IMF Mission, Inflation, Armentel, Budget for 2008, Copper Mining, Likely Arrest of Businessman

INTERNATIONAL MONETARY FUND: STATEMENT AT THE CONCLUSION OF AN IMF MISSION >TO ARMENIA>M2 Presswire>October 1, 2007>>A International Monetary Fund (IMF) mission led by Ms. Marta>Castello-Branco, visited Yerevan during the period September 5-19,>2007, to conduct discussions for the fifth review under the Poverty>Reduction and Growth Facility (PRGF) arrangement, and to seek>understandings on the 2008 budget. Mr. Lorenzo Perez, Deputy Director>of the IMF, also participated in the concluding policy discussions.>>The mission met with government officials, Central Bank of Armenia>(CBA) staff, business representatives, and the international donor>community. A key task of the mission was to reach understandings on>an appropriate policy framework for the remainder of 2007 and 2008,>in light of the need to manage large-scale foreign exchange inflows and>to deal with emerging expenditure pressures associated with the planned>pension increases and a potential hike in import gas prices in 2009.>>The mission issued the following statement at the conclusion of the>mission on September 18, 2007:>>"Economic performance remains strong, with double-digit growth, low>inflation, and a further improvement in tax collection. The outlook>for 2008 and beyond remains positive, in view of favorable investment>prospects and availability of external grants. Import growth continues>to outpace export growth, but strong inflows of remittances should>dampen the impact of the appreciating dram on the current account>deficit. Since foreign exchange inflows are expected to persist, to>maintain external competitiveness the authorities need to keep prudent>monetary and fiscal policies, and remove structural impediments to>economic growth.>>"The PRGF-supported program remains on track. Program measures will>continue to focus on maintaining macroeconomic stability and on>implementing structural reforms to strengthen tax administration and>improve financial intermediation.>>"A prudent fiscal stance in recent years has contributed to low>inflation, high growth, and low public debt. Going forward, continued>sound fiscal policy will be essential for maintaining macroeconomic>stability and external competitiveness, as well as encouraging foreign>investment. At the same time, increasing the tax revenue/GDP ratio in>a transparent and nondiscretionary manner will be crucial to finance>infrastructure projects, expand essential poverty-reducing services,>and improve the business environment.>>"Inflation remains well within the authorities' target band (4>1.5 percent), but the central bank should stand ready to tighten>monetary policy if high food and energy import prices exert>inflationary pressure. The recent pick-up in credit growth is a>positive development and, together with the expected entry of new>foreign banks, should help increase financial intermediation. To>avoid possible risks related to a rapid expansion of bank credit,>the CBA should continue to hold banks to high prudential standards>and encourage further improvement in banks' risk management and in>borrower transparency (through strengthened corporate governance and>accounting, and an effective credit bureau.>>"While the business environment has improved markedly, several recent>surveys highlight important remaining challenges, particularly>regarding tax administration, access to credit, and domestic>competition. Addressing these shortcomings will be crucial to enhance>productivity and improve Armenia's competitiveness. The entry of>new banks and the acceleration in credit growth are good news in>that regard. However, further action is needed to strengthen tax>administration and to encourage domestic competition. To that end,>the mission considers as top priorities:>>o To make serious efforts to modernize tax administration, while>increasing efficiency, transparency, and fairness in tax collection.>>Discretionary means, such as the accumulation of unprocessed VAT>refunds and requests for advance tax payments should not be used for>achieving revenue targets.>>o To look for ways to reduce monopolistic practices in the import>business, with a view to increasing the pass-through of exchange rate>changes to domestic prices.>>o To allow current tax exemptions to expire, while not introducing>new exemptions or tax amnesties. International experience has shown>that what is crucial to encourage enterprise development is removing>existing barriers and bottlenecks in order to create a level playing>field and further improve the business environment.">>>SEPT INFLATION IN ARMENIA REACHES 0.7%, 3.8% FOR 9 MTHS>Russia & CIS Business and Financial Newswire>October 1, 2007 Monday 5:40 PM MSK>>Inflation in Armenia came to 0.7% for September and 3.8% for>January-September 2007, the national statistics service told Interfax.