President Kocharyan's press conference at ARMENPRESS press hall

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Topic: Economy, job creation, constitutional reforms

ROBERT KOCHARIAN – Let me remind you that I first spoke about job creation on November 2, 2000, in my interview to National Television. Since then, we have turn on the meter and started counting. Today I will talk about a bit less than a year, about 11 months, since we will have to meet in February to sum up the results of the whole of 2001. I must say it was very difficult work: no administrative monitoring of job creation has ever been conducted in Armenia. Usually, different methods are used as a basis for this type of work, but, I must admit, I myself had no idea how much work it takes. It was a very big task. It was the first time that administrative monitoring took place in Armenia, and we will try to carry out such type of monitoring every year. And now, perhaps we should go straight to questions. I am interested to know how you have prepared, since the topic has been in the center of attention for about a year already.

QUESTION (Armen Hakobian, “Hayots Ashkharh” newspaper) – Two questions. Mr. Tchshmaritian introduced the newly created jobs based on a very interesting and serious methodology. But yesterday, during parliamentary discussion of the budget, Artashes Geghamian stated bluntly and without any methodology that 163 thousand jobs have been cut in four years between 1997 and 2001. According to him, this is official data. I would be interested to hear your opinion on such statements. And the second question: It seems that there is “shadow economy” in all countries around the world, including the most developed countries. But there is an impression that there is much more talk and estimations about the size of the shadow economy in Armenia rather than about concrete actions against the shadow economy. According to you, Mr. President, what should be the priority actions against the shadow economy and how are they being implemented already. Thank you.

ANSWER: The second question is more complicated, since I will have to present to you the Government’s entire policy. As for yesterday’s statement, I haven’t heard it, but I believe that it was made. We have done everything to make the numbers presented by us credible and we have means of verifying them. One can say a lot of things just like that, without justification: one can even talk about 200 thousand. I must repeat that we did not take into consideration the numbers that have to do with seasonal jobs. For instance, 15 thousand people worked for the census for about 4 months on average. We could have easily divided that 15 thousand by three and say that we have created 5 thousand new jobs within the framework of that program alone. But we did not do that. We have simply subtracted that number of jobs from our calculations, thinking that we need to speak about stable jobs only. I don’t know where he got his numbers from, I can only guess ... Perhaps we should also hear from the Head of the Statistical Service.

STEPAN MNATSAKANIAN: As far as I can tell, these numbers were taken from the National Statistical Service’s employment index. But this index is calculated on the basis of a completely different methodology: for this index, we collect the lists of employees from all organizations, where thousands of employees have been listed since the 90s...

ROBERT KOCHARIAN: Alright, that is clear, I will take it from here. In this case, the parliamentarian should have tried to get a bit deeper into the subject and understand what numbers is he talking about and what numbers are included in that report. If we try to assess the situation in this manner, we would get a situation where the additional jobs that have been created, for instance by “Grand Sun” (they have created a thousand or even more than a thousand jobs), should have appeared as minus thousand, since the company used to have thousands of employees on the list prior to privatization. The company did not work, only 20 to 30 people actually worked, but there was a list that was simply inherited from the past and the statistical services simply had to take that list into account. There is hidden, shadow employment and there is also shadow (perhaps this is not the right word in this context) unemployment. Do you understand it now? What we have presented to you has been calculated one by one. Private entrepreneurs do not keep that list hidden and they update it immediately as the need arises, while in this case the factory finds itself in a totally different status. About the shadow economy: a few different directions. For instance, we have passed the law on procurements and set up an appropriate agency, which means that a significant portion of budget expenditures will be carried out in a centralized fashion, according to the law. Practice has already shown that a lot of money can be saved that way. That’s one. The shadow economy has a direct link with tax laws. If you take a closer look at the entire package of tax law reforms, you will see that the reforms are aimed at addressing this issue. The law on inspections is also aimed at fighting the shadow economy. There is also a number of other anti-corruption measures that include numerous steps that are necessary for fighting the shadow economy.

