The balloon of balloons

The topic of “construction balloon” will stay an important topic of political discussions in Armenia for a long time. The debate between Robert Kocharyan and Tigran Sargsyan does not come to an end, but instead it is becoming even more active. To note, the debate started after the Prime-Minister discussed economic issues in his New Year address and said that during the previous government there was a “construction balloon” which had to blast and result in negative consequences for the economy of the country. In fact this message was addressed to the second president Robert Kocharyan, who reacted very aggressively, and even said words that could insult the PM.

Tigran Sargsyan responded to these insulting words twice, however in a polite manner. The first time he sent a moral message to Kocharyan, and then he published statistical information to illustrate the construction balloon he said, mortgage credit volumes, etc. Robert Kocharyan reacted to this publication with irony and called it a colorful picture. Robert Kocharyan even slammed the incumbent government for the pension fund policy and the gas agreement with Russia.

The Prime-Minister has not responded to this interview yet. However, a number of economists have already answered and spoken their opinions.

Let’s look at the opinion of the opposition. The parliamentary opposition prefers to criticize PM Tigran Sargsyan. Generally their approach is that it does not matter whether the driving force of the economy was construction – what matters is the fact of growth.

Former PM Hrant Bagratyan posted a long comment concerning this debate on his facebook wall: “The volume of construction was even 25% at some point. So what? Does it have to do anything with the critics addressed at the Prime Minister? No. People are supporting economic growth the way they can. If the prime Minister thought the previous model was wrong, after taking the cabinet in 2008 he had to establish a new model. Why to blame previous governments?”

ARF faction representative Artsvik Minasyan said in an interview that construction should have been a priority for Armenia’s economy and continue attracting investment. He believes it is a proven fact that for the Armenian economy construction sector can be very beneficial. Hrant Bagratyan and Artsvik Minasyan challenged the content of the Prime-Minister’s publication and as if he is an economic dilettante. They both claim that there is no understanding such as “construction balloon” in modern economic theory.

MP from PA party Mikayel Melkumyan challenges the term “balloon” too. “As the economy grows investment flows are directed at sectors that are profitable, and at that time construction was the sector that was most profitable. Real estate prices would grow every year without any external regulation,” said Mikayel Melkumyan.

Vardan Bostanjyan, an economist and former PA member, fully supports the ideas spoken in Robert Kocharyan’s interview. He believes Kocharyan gave better answer to all questions of the Prime-Minister, and the second president’s announcements have better professional quality than that of the PM.

In other words, the opposition or the group of politicians that consider themselves opposition challenged the idea of “construction balloon” and claimed that economic development through massive investment in construction sector is normal. There has been almost no one from the opposition who would challenge (professionally) the statements of the second president.

The only person that criticized both was expert Harutyun Mesrobyan: “Since 1991 the government system in Armenia has been developed in a manner that if Bill Gates becomes Prime-Minister, he will not be able to do anything because the system does not let it.”

We wonder why the opposition did not slam the second president in failures and focused on the incumbent Prime-Minister only. Isn’t there any reason to slam Kocharyan for? There are many. Albeit there are many reasons. There are many dark corners behind the construction boom, there were a lot of kickbacks in the system, the exchange rates of currencies were very unstable, which hit the export, and also corruption grew a lot. However, the opposition did not criticize the second president maybe because it would mean that they support the incumbent Prime-Minister. There have been no official statements on the part of the ruling RPA party. Edward Sharmazanov, Armen Ashotyan and Karen Avagyan separately have spoken about the second president’s statements, however, as they are not economists, their opinions do not matter much.

The only exception was the announcement of Armen Movsisyan, the minister of energy.

In fact Armen Movsisyan criticized Robert Kocharyan for killing large and important companies through giving them to Russia according to the “Property for Debt” agreement. However, the society has seen Armen Movsisyan’s stories related to gas prices and now people do not trust him.

Economists from Tigran Sargsyan’s team can certainly help him by writing a big book about failures in government in 1998-2008. However, hardly it is possible that this may happen. The reason it cannot happen is that serious and objective critical assessment will be like a confession that it is the failure of all of them because even though three or four people have changed, but the system did not change and nothing changed in people’s life. Tigran Sargsyan cannot blame Kocharyan for killing the export because he was the top government official when the national currency was devaluated and affected local production. For this reason Tigran Sargsyan’s opportunities to give a straightforward answer are limited. He cannot speak very openly, which still does not mean that politics during Robert Kocharyan’s tenure was better and more effective.

If we formulate the situation through questions and answers, it will look like the following:

-Is it possible to slam Kocharyan’s economic policy (and not only the economic policy) with facts?

-It is possible.

-Will Tigran Sargsyan and his teammates do that?

-No.

There are more conceptual and urgent issues other than the issues of good or bad construction growth, better or worse conditions of mortgage credits, whether reforms were good or no, etc.

It is ridiculous to discuss this kind of issues when there are much more urgent ones. This kind of issues could be a topic of professional discussion in a country where there are established institutions and rule of law. There is no economist that can find and identify efficient solutions for separate problems because it is the system that does not work and it is the system that is rotting from within. How can economic rules be discussed in a country where there are never fair elections, business is linked with politics, and there is no competition, as well as the system of justice is dependent from the executive power and does not work. Let’s recall the words of prominent economist Daron Acemoglu, who said that Armenia’s problems are not economic but political.

Armenia fell even deeper into this swamp during the office of Robert Kocharyan. It is true that the reason of slump in the construction sector is primarily emigration (as Kocharyan said).

Why do people emigrate? Is it because of bad social conditions? Certainly – no. The wave of emigration was generated by Robert Kocharyan upon his leaving – he did it with specific actions that made people understand that they cannot stand with it and nothing will change in this country. He made people believe that the system will stay the same, and that the ones who hold that power are ready to do anything to retain their power.

If we look at things from this point of view, the opposition would be better not to interfere with this economic debate because a debate about a construction sector balloon-blast is a balloon itself. By taking the debate to another level, which  is about the economy, is an attempt to distract the attention of the society from more serious issues, and the goal of it is to create an illusion that the country is in worse situation now due to wrong policies and economic mistakes of decision-makers.

P.S. By the way, the second president did a very tricky thing too. As the Prime-Minister tried to move the debate to a professional level, the second president made a step closer to the people. In the end of his interview he said that one cannot feed people with colored charts and diagrams. Let’s remember that during Robert Kocharyan’s office the government used to respond to critics the same way by showing shining and beautiful statistical data and double-digit growth rates.

By Babken Tunyan