policies that: (a) promote the development of competitive markets and of the private sector, through privatization, liberalization and regulatory reform; (b) result in improved financial discipline for enterprises and banks; and (c) improve the targeting of the social safety net to the most needy. - A task force drawn from the key central and line agencies, coordinated by the Minister of Economy, has been established to monitor the implementation of the program over the next twelve months. The structural reform program supported by the credit will, in conjunction with macroeconomic stabilization supported by the IMF, foster the development of a competitive market economy, led by the private sector. This will promote the efficient allocation of resources to underpin economic growth and a reduction of poverty. The credit will provide critical import support to allow economic recovery and to stem the decline in living standards, and will do so through market mechanisms. The credit should also serve to catalyze quick- disbursing balance of payments financing from other donors. The credit is extended at the standard IDA terms for a period of 35 years, including a 10-year grace period, and carries no interest. IDA is an affiliate of the World Bank, established to provide assistance to the world's poorest countries on highly concessional terms. Armenia joined the World Bank in September 1992 and became eligible for IDA terms in August 1993. 0 ---