News Brief No. 99/69

News Brief: IMF Completes Review and Approves US$29 Million Credit Tranche for Armenia

October 8, 1999

Shigemitsu Sugisaki, Deputy Managing Director of the International Monetary Fund (IMF) said: "The Executive Board of the IMF today completed the midterm review under the third annual arrangement under the Enhanced Structural Adjustment Facility for Armenia. As a result, Armenia will now be able to access SDR 20.925 million (about US$29 million) from the IMF.

"Directors noted Armenia's resilience to severe external shocks, including a stronger than anticipated impact of the Russian crisis and a drought as well as political uncertainty in the run up to the parliamentary elections. They expressed concern however about the policy setbacks and a loss of momentum in the implementation of structural reforms that emerged in late 1998 and the first half of 1999. Against this background, Directors welcomed recent corrective actions by the new government, and were encouraged by the authorities' reaffirmation of their commitment to economic reform to enhance medium term growth prospects. They stressed that the success of the authorities' strategy depends both on ensuring a stable macroeconomic environment and on proceeding with the next stage of structural, legal and institutional reforms.

"Directors commended the authorities' decision to undertake strong corrective fiscal measures. While noting the progress to date in clearing domestic expenditure arrears, they urged the authorities to ensure that the remaining arrears are cleared in timely manner and emphasized the importance of avoiding future arrears. Directors expressed concern about the slow progress in the implementation of the financial rehabilitation plan for the energy sector. They agreed with the authorities' decision to deal with the quasi-fiscal problems in the sector by incorporating these operations in the 1999 budget. Directors welcomed the efforts to restore the momentum of privatization, and the progress made in setting up a financial monitoring scheme for publicly owned enterprises.

"Directors welcomed the authorities' commitment to strengthening monetary control, but stressed the need to further improve the coordination of monetary and fiscal policies. Directors were encouraged by the authorities' intention to rely more on market forces to determine exchange and interest rates, and viewed as crucial the authorities' commitment to strengthen enforcement of banking system prudential regulatory requirements.

"Directors welcomed the progress in reducing the burden of external debt and debt service, and stressed the importance of developing and adopting a comprehensive external debt strategy for the medium term, including using privatization proceeds to improve the external debt and debt service profile," Sugisaki said.