PRIME MINISTER DROPS ECONOMIC "BOMB" AT CONFERENCE

UNCLAS YEREVAN 000493 SIPDIS SENSITIVE E.O.12958: N/A TAGS: ECON EFIN ETRD KTDB AM SUBJECT: PRIME MINISTER DROPS ECONOMIC "BOMB" AT CONFERENCE ¶1. (SBU) Catching local pundits and the diplomatic corps off guard, Armenia's Prime Minister Tigran Sargsian warned on July 7 that Armenia's economy could contract by as much as 20 percent in 2009. The dire prediction, made at an international economic forum held in Yerevan on the "Impact of the Global Economic and Financial Crisis on Armenia," contrasted starkly with the rosy predictions given by Sargsian as recently as January, when he asserted that the crisis would not have a severe impact on Armenia. ¶2. (SBU) During his keynote address at the economic forum, Sargsian said that "From now on, we need to consider at least three scenarios of developments. One is that we will have a [GDP] decline of 9.5 percent; the second one is that it will make up 16 percent; and the third one is that we will have a 20 percent decline." Sargsian delivered his gloomy prognosis after a recent report issued by Armenia's National Statistics Service (NSS) that Armenia's GDP shrunk by 15.7 percent year on year in the first five months of 2009 amid the deepening fallout from the global economic recession. In recent weeks, however, Armenian officials have said that the dramatic decline will ease in the second half of 2009 thanks to the injection of hundreds of millions of dollars in anti-crisis loans that Armenia is receiving from the World Bank, IMF, and Russia (septel). PM Sargsian made clear in his July 7 remarks, though, that such an improvement should not be anticipated before the fourth quarter. ¶3. (SBU) The contraction in Armenia's GDP and subsequent fall-off in tax revenues has put into jeopardy the execution of the GOAM's planned record-high 2009 budget. In his July 7 remarks, Sargsian stated, however, that the GOAM is "not inclined" to cut projected spending and will use about USD 360 million of its anticipated foreign loans for financing the increased budget deficit. As a result, Sargsian said the deficit could exceed the maximum level of 7.5 percent of GDP set by Armenian law. ¶4. (SBU) COMMENT: The Prime Minister's prediction is noteworthy because it is the first time that any high-ranking official has provided such a dismal prognosis of Armenia's economy. It is interesting to note that others in the private sector have shared even gloomier forecasts with the Embassy about Armenia's bleak economic future. PM Sargsian's bolt-out-of-the blue prediction could be a harbinger that things might really be worse than the GOAM has so far led people to believe. YOVANOVITCH