Armenian National Congress - "100 Steps"

PROPOSAL/PROGRAM FOR A SYSTEMATIC REFORM OF SOCIO-ECONOMIC POLICIES

The Armenian National Congress presents for public consideration ‘100 Steps', a systematic proposal for social-economic reform which has as its fundamental goal the radical reform of the economic system created in Armenia, and the creation of a sustainable economic development with the active participation of the people. The essence of the current system is the ultra concentration of economic resources in the hands of a few oligarchs and their extended families, and the exploitation of state levers to secure that group's extraordinary gains. Illegal tax and customs permissions, monopolies, servicing of the extravagant gains of importers by an artificial evaluation of the Dram and trampling of the rights of property ownership, have caused a dramatic decrease in production and a tragic decrease in export, free market competition, as well as unfounded increase in costs and a general fall in business activities and the economy, bringing about daily worsening of the social-economic condition of the population. The transfer of the basic burden of taxes on small and middle-level business and the arbitrariness of state bodies suffocate business enterprises based on private initiatives, suppresses the population's creative energy and faith in its own strength, bringing about emigration and poverty.

Radical reforms are imperative to change the current situation. Only the mass popular movement which does not depend on or is obliged to the oligarchs, is in a position to come forth, in the name of the people and development of the state, against the current system and with the necessary consistency to actualize such systematic changes. The Armenian National Congress is ready to submit to the judgment of the people a program which shows that the Congress is not simply limited by assurances of political will to pass such reforms, but also has very concrete solutions and mechanisms to actualize those goals.

The proposal for the reform of social-economic policy is presented by the decision of the political council of the Armenian National Congress. The proposal was prepared by the economic committee of the Congress, under the direction of Hrand Bagratyan's scientific leadership, and includes the proposals and observations of the political parties which are members of the Congress.

The document presented below shows only general approaches to social-economic and structural policies. It includes the position of the Congress in fiscal, monetary, financial policy, encouragement of business, and fundamental problems of social policy. Only agriculture from the section on rural economic policy is represented here, bearing in mind the tragic condition created there as a result of the politics of the past 10 years. Policies on economics, public life, and other spheres of governance (industry, trade, services, health, education, science, social security and insurance, environmental protection, tourism, sports, youth, law-enforcement, armed forces, the Judiciary, state and self government) will be published later, one by one.

The central office of the Armenian National Congress thanks the committees on economics, science and education, and health, as well as individual intellectuals and citizens for their participation in the development of the proposal. The Congress also welcomes proposals and observations from citizens, experts, public organizations, and political groups to perfect the proposal. Suggestions and comments may be sent to: Yerevan, Koryun 19A, 4th floor, as well as to economy@anc.am or posted as comments at www.anc.am.

Tax and Customs Policy

1.      Redistribution of tax burden from the SMEs onto big businesses.  The basic principles of regulation and development of tax and customs systems should be: a) widening of taxation basis; b) elimination of shade; c) encouragement of entrepreneurship; d) reduction of tax administration and even distribution of tax burden. By estimates of foreign experts as of today only 31% of state budget tax revenues are paid by big businesses (without foreign companies) whereas it should be around 65-67%. Accordingly full taxing of big business is an urgent problem, otherwise small and medium businesses (SME) that appear in unequal and unfair conditions are destined to disappearance. 

2.      Uniform application of simplified tax for all businesses. In 1997-2001 a “three dimensional” tax space was formed - simplified taxpayers, fixed taxpayers and ordinary taxpayers. To solve the problem of integration of those three systems it was necessary to tax up to certain minimum sum business volumes by one rate (like in case of simplified tax), after that carry out ordinary taxation (for big businesses), i.e. apply all forms of taxes. Instead of securing this development, simplified tax was practically pushed out of circulation. Applying it once again until reaching a relatively low level of taxation till certain limit is one of the main levers for SME reanimation, increase of its role and significance. By constantly changing the size of simplified tax the state should actually outline SME limits.     

