This concept paper sets out a methodological framework and the main principles of a long-term economic development strategy to be elaborated for the “Sustainable Economic Development Policy for Armenia” Project.

The need to elaborate the strategy is dictated by a range of existing factors:

- The issues of the transition period- the establishment of stable macroeconomic environment, liberalization of trade and prices, privatization and formation of the legislative and institutional basis of market-oriented economy have been mostly overcome.

- The experience of developing, and particularly, of a country in transition shows, that the prevalence of the private sector, favorable macroeconomic and liberal legislative environment are only necessary, but not sufficient preconditions of economic growth.

- Several factors that conditioned the economic growth during the last years, especially, the state and private external transfers, enhancement of the utilization level of existing capacities, and import substitution cannot maintain their influence.

- Despite of the successes in exports and investments during the last years, their level, structure and tendencies cannot be considered as satisfactory. The need to elaborate the strategy is also justifiable by the fact that in spite of several programs implemented and proposed by the government, particularly, PRSP, MTEF, SAC V and PRGF, in some degree dwell on the issues of economic growth, however, the direction, timing, the level of exploration cannot and do not correspond to the requirements presented to the program, which is intended to outline the long-term economic development strategy. From this point of view, it is more important, that the future program be examined and elaborated not as an opposition, but as an addition to the more general processes, which relate to the different areas of the country’s current socio-economic development.

The first chapter is dedicated to the main qualitative and quantitative goals of the program, which will characterize the levels of economic development. The second chapter presents a brief analysis of the main factors of economic downturns and upturns during 1990-2002, with special attention to those factors behind of economic recovery since 1994. The latest global economic trends are analyzed in the chapter three, so as to envision the likely structural changes in the global economy in the visible future. The following two chapters look at the main development potentials and weaknesses of Armenian economy and attempt to elaborate some basic principals for a long-term development strategy of the Armenian Economy. In the next two chapters the strong and week aspects of Armenian economy are analyzed, as well as, an attempt is made to bring forward some basic principles for elaboration of the proposed program. The closing chapter suggests the structure for elaborating a long-term economic development strategy of Armenia. Goals and priorities

1. Basic goal – Qualitatively the long-term development goal can be described as a transition from the category of low-income countries to the category of high income countries, in a maximum possible short period of time (for example, during the life of one generation).

2. Quantitatively this goal can be divided into several sub goals, where the most important one is to provide stable economic growth rates in a long-term perspective as the base for improving the quality of life, reduction of poverty and social development. For example, the annual average growth rate of GDP at 6%1 will double the GDP in 12 years, at 7% – in 10,5 years, at 8% – in 9 years. Besides this, if we assume that dynamics of the poverty reduction remains as it was in 1999-20012, the level of poverty will amount 25,3% in 12 years with 6% growth rate, 19,2% with 7% growth rate, 12,5% with 8% growth rate, compared with 50,9% in 2001. Taking into account PPP of AMD compared to the US dollar and the assumption that this ratio and the population number in Armenia will remain constant, GDP per capita will comprise $5030 in 12 years with 6% growth rate, or 15,8% from the US per capita GDP in 1999, $5630-- with 7% growth rate, or – 17,6%, and $6300-- with 8% growth rate, or – 19,7%. In 20 years these figures will comprise respectively $8000 or 25% with 6% growth rate, $9700 or 30,4% with 7% growth rate and $11650 or 36,5% with 8% growth rate. In 2001 PPP (which comprised 3,378, based on data, provided by the National Statistical Service of Armenia)3 per capita GDP in Armenia comprised $25004, or 7,8% from US per capita GDP in 1999. Taking into account the assumption that the growth rates of US per capita GDP will comprise 2% annually5, the mentioned ratio in Armenia will comprise 16,2% in 20 years with 6% growth rate, 19,6% -- with 7% growth rates, 23,6% -- with 8% growth rate. Such high growth rates are theoretically and practically possible in the long-term perspective. Based on the data provided by the World Development Indicators 20016, the countries that had more than 6% average annual growth rates are: Botswana – 10,6% (PPP per capita GDP – $6540 in 1999), China – 8,1% (PPP per capita GDP – $3550 in 1999), Hong Kong – 7,3% (PPP per capita GDP – $22570in 1999), Indonesia – 6,9% (PPP per capita GDP – $2660 in 1999), Southern Korea – 8,1% (PPP per capita GDP – $15530 in 1999), Malaysia – 7% (PPP per capita GDP – $7640 in 1999), Oman – 9,5%, Singapore – 8,3% (PPP per capita GDP – $22310 in 1999), Thailand – 7,3% (PPP per capita GDP – $5950 in 1999), compared with 3,2% growth rates in developed countries during the same period of time. Taking into account the assumption that growth rate in Armenia will comprise 12,2%7 in 2002, the average rate of economic growth will comprise 6,6% in 1994-2002, which will put Armenia in the same row with the mentioned countries.

3. Other systemic economic or social goals, such as poverty and inequality reduction, development of social sphere, income regulation policy, etc. should be subordinated to the goal of maximizing the long-term economic growth rates, which, on the one hand means that, policy changes in these spheres should be made, by taking into account their possible influence on economic development, and on the other hand, without extreme necessity (systemic crisis, involvement in military conflicts, natural disasters) they should not lead to changes in already formed basis of the economic system in Armenia – open economy, liberalized systems of financial and trade regulation, absence of centralized regulation of prices, low inflation and macroeconomic stability policy, etc.

4. Socio-political development goals, such as development of democratic mechanisms of control, protection of human and property rights, division of power, their accountability to society, appointment and change of authorities through free elections, independent judicial authority, independent mass media, formation and development of institutions of civil society, anticorruption policy, etc., from one side should be viewed as external restrictions or conditions for economic development, and from another one – the social requirements, the volume of which is connected with economic development, and will substantially increase in the development process. In our opinion the western values and institutions are closer to the Armenian nation and it is the only and natural choice among the currently existing ways of organizing society in the world.