Yerevan /Mediamax/. Second President of Armenia Robert Kocharian stated in an exclusive internet to Mediamax today that it is necessary to focus efforts on maintaining demand for dwellings.

Mediamax addressed Robert Kocharian with a request to comment on the publications, according to which excessively high speeds of construction during his presidency term became the reason of strong decline in economy in Armenia. Second President also expressed opinion concerning the situation in construction sphere and concerning ways to stabilize it, as well as touched upon the efforts to project mortgage crisis in the USA on Armenian economy, which have become more frequent.

Robert Kocharian’s complete response as follows:

“Unfortunately, economy is often analyzed by people, who have vague idea of it. One cannot mechanically compare construction speeds in Armenia with the mortgage bubble in the USA. In America, banks provided doubtful mortgage credits in terms of return with the following resale of liabilities on the secondary market. This worked out due to significant confidence for security market of the USA and the availability of free liquidity in the global financial markets. There was absolutely no such phenomenon in Armenia, and there could not be, because financial tools and the security market were underdeveloped. Construction was real, but the credits provided for only a small volume of it (less than 10%). That is to say, construction and mortgage could by no means undermine the financial system of the country.

Concerning volumes of construction, yes, it formed over 20% of the GDP, but whether this is a lot or little in terms of physical volumes should be assessed not basing on percents to the GDP, but basing on the real demand in the country for dwellings, office and trade platforms. Let the reader simply count families in need of improvement of dwelling conditions they personally know. This will give certain idea on the situation with dwelling in the country. Add to it the natural increase in the number of out-of-repair dwellings and ones under the threat of collapse, new families, etc. I assure you, the demand is huge, and depending on growth of the economy, more and more people would get the chance to involve in mortgage programs, and this means, construction of dwellings would continue prospering.

As to the number of office platforms as to relative units we occupy one of the last positions in the world. Only 5-6 office buildings for rent have been constructed in Yerevan, which has a population of over 1mln people. All the remaining ones are somehow adjusted premises, which are far from modern requirements. We strongly fall behind European countries also as to modern trade platforms. That is to say, there is huge potential to preserve the speeds of construction for many years. I am surprised at how one may not understand this.

Basing on the logic of those critics, one should artificially slow down construction in languishing expectation of possible crises. According to this logic, the Japanese were to reduce production of cards and electric devices, the Germans should reduce production of machine tools, equipment, the Chinese – textile, etc., only because the possible decline in demand in the USA might influence their incomes. This is depressive way of thinking. We speak about the real sector of economy, and not about financial speculations. Countries have positioned themselves in particular segments of economy for decades, developed personnel and technological potential, focusing on their natural competitive advantages and forming new ones. Because of the crisis, no one will renounce something it has developed. They will improve, increase business efficiency, reduce expenses, master new technologies to increase competitiveness. 

Yes, from time to time crises happen. One should realize this and in good years one should get ready for them. But not by holding back economy development, but by forming reserves, reducing the state debt and the budget deficit, by diversifying trade, etc. And we did not do that. From 1998-2008, the correlation of the external state debt to the GDP reduced from 46% to 13%. Budget deficit basing on facts made less than 2% in the last years of my presidency, the average annual inflation made 2-4%, given economy growth of 12-13%. At that, budgetary funding in 2007 made only 7% from the capital construction financing. Gold and currency reserves were increased successively. And by the beginning of 2008, only the free remainder on accounts of the Ministry of Finance made 100bln AMD. Ideal macro economy, which evidences that the country spent less than it earned, by putting aside a part of the earned means for a rainy day.

By the way, this was what gave new Armenian authorities the opportunity to spend the reserved means and take new loans to realize crisis prevention programs. And this is normal. Imagine, what the government would have to do if the external debt in the period of the crisis start made for instance 40% of GDP instead of 13%? Naturally, no one would provide Armenia with such a volume of additional loans, since this would lead to inevitable default.

Could such a strong decline in construction be avoided? I believe, yes, but this is a subject of individual and very serious talk, although it is known that history does not tolerate the subjunctive mood. I would prefer to limit myself to general formula today. I believe that there is understanding of this in the government already. It was extremely important to start acting in good time, when the crisis was only on its way to Armenia”.