Editing Economy of Armenia (section)

==History of the modern Armenian economy==
At the beginning of the 20th century, the territory of present-day Armenia was an agricultural region with some copper mining and [[cognac]] production. From 1914 through 1921, Caucasian Armenia suffered from the [[Armenian genocide|genocide]] of about 1.5 million Armenian inhabitants in their own homeland which caused total property and financial collapse when all of their assets and belongings were forcibly taken away by the Turks, the consequences of which after 105 years to this day remain incalculable, revolution, the influx of refugees from Turkish Armenia, disease, hunger and economic misery. About 200,000 people died in 1919 alone. At that point, only American relief efforts saved Armenia from total collapse.{{sfn|Curtis|1995|p=42}} Thus, Armenians went from being one of the wealthiest ethnic groups in the region to suffering from poverty and famine. Armenians were the second richest ethnic group in Anatolia after the Greeks, and they were heavily involved in very high productive sectors such as banking, architecture, and trade.<ref>{{Cite journal|title=The Taboo within the Taboo: The Fate of 'Armenian Capital' at the End of the Ottoman Empire|first=Bedross Der|last=Matossian|date=October 6, 2011|journal=European Journal of Turkish Studies. Social Sciences on Contemporary Turkey|volume=37 |doi=10.4000/ejts.4411|doi-access=free}}</ref> However, after the mass killings of Armenian intellectuals in April 1915 and the genocide targeted towards the whole Armenian population left the people and the country in ruins. The genocide was responsible for the loss of many high-quality skills that the Armenians possessed.

[[File:Trans-100millones-rev.jpg|thumbnail|100 million rubles banknote]]

The first Soviet Armenian government regulated economic activity stringently, nationalizing all economic enterprises, requisitioning grain from peasants, and suppressing most private market activity. This first experiment of state control ended with the advent of Soviet leader [[Vladimir Lenin]]'s [[New Economic Policy]] (NEP) of 1921–1927. This policy continued state control of the large enterprises and banks, but peasants could market much of their grain, and small businesses could function. In Armenia, the NEP years brought partial recovery from the economic disaster of the post-World War I period. By 1926 agricultural production in Armenia had reached nearly three-quarters of its prewar level.{{sfn|Curtis|1995|p=42}}

By the end of the 1920s, Stalin's regime had revoked the NEP and re-established the centralised state monopoly on all economic activity. Once this occurred, the main goal of the Soviet economic policy in Armenia was to turn a predominantly agrarian and rural republic into an industrial and urban one. Among other restrictions, peasants now were forced to sell nearly all of their output to state procurement agencies rather than at the open market. From the 1930s through the 1960s, an industrial infrastructure has been constructed. Besides hydroelectric plants and canals, roads were built and gas pipelines were laid to bring fuel and food from Azerbaijan and Russia.{{sfn|Curtis|1995|p=42}}

The state socialist command economy, in which market forces were suppressed and all orders for production and distribution came from the state authorities, survived in all its essential features until the fall of the Soviet regime in 1991. In the early stages of the communist economic revolution, Armenia underwent a fundamental transformation into a "proletarian" society. Between 1929 and 1939, the percentage of Armenia's work force categorised as industrial workers grew from 13% to 31%. By 1935 industry supplied 62% of Armenia's economic production. Highly integrated and sheltered within artificial barter economy of the Soviet system from the 1930s until the end of the communist era, the Armenian economy showed few signs of self-sufficiency at any time during that period. In 1988, Armenia produced only 0.9% of the [[net material product]] of the Soviet Union (1.2% of industry, 0.7% of agriculture). The republic retained 1.4% of total state budget revenue, delivered 63.7% of its NMP to other republics, and exported only 1.4% of what it produced to markets outside the Soviet Union.{{sfn|Curtis|1995|p=42–43}}

Agriculture accounted for only 20% of net material product and 10% of employment before the breakup of the Soviet Union in 1991.

Armenia's industry was especially dependent on the Soviet military-industrial complex. About 40% of all enterprises in the republic were devoted to defense, and some factories lost 60% to 80% of their business in the last years of the Soviet Union, when massive cuts were made in the national defense expenditures. As the republic's economy faced the prospects of competing in world markets in the mid-1990s, the great liabilities of Armenia's industry were its outdated equipment and infrastructure and the pollution emitted by many of the country's heavy industrial plants.{{sfn|Curtis|1995|p=43}}

The economic downturn that began in 1989 worsened dramatically in 1992. According to statistics, the GDP declined by 37.5 percent in 1991 compared to 1990, and all sectors contributing to the GDP decreased in production. The collapse of industry in favor of agriculture, whose products were mostly imported throughout the Soviet period, changed the structure of sectoral contributions to GDP.<ref name="Sarian 193–222">{{Cite journal|last=Sarian|first=Armand|date=2006-03-01|title=Economic Challenges Faced by the New Armenian State|url=http://dx.doi.org/10.3200/demo.14.2.193-222|journal=Demokratizatsiya: The Journal of Post-Soviet Democratization|volume=14|issue=2|pages=193–222|doi=10.3200/demo.14.2.193-222|issn=1074-6846}}</ref>