3.      Setting higher rate of income tax than on profit tax and applying progressive scale of income tax. For the coming 10-15 years the rate of the income tax should be fixed at a slightly higher level than that of profit tax (the so-called tax cross mechanism should be enabled). Progressive scale of income tax should be introduced. Such taxing system should be maintained as long as the best and the most efficient ratio between big business and SME specific weight are restored. In case of high profitability (conditioned by imports and monopolies) the progressive scale of profit taxing should be used.  

4.      Bringing minimum salary closer to the size of average salary. For the coming 10-15 years the size of minimum salary should be brought closer to the average salary which would be an efficient mechanism for reducing specific weight of shade economy. 

5.      Overtaxing of highest salaries. The progressive scale of income tax should function within certain limits. In case of big salaries and bonuses (especially in respect to chief employees of the financial sector) the overtaxing mechanism should function. Besides the ultimate limits for the above high salaries should be determined and the part of the salary exceeding these limits should not be included in the cost price of the product and services. 

6.      Taxation of elite construction. Subsidizing construction in the peripheries. Taxation of properties sales. An average 10% construction tax should be set up. This tax will be differentiated by the territorial principle: 0% (in some cases even -10% if the state subsidizes the construction) for peripheries and 15% for instance for the center of Yerevan. For real estate property sold the second time an average tax of 5% for profit should be set (again by the differential territorial principle). The state will establish minimal prices of sale at the same time pledging to buy the real estate in case a price lower than the established one is offered. 

7.      Prevention of capital freezing in the construction sector. Incomplete construction taxation should be made strict and a demand should be brought forward to the constructors to make reserves of their means. All this will make it possible to prevent freezing of capital in this section, to remove the construction from Yerevan and exclude in the future national crisis for this reason. The new mechanisms of construction taxing will allow distributing tax burden proportionally and completely bringing big businesses into the tax field.

8.      Universal declaration of income and property. Official declaration of incomes and property of all citizens 18 and older should be immediately initiated. 

9.      Prohibition of profit tax prepayments. The faulty practice of making prepayment from the profit tax should be excluded. The taxpayer does not should credit the state. Especially as this principle has never worked with big taxpayers who as a rule are high ranking public officials. 

10.  Deferred taxation of innovation business. Distinct criteria for innovation business should be set and on their basis these enterprises should be exempted from profit tax for the first two years provided they pay those sums to the budget during the following 5 years. For foreign investors, besides the above, current privilege system for investments should continue to function.

11.  Promotion of private pension funds. The state should guarantee private pension fund activities and allow transfer of up to 5% of income (both for employees and employers) to the above funds without taxation. 

12.  VAT decrease; circulation tax application. VAT should be set at 18%. For separate products a classified (lower) VAT scheme should apply. Later, after carrying out certain work with EU and Russian Federation, VAT should be replaced with a 5-7% circulation tax. Later corporative taxation system should be implemented.  

13.  Excise tax increase on hard liqueurs, decrease on wines. Excise taxes on vodka and liqueur should be increased and for wine – reduced. Excise tax for wine materials should be recalculated like VAT. Other excise taxes should be edited in a way not to put local producers in worse conditions than importers. 

14.  Stocktaking farm product wastes. Enterprises stocking farm produce should present their waste to tax bodies for stocktaking. Real volume of production should be controlled by tax bodies with the help of waste also in mineral resource enterprises. 

15. Public management of mineral resources. In mineral resource industry (molybdenum, copper, perlite, tuff, basalt, iron, gold etc) the payment for natural resources should be abolished. Instead every year along with budget the price for the mine itself should be approved for which its operator buys it from the public. In that way it will be possible to tie the taxation mechanism with changes of global prices for raw materials. Conditioned with the dynamics of raw materials’ global prices, the mining company will have to pay to the budget the profit gained over the price agreed with the state. 

16.  Setting up obligatory demand to restore nature. Instead of environmental payments an obligatory demand to restore nature and a progressive (within time) fine system should be put in operation. Otherwise the total property should be expropriated in favor of the state. In 1991-2010 forests in RA have thinned out, their specific weight has drastically reduced. The reality is that during the 1991-1994 and blockade much less forests were cut down than in 1998-2010. And in the Lake Sevan the fish is already counted by pieces. 