QUESTION (Irina Ghulinian, “Hayastani Hanrapetutyun”) – Mr. President, in 2001 we have been counting not only new jobs, but also tourists. What was the final count of tourists who visited Armenia in 2001, and what happened in the tourism industry in terms of investments? And my second question is: it is very nice that 40 thousand plus jobs have been created, but how many new jobs can you promise for next year?

ROBERT KOCHARIAN: As for tourism, we had projected that the number of tourists would increase 2 to 3 times. We can see today that we managed to meet the lower limit of our projected number: the number of tourists who have visited the country has nearly doubled. Had it not been for the September 11 events, I am confident that the number of tourists would have been higher: the increase would have been 2.3 or 2.4 times, if not 2.5 times. As for the numbers themselves, we had about 66 thousand tourists more this year. These numbers can be seen from the so-called “air tax” revenues.

As for the promise... Perhaps I should be more careful when I give promises. I will tell you why. If we were able to keep up this pace of job creation in the next two-three years, most of the population would feel a significant change in their daily lives. But 2003 is an election year, and I am not sure that the second half of 2002 will be very productive in that respect. What sorts of rearrangements will there be among political forces, what sort of populism will our political forces and politicians be suffering from – all of this is difficult to predict today, but all of this has a demoralizing effect on the economy and, consequently, on the job creation process. I will be more moderate and will perhaps use some outside advice to find out approximately how many new jobs can we reasonably expect so that I can “get away with it” later, so to speak. Perhaps I will announce a specific number in January or February. It is necessary to set a number so that we can strive for it. I must say that we did not come up with the previous number on the spur of a moment or under the influence of emotion. I had an approximate idea of how much construction will take place, while programs related to large enterprises, the 1700th anniversary, tourism, the hotel business and services were already outlined. The tendencies in these sectors were prompting us that one can reasonably expect such a number of jobs. Nevertheless, I was still talking a bit cautiously.

QUESTION (Ara Tadevossian, “Mediamax” news agency) – Mr. President, the numbers you have announced today are really encouraging. In your view, what are the dangers or risks that may hinder this process? And a small question: 39 percent of additional jobs has to do with the construction sector. Do you know what percentage of these jobs can be lost over a period of time in view of the fact that some of the construction projects will be completed in the next few months...

ROBERT KOCHARIAN: The volume of capital construction is going to be higher in 2002. The financial sources for construction are already visible. Now we have to think more about 2003 and 2004, despite the fact that we have consequent programs: Northern Avenue, road construction, etc. Now about risks. They are numerous. Today, we cannot say that Armenia’s economy is no longer risky just because we had a 9.6 percent economic growth in 10 months. Of course, it is risky. First of all, the risk factor has to do with political situation. The more stable the country’s political situation is, the less the amount of risk for the country will be and we will be able to achieve greater success in 2002. But there are also risks in the economy. Perhaps I should speak a bit more about the risks. There are risks that may have to do with the Government’s policy, with pre-election populism. Let me explain. For instance, thanks to our Government’s policy we have managed to decrease the interest rates on our short-term treasury bills. If I am not mistaken, the interest rate was more than 25 percent at the beginning of the year, while now it stands at15-16 percent. What does it mean? It means that the Government is trying to involve less free resources to finance the budget, to cover the budget deficit. What does, for instance, 30 or 40 percent for treasury bills mean? I think it is simple. It means that it is much better for businessmen and for banks to work in that market, to finance the budget instead of directing their free resources to finance the real economy. We have reduced the 40, 30-35 or 25 percent profitability in a non-risky field. The Central Bank’s policy was also aimed at cutting the interest rates. Look at the amount of deposits attracted in the banks: what was the number before and what is it now. During this year alone we had a 4 percent decrease here, in both foreign currency and dram deposits. This means that some credit resources have been freed up, cheaper credits that are directed at economic development and implementation of new programs. This is also due to the fact that the World Bank’s small and medium business development credit program and the Lincy Foundation’s credit program have started working. The number of new jobs is a result of this policy. Since there was a question about risks, there are risks here as well. For instance, it would be a fatal mistake if the Government tried to adopt a different policy to pay wage arrears or current debts by issuing more treasury bills and used the measures that are currently aimed at economic development to cover the budget deficit. Perhaps it is possible to take such steps on the spur of a moment or in order to declare to political forces that there are no wage arrears, but by doing so, we would, in the long run, damage all that has already been achieved today, all the tendencies that we have. Therefore, there are risks that are to do with the Government’s policy that must first and foremost be aimed at economic development. That’s first. From this, budgetary problems derive. The budget should not lag behind so much as to create social tension that would lead to political instability in the country. Therefore, we must always try to maintain this balance and move forward in such a fashion that we never have to do one thing at the expense of another.