In 1991, Armenia's last year as a Soviet republic, national income fell 12% from the previous year, while per capita gross national product was 4,920 rubles, only 68% of the Soviet average. In large part due to the earthquake of 1988, the Azerbaijani blockade that began in 1989 and the collapse of the international trading system of the Soviet Union, the Armenian economy of the early 1990s remained far below its 1980 production levels. In the first years of independence (1992–93), inflation was extremely high, productivity and national income dropped dramatically, and the national budget ran large deficits.{{sfn|Curtis|1995|p=41}}

A period of chronic shortages, was the first stage of price deregulation, which allowed goods to stay in Armenia as opposed to being exported for better prices; the inflation rates were 10 percent in 1990, 100 percent in 1991, and 642.5 percent during the first four months of 1992, compared with the first four months of 1991. Thus, there were two opposing dynamics: price increases in response to shortages and falling incomes due to the recession and unemployment.<ref name="Sarian 193–222"/>

===Post-communist economic reforms===
Armenia introduced elements of the free market and privatisation into their economic system in the late 1980s, when [[Mikhail Gorbachev]] began advocating [[Perestroika|economic reform]]. To supply the country's basic needs, the first decision was land reform and the privatization of land. This allowed for the emergence of small-parcel agriculture supplying markets and supporting self-sustenance during the period of shortages.<ref name="Sarian 193–222"/> Cooperatives were set up in the service sector, particularly in restaurants, although substantial resistance came from the [[Communist Party of Armenia (Soviet Union)|Communist Party of Armenia]] (CPA) and other groups that had enjoyed privileged position in the old economy. In the late 1980s, much of Armenia's economy already was opening either semi-officially or illegally, with widespread corruption and bribery. The so-called mafia, made up of interconnected groups of powerful officials and their relatives and friends, sabotaged the efforts of reformers to create a lawful market system. When the December 1988 earthquake brought millions of dollars of foreign aid to the devastated regions of Armenia, much of the money went to corrupt and criminal elements.{{sfn|Curtis|1995|p=48–50}}

Beginning in 1991, the democratically elected government pushed vigorously for privatisation and market relations, although its efforts were frustrated by the old ways of doing business in Armenia, the Azerbaijani blockade, and the costs of the [[First Nagorno-Karabakh War]]. In 1992, the Law on the Programme of Privatisation and Decentralisation of Incompletely Constructed Facilities established a state privatisation committee, with members from all political parties. In the middle of 1993, the committee announced a two-year privatisation programme, whose first stage would be privatisation of 30% of state enterprises, mostly services and light industries. The remaining 70%, including many bankrupt, nonfunctional enterprises, were to be privatised in a later stage with a minimum of government restriction, to encourage private initiative. For all enterprises, the workers would receive 20% of their firm's property free of charge; 30% would be distributed to all citizens by means of vouchers; and the remaining 50% was to be distributed by the government, with preference given to members of the labour organisations. A major problem of this system, however, was the lack of supporting legislation covering foreign investment protection, bankruptcy, monopoly policy, and consumer protection.{{sfn|Curtis|1995|p=50}}

In the first post-communist years, efforts to interest foreign investors in joint enterprises were only moderately successful because of the blockade and the energy shortage. Only in late 1993 was a department of foreign investment established in the [[Ministry of Economy (Armenia)|Ministry of Economy]], to spread information about Armenia's investment opportunities and improve the legal infrastructure for investment activity. A specific goal of this agency was creating a market for scientific and technical intellectual property.{{sfn|Curtis|1995|p=50}}

A few Armenians living abroad made large-scale investments. Besides a toy factory and construction projects, diaspora Armenians built a cold storage plant (which in its first years had little produce to store) and established the [[American University of Armenia]] in Yerevan to teach the techniques necessary to run a market economy.{{sfn|Curtis|1995|p=50}}

Armenia was admitted to the [[International Monetary Fund]] in May 1992 and to the [[World Bank]] in September. A year later, the government complained that those organisations were holding back financial assistance and announced its intention to move toward fuller price liberalisation, and the removal of all [[tariff]]s, quotas, and restrictions of foreign trade. Although privatisation had slowed because of catastrophic collapse of the economy, Prime Minister [[Hrant Bagratyan]] informed the United States officials in the fall of 1993 that plans had been made to embark on a renewed privatisation programme by the end of the year.{{sfn|Curtis|1995|p=50–51}}