17.  Special taxation of big landowners. Big landowners (50 hectares and more) should be taxed with the same regime as industry, trade etc. In this case the mechanism of harvest and income valuation should apply instead of land cadastral valuation. 

18.  Increasing role of tax on big property. The role of property tax should be substantially raised differentiating it by the property size and zone (territorial factor). At the same time, until certain limit, the property tax should be reduced proportionate to the declared income and paid taxes. This will be another step in fair distribution of tax burden between big businesses and SMEs. 

19.  Progressive inheritance tax. Starting from a certain limit of property, progressive inheritance tax should apply with the view of excluding legalization of illegally obtained property by means of inheritance mechanism.

20.  VAT refund, application of penalty payments towards the state. The state should perform its obligations for returning tax prepayment and VAT to the end. For the not returned sums the same fine mechanism applied for taxpayers should apply for the state. 

21.  Setting capital outflow tax. Under current conditions the main reserve of growth of investments into RA economy is the involvement of inner savings, prevention of the day-by-day increasing outflow of capital from the country. In 2002 the capital outflow from RA was 245, in 2003 – 314, in 2004 – 494, in 2005 – 613, in 2006 - 794 million dollars. In the first eight months of 2007 capital outflow made 593 million dollars and at the end of the year it exceeded 1 billion dollars. For a small and poor country it is disruptive. By the per capita capital export (340 dollars) Armenia is the first among low income countries. Capital flees from Armenia because it does not trust authorities. And so instead of fashionable phrases about encouraging foreign investments one should first of all be able to stop the daily increasing capital outflow. A capital export tax should be set (first deducting from the sum the capital brought in and excluding foreign investors). These changes should be made taking into consideration commitments before WTO on providing equal conditions for mutual investments. The law should forbid any capital export transaction by banks before tax bodies produce a reference on tax compliance.

22.  High customs duties on luxury cars. Customs duties for imported cars should be strictly differentiated by engine power and luxury criteria, and duties for production equipment should be 0.

23.  Electronic custom clearances, elimination of arbitrariness in price definition. Customs duties for imported goods should be set with respect to the price mentioned in the invoice. Interests of the local producer of same products should be protected by complex tax policy (in particular, by the progressive profit tax mechanism) to at least equal local producers’ rights to those of the importer. Customs officers should be completely deprived of the right of defining prices. The electron code “invoice” should be the basis for the price.

24.  Establishment of alternative customs offices. It is necessary to open an alternative, non-state customs office. Legislative documents regulating in all details its certification mechanisms should be adopted to regulate its activities.               

25.  State control of the gambling business. Existence of non-state lottos, lotteries and dice should be excluded. The exclusive right of exploiting such institutions should be granted to the RA Finance Ministry. Operating totalizators, gambling (cultural) institutions should work under supervision of state representatives. In all casinos and such enterprises the state should be a share holder and have its representative. Casinos should be allocated separate areas in distant borderline areas; their presence in Yerevan, Gyumri and Vanadzor and recreation areas should be excluded.  

26.  Exclusion of tax remissions. No subject carrying out economic activity (funds, religious organizations, any charity) should have tax privileges. 

Budget Policy

27.  Increasing the level of tax collection. Every year level of state tax collection should be improved by 2%; by 2015 it should reach 28%.

28.  Defining the ratio of Debt service and expiration expenditures/GDP.  RA state debt as of 01.01.2010 is about 3.6 billion dollars. For the last two years it has grown 2.7 times. In 2008 service of state debt “took” 54.1 million dollars from RA budget, in 2009 – 73.2. In 2010 the number will be 114.5, in 2011 – 128.6, in 2012 – 280.4 and in 2013 – 478.2 million dollars. After that service of state debt will take minimum 20-30% of state budget. This adventurous policy should be immediately stopped. For that purpose [the Government] should stop increase of foreign debt versus GDP, strictly limit inner bonds for taking care of state expenditures taking into account current ratio of servicing and expiration expenditures/GDP. 