QUESTION (Hrach Melkumian, Radio Liberty) – Mr. President, the numbers we heard today did not contain any evidence in terms of tax revenues. If we have more than 40 thousand new jobs, this should have been reflected in tax revenues. I am talking about income tax, for instance. Even if the minimal amount on which income tax is levied was raised, this should have been visible from social security payments. Payments to the pension fund are close to the projected amounts, but do not exceed them by so much as to indicate that so many new jobs have been created. And another thing. You talked about positive balance. Would you clarify: have you calculated the number of people who have lost their jobs in this period? In other words, is this 40 thousand the balance between the new and the lost jobs?

ROBERT KOCHARIAN: Yes, it is that balance. As for tax revenues, the revenues from income tax are not the first, but rather the last indicators showing economic growth. We cannot use them for comparison, since the law on income tax changed at the beginning of 2001. The highest rate of income tax used to be 30 percent, then it was reduced to 20 percent. Given these changes, it is not correct to compare this and last year’s tax revenues. When we were discussing the draft budget last year, we knew that we are going to lose more than 4 billion drams in income tax revenues as a result of the new law. The amount of broad money is a much more accurate indicator of economic growth and the size of the economy. Compared with the same period last year, the amount of broad money is 14.5 billion more today. The total amount including foreign currency has increase by about 30 billion. There is no inflation. It is lower than projected, about 1 percent. These numbers are for the first 9 months of the year. As of December 1, tax and duty revenues stood at 150 billion drams, compared to 136 billion drams in the same period last year. About income tax: you know that there is a difference between the registered salary and the amount actually paid out, especially in the private sector. In other words, there is a gray area here as well, and we have some work to do here in terms of administration, methodology and legislation.

QUESTION (Ara Martirossian, “Azg” newspaper) – Mr. President, if I am not mistaken, you said in your speech, in November, that you were expecting 300 million dollars in investments and credit resources from the World Bank, the Lincy Foundation and private initiatives. Have your expectations come true? And the second question. When we talk about new jobs, we often neglect the issue of wages. For instance, wages in the light industry are very low – 10-15 thousand drams, which is not enough for prosperity. Thank you.

ROBERT KOCHARIAN – When we say 40 thousand jobs, or more than 40 thousand new jobs, this does not mean that all the people in those jobs immediately solve all their problems. The labor market has its logic. In this case, if there are people who are willing to work for 15 or 20 thousand drams, it is obvious that employers are not going to pay higher wages. If we manage to open 40-45 thousand new jobs every year, this would mean that the labor market will change, become more stable, and employers will have to pay higher wages to their employees. There is a very simple pattern and simple logic here. Therefore, I am confident that our economic policy must be focused, first and foremost, on economic growth and job creation. Particularly in the area of small and medium business. We talk about risks, and there is a risk factor here as well. We have no oil and no large metallurgy complexes. In a number of countries, about 40-50 percent of the budget comes from these sectors, while tax administration and the activities of tax authorities usually have to do with large taxpayers that help solve all budget problems. Tax authorities are always tempted to use such laws that would lead to businesses becoming larger so that it is easier to work with them. There is a serious danger here. If we follow that route, we would end up as a country that has about 9-10 or perhaps 20 employers, while the rest will be hired employees. I believe that you, the Government, the National Assembly and the public should do everything possible to ensure that our legislation encourages small and medium businesses that would lead to the formation of a middle class in Armenia that would tie the people to the land, to their country. Small and medium business development is one of the most important objectives. When I look at the Government’s draft laws, I always keep this factor in mind – to do whatever it takes to make sure that our decisions do not hinder the development of small and medium businesses. I repeat, because there is always a temptation to make one’s work easier: the work will be easier when one deals with a small number of businesses. It is clear, isn’t it? It is one thing to have 5 bread factories in Yerevan, and it is completely different to have 300 small bakeries. Of course, the shadow economy is going to be larger with 300 small bakeries. The control would be much more difficult. Nevertheless, we need to follow that route, despite the difficulties. We need to improve the administration and create conditions for the development of small and medium businesses. Credit resources, favorable tax laws and, of course, fair competition. We have some problems here. I don’t have the data on the amount of investments today, because these numbers are usually presented for the whole year. You know, there are really some interesting things going on in the economy, despite all the problems. Yes, there are problems with the budget, but this does not mean that there is no economic development. Most importantly, I repeat, the banking capital has started to finance the economy, businesses have started looking at exports, because competition is very tough in the domestic market. It is also understandable that our market is small, and therefore, we will simply have no future if our industry, our economy does not export. There are many interesting phenomena, and we need to conduct such an economic policy that would encourage these phenomena, these tendencies.