>>Prices on foodstuffs, including alcoholic beverages and tobacco,>increased 0.9% while prices for non-food items went down 0.4%.>>Service sector costs also grew 0.9% in September.>>>ARMENTEL RELINQUISHES CONTROL OF ARMENIAN COMMUNICATIONS MONOPOLY>Russia & CIS Business and Financial Newswire>October 1, 2007 Monday 5:45 PM MSK>>YEREVAN. Oct 1 (Interfax)- CJSC ArmenTel, a wholly owned subsidiary>of Russia's VimpelCom (RTS: VIMP), relinquished its total monopoly of>communications services from October 1, 2007, in line with a decision>by the Armenian public services regulation commission, the commission>told Interfax.>>The commission's decision to introduce the appropriate amendments>to the company's license was approved August 24 and came into force>as of October 1. Therefore, Armenia's communications market has been>fully liberalized.>>ArmenTel, for example, relinquished its monopoly of major and>minor telecommunications services including local, intercity and>international services. It also no longer holds the monopoly for>telephone line leases, international transit and satellite services,>public mobile services, the transmission of electoral data by Internet>(IP telephony) and broadband video.>>ArmenTel gave its consent to relinquish its monopoly on the Armenian>communication market. This market monopoly, which was instituted at>the end of 1997, was initially meant to last to 2013.>>ArmenTel's general director Oleg Bliznyuk earlier said: "Starting from>October 1, ArmenTel will become a fully commercial company that will>be exonerated from several social commitments. Any projects related>to investment will be primarily considered from the point of view of>return on capital," he said.>>Currently, CJSC Armentel operates on the Armenian cellular market.>>Its owners are VimpelCom and CJSC K-Telecom (trademark Vivacell);>an 80% stake of the later was acquired by Mobile TeleSystems (RTS:>MTSS) in the middle of September of this year.>>>Government Approves 2008 Budget>By Emil Danielyan>>The Armenian government approved on Tuesday its draft budget for next>year which calls for a more than 40 percent surge in state expenditures>and revenues.>>Under the budget bill to be submitted to the National Assembly on>Wednesday, government spending in 2008 will total 820.8 billion drams>($2.45 billion), compared with 584 billion drams projected for this>year. State revenues are projected to jump by 44 percent to 744.7>billion drams.>>The proposed sharp increase is partly due to the fact that the>government will for the first time include social security taxes and>subsidies to the state pension fund into its budget. Even so, the>government will have to ensure a further major increase in its tax>revenues in order to meet the record-high budgetary targets. A>government statement quoted Prime Minister Serzh Sarkisian as saying>that this will require `serious efforts' from tax authorities and other>government agencies.>>The statement said education and healthcare would be key beneficiaries>of increased public spending. In particular, the education sector would>receive 103.7 billion in funding, up by almost 20 percent from 2007.>Spending on healthcare would similarly rise by 24 percent to 54.6>billion drams. This would in turn mean a corresponding increase in the>salaries of public sector teachers and medical personnel.>>There was no word on Armenia's defense budget for 2008. Sarkisian said>last month that the Armenian military will get approximately $400>million, meaning that it will remain the single largest recipient of>public funds. That would represent a 33 percent increase, in dollar>terms, from the 2007 level.>>>Armenian Mining Giant To Start Work On Major Copper Deposit>By Astghik Bedevian>>A leading Armenian mining company said on Tuesday that it is pressing>ahead with the development of a massive copper and molybdenum deposit in>the country's north despite strong resistance from local>environmentalists.>>Gagik Arzumanian, chief executive of the Armenian Copper Program (ACP),>was confident that the Liechtenstein-registered company will soon get>final government clearance to start work on the Teghut deposit. He said>it is already making preparations for open-pit operations in the wooded>area estimated to contain 1.6 million tons of copper and about 100,000>tons of molybdenum.>>`We know of no circumstances that can call into question the project's>implementation,' Arzumanian told RFE/RL.