29.  Active government investment policy. The Government should participate in non-state investment funds that finance construction of general economic significance at the expense of stock emission, sterilization of transfers incoming into the republic, means of Diaspora Armenians and other means.  

30.  Assigning an exclusive right to borrow state loans to the Government. Only the RA Government should be granted the right to make state debts. In particular, the RA Central Bank should be deprived of the right to independently, without the Government’s permission and supervision undertake foreign obligations.  

31.  Introducing law on state guarantees. A law should be adopted on the order of granting state guarantees and contest principles of making use of them in order to exclude corruption and arbitrariness in this area. 

32.  Enforcing  state grants funding. Most of state expenditures should be made in the form of program target budgeting minimizing precalculation financing. Armenian state grant system should be developed. 

33.  Reducing the Government. The state apparatus will be drastically reduced: staff of the Government, ministries, other bodies of republican management (services, committees), state funds, regional administration, town municipalities and village administrations will be reduced 1.5 times, wages will grow 2.2 times. Repetition of operations, overlapping of functions of the customer and executive will be excluded. 

34.  Creating private pension funds. Parallel to state pension benefits a corporative security system should be implemented with participation of employers and employees. The Government should guarantee the means invested in those funds by means of Finance Ministry. Functions of state regulation of social security and social insurance should be returned to the Finance Ministry. 

35.  Prohibition of banking deposits by the budgetary and municipal organizations. Budgetary and municipal organizations should be banned the practice of opening deposits in banks. In case of additional incomes the means should be temporarily given to the CB. 

36.  Regulating state and municipal property renting.  Any organization renting state or municipal property should pay the rental fee to the appropriate budget according to the standards defined by the RA Government. State organizations too should pay rental fees according to the same standards. Thus public officials will be deprived of the chance of enriching themselves at the expense of public property rental.  

37.  Dramatic increase in state budget revenues. In case of implementing above tax and customs measures the RA budget may reach 4.5-5 billion dollars already in 2010. 

38.  Refund of deposits. The state deposits of Soviet Savingbank should be restructured as state bonds and be liquidated 2 times faster and on 2 times bigger scale than proposed by the law 2005.  

Banking Sector, Loan Companies, Investment Funds, Equity Market 

39.  Prohibiting the practice of artificial appreciation of national currency. Legislative changes need to be made so that the Central Bank (CB) functions do not focus only on maintaining inflation rates. The criminal practice of artificial appreciation of national currency with that end in view should be excluded. National currency can be appreciated only when exports exceeds import.  

40.  Using remittances for the purpose of the economic development. In case of other transfers (not conditioned by export) CB should sterilize currency flows into Armenia at the expense of growing state reserves. The latter should be used as credit resources to finance Armenia’s economy.  

41.  Parliamentary supervision of  the CB policy. The National Assembly should every year discuss and approve, along with the budget, basic parameters of the CB monetary policy.

42.  Setting economic standards for all financial institutions. CB should be given the right to spread activity regulation economic standards, along with commercial banks, over all financial institutions. If the institutions activity is regulated by the RA Government (Ministry of Finance) the standards should be approved together.

43.  Weakening requirements for registration of new banks. Requirements for registration of new banks should be considerably lessened. In particular, the requirement for their basic capital will be 1.5 billion drams (at present it is 2.5 billion drams).

44.  Enabling  appealing  in the court CB’s decisions. The legislation on banking activity should be completely revised so that decisions of the CB Chairman or Board can be with no exception appealed in the court. 

45.  Creating checks and balances in the CB. The CB Board authorities at taking decisions should be increased. Positions of the CB Director and Chairman of the Board should be separated.  

46.  Limitation of refinancing. Refinancing or loan write-off should be allowed only if the NA adopts an appropriate law. 

47.  Commercial banks re-registration as OJSC. All commercial banks should be reregistered as open joint stock companies; rights of minority shareholders should be legislatively extended.   