QUESTION (Alexander Avanesov, “Arminfo” news agency) – Mr. President, the situation in the energy sector is rather serious these days. This, in turn, has a serious impact on the economy as a whole. What steps are going to be taken to redress the situation? Thank you.

ROBERT KOCHARIAN – One of the risk factors I was talking about is the energy sector. This was the reason for the personnel change that took place recently. The sector should have a very clear administrative policy. The 1.5 years long and unsuccessful privatization process was a hindering factor for the energy sector. Debts have been accumulated in various parts of the system. We will need about 1-2 months to redress the situation. We will implement some serious reforms. Financial flows will be normalized. I would like to ask the employees of the sector, particularly the employees of energy producers, to have a little more patience with a few months of salary arrears. All the problems and issues will be solved and settled. But we should not forget that the collection of dues should be such as to enable us not to accumulate any debts for gas. Accumulation of debts would simply mean that the country will not get enough gas to run its economy. For this reason, we have to be very strict in these issues, because if it is now some people who are unhappy with us, everyone is going to be unhappy in the future if we are not strict. Let me repeat, one or two months more, and we will be able to work in a more relaxed regime in the energy sector; we already know what reform program we are going to implement. We are talking primarily about the implementation of leased management mechanisms. I do not rule out the possibility of making more active use of the capabilities of various entities in Armenia and of the employees of the energy sector itself.

QUESTION (Gayane Movsissian, “Caspian” news agency) – Mr. President, how do you see the future of energy distribution networks?

ROBERT KOCHARIAN – We couldn’t sell them. I have always been and I remain a supporter of their privatization. The economy that is functioning in Armenia is private. Any contact between government and private sector always ends negatively for the state-owned enterprise. It is understandable that everyone is a master of taking something away from a state-owned business – we have 70 years of Soviet experience and “creative” people... everyone knows about people setting their electric meters back. It is simply impossible to assign a policeman to everyone who sets his meter back. We need to introduce a private interest in the relations between consumers and the energy sector. What we have today cannot be tolerated.

QUESTION (Naira Zohrabian, “Haykakan Zhamanak” newspaper) – Mr. President, you talked about abuses in the energy sector, but it is known that the brother of the Chairman of the Yerkrapah Union Manvel Grigorian has appropriated 550 million drams and is still at large. The second question: in the metallurgy sector the focus has been on Akhtala, while in the chemical industry – on “Prometei Chimprom.” Can you assure that these two plants are currently working? Observers from the Armenian People’s Party and the Constitutional Rights Union have visited the plants and said that Akhtala worked only on the day when you went there to open it.