>>Buoyed by record-high international prices for non-ferrous metals, ACP>plans to spend $270 million on turning the wooded area located in the>northern Lori region into a huge mine. It intends to extract more than>30,000 tons of copper and molybdenum ores there per annum starting from>2012.>>The project, if implemented, will lead to the destruction of 357>hectares of rich forest, including 128,000 trees. Hence, the outcry it>has sparked among Armenian environment protection groups. They say that>the Teghut mine would wreak further havoc on Armenia's forest that have>already shrunk dramatically since the 1990s.>>Hakob Sanasarian of the Armenian Union of Greens warned on Tuesday that>crop-growing and other agricultural activity in the area close to>Georgia would also be hit hard. `Even in nearby forests, which are not>supposed to be chopped down, it will be dangerous to collect fruits and>berries,' he said.>>ACP admits the heavy environmental cost of its plans but says it will be>more than offset by 1,400 new jobs which it has pledged to create in the>economically depressed area. The company has also pledged to build new>schools and make other investments in the local infrastructure.>>The Armenian government clearly accepts ACP's arguments, with the>Ministry of Environment formally giving its mandatory go-ahead to the>Teghut project earlier this year.>>`It is beneficial for the state because new jobs will be created, more>taxes will be paid to the state budget, and local infrastructure will be>upgraded,' said Gagik Haroyan, a senior official at the ministry's>Geological Agency. `If there is a deposit of natural resources, it must>be exploited.'>>Non-ferrous metals and ores are currently Armenia's main export>products. The local mining sector is dominated by ACP and the>German-owned Zangezur Copper-Molybdenum Plant operating in the>southeastern Syunik region.>>>Acquitted Businessman Poised For Fresh Arrest>By Ruzanna Stepanian>>An Armenian businessman acquitted in a landmark court ruling is expected>to return to Yerevan Wednesday to face fresh arrest and prosecution on>fraud charges which he says were trumped up in retaliation for his>allegations of high-level government corruption.>>Gagik Hakobian, the leading shareholder in the Royal Armenia coffee>company, and its deputy director, Aram Ghazarian, were cleared of any>wrongdoing by a Yerevan court last July after spending nearly two years>in prison. Prosecutors challenged the sensational acquittal at the>higher Court of Appeals which opened hearings on the case in late>August.>>Hakobian left Armenia to undergo medical treatment in Spain shortly>after his release and has failed to attend any of those hearings. The>Court of Appeals ordered law-enforcement authorities to locate and again>arrest the businessman, dismissing his assurances that he will return to>the country after completing the treatment.>>Hakobian told RFE/RL last week that he will fly back to Yerevan on>October 3. His defense attorney, Ashot Sargsian, confirmed this on>Tuesday. Sargsian said his client will do so despite realizing that he>will be arrested again and could eventually be sentenced to 12 years in>prison, a punishment demanded by the prosecutors.>>`They will put on a show at the airport,' the lawyer told RFE/RL. `The>moment he arrives here by plane he will be handcuffed and taken away ¦>This is the kind of country we live in.'>>The prosecutors and the State Customs Committee claim that Royal Armenia>illegally avoided paying more than 1 billion drams ($3 million) worth of>taxes and import duties. Hakobian and Ghazarian flatly deny the charges>which they say stem from their refusal to engage in a scam that would>have benefited two senior customs officials. The two men publicly and>repeatedly voiced those allegations in the months leading up to their>arrest in October 2005.>>Pargev Ohanian, a Yerevan district judge who presided over their first>trial, effectively sided with Royal Armenia, rejecting the charges>brought by prosecutors as unfounded. The verdict is widely linked with>disciplinary proceedings subsequently launched against Ohanian by a>government-controlled body monitoring Armenian courts. The Council of>Justice, another, more powerful judicial body, is to decide by next week>whether to ask President Robert Kocharian to fire the judge or sanction>him otherwise.>>Meanwhile, Armenia's human rights ombudsman, Armen Harutiunian,>petitioned the Court of Appeals last week to scrap its arrest warrant>for the Royal Armenia owner. Harutiunian had declined to intervene in>the high-profile case until then.>>`Kudos to [the ombudsman] for appealing against the arrest,' said>Sargsian. `But will he be consistent in fighting for Hakobian's release>after his petition is rejected? We'll see.'