48.  Implementation of the newest system of corporate management. Banks should in a short time pass on to newest systems of corporative management. Legislation should be adopted differentiating functions of bank owners and bank managers as well as supporting implementation of the institute of managers considering interests of shareholders. 

49.  Prohibition of investments by commercial banks, strengthening national currency. Activity of investment standards (4th group of economic standards of banking regulation) should be banned. Loans for providing dram stability should be given only in national currency; deposits should be accepted in national currency. In the order stipulated by law, in case of appropriate discount, everybody should get a chance of having deposits also in CB. 

50.  Development of specialized banking system. Transition should be made to two-filed or multi-field standard system (the so-called flexible economic standards) which will allow differentiating between investment banking and commercial (routine) banking. 

51.  Expansion of deposit insurance. The fund guaranteeing deposit compensation should insure averagely up to 60% of deposits. Insurance size should be connected with the deposit size (by decreasing progression). That should concern both physical and legal persons. 

52.  Withdrawal of many banking supervision functions from the CB. The fund guaranteeing deposit compensation should be taken out the CB subordination. Banking supervision should be in its great part given to this body leaving for the CB mainly the regulation function.

53.  Promoting the growth of total assets. By solving the above problems in 2012 total assets of commercial banks may make not less than 12 billion dollars or about 70% of GDP. The state should take measures to complete credit resources of commercial banks. 

54.  Financial market comprehensive development. Real steps should be taken to fulfill provisions of the program of turning Armenia into a regional financial market declared back in 1992. Activities of investment foundations, exchange and loan organizations should be encouraged.

55.  Increasing the role of the stock exchange. Armenian independent stock exchange should have a significant role. In 1998-2007 the possible activity of this institution has been constantly blocked by the authorities: under the current state of centralization of economy and monopolies dominated by authorities         it is senseless to speak about stock exchange. Activity of stock exchange is possible only if public officials are not directly involved in economy. In that case not only commercial banks but also dominating companies or companies with monopoly positions as well as trade companies with pivotal significance in economy (in particular, enterprises of production infrastructure) should be registered as open joint stock companies in the order stipulated by law, and it should be mandatory to put their shares to stock exchange for public auctioning. After fulfilling these measures in 2015 capitalization of the market may reach at least 50% of GDP (in 2005 it was only 0.9%). 

56.  Taking securities market out of the RA CB oversight. Securities market should be regulated by a state agency established by the government.

57.  Exclusion of overliquidity of financial system. Discount, banking, lombard credit rates and economic standards (except capital equivalence standard) should be considerably weakened; huge reserves and super liquidity available in the banking sector simply waste financial resources of the society. Thanks to these measures access to credits will drastically raise.

58.  Development of insurance market. Legislation should be adopted to provide versatile development of insurance market. By 2015 assets of these companies may reach 50% of GDP.

59.  Regulating collection of internal savings. Strategic investors should be forbidden to collect RA inner savings by means of IPOs for development of their business.   

Encouragement of Entrepreneurship, Development of Small and Medium Enterprises

60.  Separation of power and business. Certain steps should be taken in order to: a) separate business from state government (if a businessman decides to get involved in politics, become a deputy or minister, his property should be handed over to the state property management agency or some other body authorized by the state); b) the politician who finds himself at the wheel of the state should have all formal and contents characteristics of a neutral administrator.

61.   Establishment of innovation technoparks. In 2010-2012 at least 5 technoparks should be founded in Armenia (two in Yerevan, One in Gyumri, Vanadzor and Stepanakert or Shushi). In regional centers state centers for business support should be opened. Physical and legal persons should have an opportunity to develop their innovative entrepreneurship projects in these technoparks for two years without any charge. Later those means should be compensated by accelerated payments. 

62.  State participation in business projects of national significance. The state should participate in business projects of national significance by purchasing some of their shares on condition of selling them later to private entrepreneurs. Creation of permanent jobs in small towns, remote and borderline villages should be encouraged and subsidized. 