ROBERT KOCHARIAN: There is a new term today – “observers.” Of the Constitutional Rights Union and of the People’s Party. Very interesting: an observer for a factory, an observer for jobs, etc. etc. As for the Akhtala metallurgy plant, I have to remind you that the plant has entered the first phase of its program, for which about 500 thousand U.S. dollars have been invested. The investor is prepared to invest 10 million dollars for phase two. The plant is currently working, but there is not enough rock for working at full capacity. That is why the plant works for 2-3 weeks, then stops for a week. Big additional investments are required to make this cycle uninterrupted and complete. It is with this knowledge that we will go for the second phase. Actually, Akhtala also didn’t work for a week because of a debt to the energy sector. The investor has offered to privatize the plant and links his future investments to this privatization. We are currently working on the privatization package. We will complete it soon, if not by the end of the year, then in January. As for “Prometei Chimprom.” The plant is working. We opened the plant about 1.5 years earlier than was previously scheduled. They needed to reconstruct the plant, make it ready. The reconstruction was completed faster than expected. To work at full capacity, there is a problem of markets, there is a problem of ensuring the full cycle of work. Chemistry is, generally speaking, a very difficult area. If you produce 6-7 types of products, but have no market for 2 of them, then the production of the remaining products is simply not profitable. In this case, the plant is moving ahead in accordance with its program. The Government’s role is to make sure that gas prices are such that the plant’s work is profitable for the owners as well. We are working on these issues now. Among the 40 thousand jobs we are talking about, we had envisaged that only 450 will be at the Chimprom, but we could have forecast a larger number of jobs there, since in reality the number of people working there is higher. As for your other question, I would say that I don’t know specific names, but I know that the biggest misappropriations and abuses took place in the irrigation water sector in Armavir marz. I don’t know who is whose relative, but criminal investigations have been launched and the issue of recovering the losses is on the agenda. If a particular person has agreed to reimburse the losses, he or she will still not avoid being brought to justice, but the punishment will be less severe, in accordance with judicial practices.

QUESTION (Zara Gevorgian, “Golos Armenii” newspaper) – Mr. President, the problem of insurance is very urgent today. What is being done to develop the insurance sector?

ROBERT KOCHARIAN – The situation should be ripe for every such business. For instance, the situation is ripe already for leasing activities, and a large program is currently being discussed. Big leasing programs will be implemented next year, which is important for medium businesses and for agriculture. Certain elements of insurance services are already working, and I am sure there will be significant progress within a year or two. The process was ripened by economic situation and legislative package. The judiciary is also important here, since insurance entails constant attempts by the insured party to deceive the insurance company. This conflict is always there. The business will develop if there is appropriate legislation that gives insurance companies confidence that they will not fail. By the way, once, in 1998, we tried to provide insurance by means allocated from the budget. The same year, there was hail that, like a sniper, hit only the insured farms. After that we decided not to use state budget resources for insurance, but instead to promote serious insurance companies.

QUESTION (Margarit Yesayan, “Aravot” newspaper) – Mr. President, we congratulate you for these achievements, if they are what you say they are. Do you consider these economic achievements the achievements of President Robert Kocharian or Prime Minister Andranik Margarian? The reason I ask is because there seems to be some confusion. Andranik Margarian says that he implements the programs of the “Unity” block. And now it turns out the President Kocharian also implements the programs of the “Unity” block. Thank you.

ROBERT KOCHARIAN – There is usually a great difference between election program and the following economic policy implemented after elections. Take that program and compare it with the current policy and you will get an answer to your question. This is a joint achievement. According to the Constitution, the President has the right to direct the Government’s activities.

QUESTION (Lilit Sedrakian, “Haylur” news program) – Mr. President, the National Assembly has started discussing the draft Constitution and the package of constitutional reforms. There is an opinion that the package of reforms submitted by you actually increases presidential powers. How would you comment on that?