Like other former states, Armenia's economy suffers from the legacy of a centrally [[planned economy]] and the breakdown of former Soviet trading patterns. Soviet investment in and support of Armenian industry has virtually disappeared, so that few major enterprises are still able to function. In addition, the effects of the [[1988 Spitak earthquake|1988 earthquake]], which killed more than 25,000 people and made 500,000 homeless, are still being felt.<ref>{{Cite book |url=https://www.iitk.ac.in/nicee/wcee/article/10_vol11_7011.pdf |title=Proceedings of the Tenth World Conference on Earthquake Engineering: 19 - 24 July 1992, Madrid, Spain |publisher=Balkema |year=1994 |isbn=978-90-5410-060-7 |editor-last=Asociación Española de Ingeniería Sísmica |location=Rotterdam |pages=7011–7015 |language=en |chapter=Economic and social impacts of Armenia earthquake}}</ref> Although a cease-fire has held since 1994, the conflict with [[Azerbaijan]] over [[Nagorno-Karabakh]] has not been resolved. The consequent blockade along both the Azerbaijani and Turkish borders has devastated the economy, because of Armenia's dependence on outside supplies of energy and most raw materials. Land routes through Azerbaijan and Turkey are closed; routes through Georgia and Iran are adequate and reliable.<ref name=":10">{{Cite book |url=https://books.google.com/books?id=pYsRCgAAQBAJ |title=Commonwealth of Independent States (CIS) Industry: Clothing Industry Directory - Strategic Information and Contacts |publisher=International Business Publications |year=2013 |isbn=978-1-4387-0940-6 |pages=247–248 |language=en}}</ref> In 1992–93, the GDP had fallen nearly 60% from its 1989 level. The national currency, the [[Armenian dram|dram]], suffered [[hyperinflation]] for the first few years after its introduction in 1993.<ref>{{cite web |date=15 August 2012 |title=World Hyperinflations &#124; Steve H. Hanke and Nicholas Krus &#124; Cato Institute: Working Paper |url=http://www.cato.org/publications/working-paper/world-hyperinflations |url-status=live |archive-url=https://web.archive.org/web/20121017012645/http://www.cato.org/publications/working-paper/world-hyperinflations |archive-date=17 October 2012 |publisher=Cato.org}}</ref>

Armenia has registered strong economic growth since 1995 and inflation has been negligible for the past several years. New sectors, such as precious stone processing and jewelry making and communication technology (primarily [[Armenia Telephone Company|Armentel]], which is left from the USSR era and is owned by external investors). This steady economic progress has earned Armenia increasing support from international institutions. The [[International Monetary Fund]] (IMF), [[World Bank]], [[European Bank for Reconstruction and Development|EBRD]], as well as other international financial institutions (IFIs) and foreign countries are extending considerable grants and loans. Total loans extended to Armenia since 1993 exceed [[USD|$]]800 million. These loans are targeted at reducing the budget deficit, stabilizing the local currency; developing private businesses; energy; the agriculture, food processing, transportation, and health and education sectors; and ongoing rehabilitation work in the [[earthquake zone]].<ref name=":10" />

By 1994, however, the Armenian government had launched an ambitious IMF-sponsored economic liberalization program that resulted in positive growth rates in 1995–2005. The economic growth of Armenia expressed in GDP per capita was one of strongest in the CIS. GDP went from $350 to more than $800 on average between 1995 and 2003. Three principal factors explain this result: the credibility of the macroeconomic policies of stabilization, the correction effect following the depression, and the importance of external transfers, in particular since 2000.<ref name="Sarian 193–222"/> Armenia became a member of the [[World Trade Organization]] (WTO) in January 2003. Armenia also has managed to slash inflation, stabilize its currency, and privatize most small- and medium-sized enterprises. Armenia's unemployment rate, however, remains high, despite strong economic growth.<ref name=":10" />

The chronic energy shortages Armenia suffered in the early and mid-1990s have been offset by the energy supplied by one of its nuclear power plants at [[Metsamor]]. Armenia is now a net energy exporter, although it does not have sufficient generating capacity to replace the [[Armenian Nuclear Power Plant|Metsamor]] nuclear plant, which is under international pressure to close due to its old design. The [[European Union]] had classified the [[VVER]] 440 Model V230 light-water-cooled reactors as the "oldest and least reliable" category of all the 66 Soviet reactors built in the former [[Eastern Bloc]]. However the [[IAEA]] has found that the Metsamor NPP has adequate safety and can function beyond its design lifespan.<ref>{{Cite news |title=International Experts Find Adequate Safety At Armenian Nuclear Plant |url=https://www.azatutyun.am/a/24213743.html |access-date=2022-10-07 |website=«Ազատ Եվրոպա/Ազատություն» ռադիոկայան |date=2 June 2011 |language=hy |last1=Harutyunyan |first1=Sargis |archive-date=2022-10-07 |archive-url=https://web.archive.org/web/20221007130336/https://www.azatutyun.am/a/24213743.html |url-status=live }}</ref>

The country's electricity distribution system was [[Privatization|privatized]] in 2002.<ref name=":10" />