63.  Termination of the state discriminative patronage of businesses; return of the property acquired through illegal deals. All businessmen should have equal rights and responsibilities before law and society. The practice of making decisions about some businessman’s tax liabilities in the country’s President’s office should be excluded. For that purpose there exist law and judicial authorities. Large-scale measures should be taken to recover completely all the unpaid taxes from businessmen favored by the RA leadership during the last 12 years, to return illegal incomes to the society and to take care of social needs of the population. At the same time the list of privatized enterprises that did not comply with their contract obligations and to make provisions by law for their double alienation or additional taxation. Deals that were carried out violating law should be restored. 

64.  Enactment and control of economic standards in the production sector. Certain economic standards should be approved by law and the control over them should be given to the state. In particular, at enterprises of system significance mandatory demands should be imposed for having reserve means. 

65.  SME’s involvement in state purchase contracts. RA legislation on state purchases should be revised to establish a certain volume of purchase deals to be implemented by means of SMEs. The state purchase system should be taken out of the Finance Ministry subordination. 

66.  Protection of small shops and trade. The state should strictly regulate activities of supermarkets. For each project time period standards for opening network outlets should be established, requirements for their location at certain places should be proposed. Along with that mobile fairs of foodstuff should be regularly organized in big towns with low level of taxes or payments. It is necessary to guarantee existence of small stores. 

67.  Changes in antitrust policy. Monopolies and oligopolies should be done with. It is necessary to radically change the antimonopoly legislation. The state budget should get not 2 but 50-95% of monopoly profit. The 350 million dram fine threshold should be abolished. 

68.  Reinforcing the rights of the companies. Enterprises working in accordance with law should get guarantees that in case of protesting activities of state agencies they will not be later subjected to prosecutions.     

 69.  Elimination of duties on entrepreneurship. Economic freedoms in the country have been limited step by step. Thus, incomprehensibly high fees have been set for organizing production and development of brandy (15 million drams), wheat vodka (15 million drams), mineral water (5 million drams), metals (15 million drams), and stones (1 million drams).  It is not hard to notice that authorities have their protégés in all mentioned spheres. The abovementioned policy allows them to bar access for other entrepreneurs into the sphere. It is necessary to immediately cancel such restrictive decisions, lower lump sum fees, connect them with the volumes of production and dissolve them in time.

Population Income, Employment, Birthrate, 

Spheres of Public and Social Services

70.  Rapid growth of pensions. In 1998-2008, despite the universally advertised economic growth, the primary income distribution dynamics had negative tendencies. Two things are especially obvious: 1) average pension (in 2009) made only 20% of average salary (in 1996 it was 33%); 2) unprecedented concentration of wealth in the hands of several dozen people took place. It is necessary to rapidly raise the pension with respect to average salary which will allow pensioners to take care of their minimum needs without applying for the “assistance” of election bribes. 

71.  Increasing the weight of SMEs in the private sector. In the beginning of 2009 52% of Armenia’s economy was in the hands of 44 families, 26% in the hands of 220.000 farms, 65.000 SMEs and individual entrepreneurs, 19% - belonged to Russia and 3% - to other foreigners. Hence dispersion of wealth, raising specific weight of small and medium business, providing all citizens of the republic with the opportunity of doing business and living a prosperous life are the main pledges for raising country’s security. 

72.   Decentralization of economic resources. The state should take measures to mitigate super concentration of wealth. Such super concentration of wealth makes the further existence of Armenia simply impossible. Speaking about the existence of election system becomes needless: authorities realize that election bribes become an “effective” mechanism only in case of extreme poverty of the population and social polarization. It is obvious that there exists a direct connection between high level of poverty and corruption and shade economy. The state should gradually but essentially mitigate scales of such concentration of wealth by means of implementing progressive tax system.

73.   Adopting a new Labor Code, strengthening labor rights protection.  A new Labor Code should be adopted. The one adopted in 2005 has no relation with the protection of laborers’ rights. Employers fire who they want and when they want. Employers’ rights to fire people should be considerably reduced. In particular, firing people for reasons of job qualification should be forbidden. The employers should not decide employee’s qualification level by his own testing; he should apply to a state labor body.  