ROBERT KOCHARIAN – If I am not mistaken, my representative has already answered that question, and he addressed all the points that, according to critics, increase rather than limit presidential powers. I don’t want to use our meeting today to prove that this is not the case and that there really is limitation of powers. I don’t want to, because they usually use such meeting to speak about increasing the powers. I don’t think I had to prove the limitation of my powers as acting president. Would I have to be proud of it? Of course not. But I have suggested these draft amendments consciously, because I think that the Constitution should have a more correct balance of powers. That is first. Second, this was my election promise in 1998. It is simply my principle to try to fulfill all my promises. To say that I am happy about it... no, I am not happy. To say that the current Constitution is not favorable to the President... no, it is quite favorable. Moreover, the current Constitution offers even clearer solutions for emergency situations, because there is a strong President with strong powers, and these powers allow to find solutions. We experienced it ourselves two years ago. A question comes up: why do we undertake constitutional reforms now? The current Constitution is perhaps less in compliance with constitutional practices adopted in the European family of nations. It is not possible today to undertake constitutional reforms by changing two-three articles only. Therefore, we had to go for more extensive reforms, since our membership in the Council of Europe requires the participation of the Venice Committee in that process. This draft has already passed through all the procedures, is more in tune with modern democratic standards, and the new draft will, doubtless, create more favorable conditions for democratic processes in the country. But it gives a lot less solutions to the authorities in emergency situations, less than under the current Constitution. It is a question of balance: there are no very good or very bad Constitutions. I am surprised by the debate about parliamentary, presidential, semi-presidential systems of government, simply surprised. There are very established presidential, semi-presidential or parliamentary countries. In this case, the people chose one system and try to improve that system, to achieve success. It is not right to say whether one system is good or the other. In the so-called transition countries that are in risky conditions and where there is a need to show strong will, personalized responsibility and strong presidential powers give an advantage by offering much more precise solutions in cases of complications, emergency situations and wars. Imagine what would happen if we had a parliamentary system of government in Armenia, still unformed political parties (we do not have traditionally established political parties), if the parliament had not 5-6 parties, but 10-15 and if we had a coalition government and an emergency situation at hand. Also take into consideration our peculiarity: everyone thinks he or she is superior to everyone else. What would happen in the country: we would go from one parliamentary crisis to another, from one to another. This would be endless and is a direct route to destroying the country. I understand that some people simply have no other topic to talk about, they have found a topic and try to talk about it. I respect that desire and that motive.

QUESTION (Gegham Vardanian, “A1+” TV) There are two drafts in existence: one submitted by you and the other by parties. Do you agree with the idea of putting them both on referendum, or should there be only one draft on the referendum?

ROBERT KOCHARIAN – I don’t see the second draft. Where is the second draft of constitutional amendments and who is its author? I would simply suggest you to examine the current Constitution and you will see that the agent for constitutional reforms is the President. If we followed a different logic, we could end up with 132 draft amendments, of which 131 could have been authored by one parliamentarian. I think we cannot afford to get to such an absurd situation. That is first. Second, if Shavarsh Kocharian wants to have his own draft, he should at least try to become President and then become an agent for constitutional reforms and submit his own draft to the people. There is no second draft and there will not be any second draft. If the people want to talk about it, discuss it, they are very welcome to do so. There will be no second draft. Or the consent of at least two-thirds of the National Assembly is required, because if the President does not agree with a draft, then you need two-thirds of the National Assembly. If they have those two-thirds in the National Assembly, then I don’t know what I am doing here. Then I just shouldn’t be here, or the National Assembly shouldn’t be here. I think the formula is quite clear.

QUESTION (Zara Ohanian, “Armenia” TV) – Mr. President, do you think 2003 is a suitable date for a referendum or do you have any other dates in mind?

ROBERT KOCHARIAN – We have an agreement with and an obligation towards the Council of Europe to hold a referendum on constitutional reforms in the spring of 2002. I think this needs to be done before the elections so that the political forces have an opportunity to organize their election campaign and find their allies under the requirements of the new Constitution. I think spring would be the right time. But the discussions in the National Assembly are still continuing, and only after the discussions are completed will we have a clear idea of when we can go ahead with the referendum. I don’t want anyone to get an impression that I am the only one who needs these constitutional reforms. As an acting President, I don’t need them at all, if I am to become President under a different Constitution that gives me less powers and that does not allow me to take firm steps to redress the situation in case of an emergency. Of course, a President faces more risks under the new Constitution. There is a draft that has passed through all the required international expertise and has been deemed to be in compliance with modern constitutional law. To be successful here, we need to have a very wide consensus among our political forces. And let no one think that I am the only one who needs it. I don’t need it. What I am doing here is an expression of good will, and I am trying to put aside my personal interests and look more to the future. I can honestly say that the country would need the provisions of this new Constitution perhaps later, after the Karabakh problem is settled. But I am sure that we have to go for a referendum. Let us close here. Thank you all for coming and good luck.