74.  Regulation of labor contracts. Citizens should be accepted for employment with a working contract where their responsibilities should be mentioned in mandatory order. For every employer the working contract should have an attached detailed job description signed by both parties. The practice of accepting and firing employees by an order should be abolished.    

75.  Expansion of unemployment allowances. In case of firing the employee, the employer should pay allowance for at least 3 months and for some jobs – 6 months (instead of the present 1-2 months). 

76.  Enhancement of the Poverty Reduction Strategic Program. The strategic program of overcoming poverty should be strengthened (at present it is renamed Stable Development Program) and shorter terms should be set.

77.  Fertility promotion. The lump sum for the birth of children should be defined at 0.5 million drams (at present it is 50.000 drams). Starting from the second child mothers should get 1 million dram and from the fifth child – 1.5 million drams. The duration of paid vacation for mothers should be prolonged by 30-50%.

78.  Financing the public health through certificates. Within the framework of state approved health program the state should pass on to certified financing. Instead of financing health institutions and enterprises, citizens having health problems should be financed. The state certificate should freely circulate at stock exchange in the social insurance sphere and should be liable to payment by state at first demand. As a result the quality and availability of medical services will rise, the manageability of financial flows will improve and corruption will decrease. The state budget financing of health sphere must be at least 3% of GDP (at present it is 1.6% - 55 billion drams). As a result financing of health sphere should be at least 6% of GDP including also private transfers. 

79.   Regulation of the state healthcare system. The state health program will consist of the following parts: a) 100% state financing independent of the social condition of the citizen (infection diseases, birth delivery, infant diseases etc.); b) 100% state financing considering the social condition of the citizen (based exceptionally on officially declared incomes); c) joint payment (citizen on the one hand and state or employer on the other hand). 

80.   Competitive distribution of state orders in the healthcare sector. We should pass on to competitive distribution of state order in health sphere. Only the organizations that have won the competition should be allowed to accept certificates from citizens. 

81.  Financing of education through certificates. Within the framework of state approved health program certified financing of education (elementary and secondary) should be implemented. Financing should be given not to schools or educational institutions but to citizens who will choose appropriate educational institution.  

82.  Drastic increase in education expenses. Expenses of elementary, secondary professional and preliminary professional education should be defined at 3% of GDP with a plan to make it 4% in the future (at present it is 2.2% - 74 billion drams).

83.  Drastic increase in higher education expenses. Fr state financing of higher education a minimal threshold of at least 1% of GDP should be established (at present it is 0.25%).

84.  Transferring science into universities and establishing government grant system for funding science. Science should be fully moved into universities. Students must be engaged in science still from student years. At the expense of the budget means a state grant system based on subject financing should be established to finance scientific research (in 2010 science is assigned 8.6 billion drams or 0.25% of GDP). The choice of subjects will be done by means of independent local and foreign funds and by state financed scientific councils. 

85.   Regulating  gas, water, electricity payments. Precise standards for services delivered to the population should be set. Thus, gas, water, electric power providing companies should be rejected to right to one-sidedly open and seal the meters and indicators. The latter should have 2 seals – that of the organization and the consumer. Neither of the sides can independently open the seal of the meter without permission of the other side. The consumer should get information about the sum liable to be paid in the form of written bill where all the company details, the volume of consumed service, price and the sum liable to be paid should be presented.  

86.  Regulation of public services. A law should be adopted about the order of public service delivery (technical regulation) and about reimbursement of damages due to the violation of the order or its low quality and also about administrative and (made stricter) criminal liability of those who deliver the service. As an example the case of periodic state checks of gas quality and its correspondence to regulation (standard) should be mentioned. Production loss size for companies providing gas and electricity should be strictly regulated.  

Privatization, Structural Policy and Organization of Statistical Accounting

87.  Regulation of privatization of state properties. Since 1998 privatization of state property has been carried out by criticizing the privatization policy of 1991-1994. But the legislative changes done in this sphere were not aimed at correcting the mistakes that appeared or became visible during the previous period but, on the contrary, at making privatization a sphere of voluntary solutions and uncontrollable abuses. The whole legislation underwent changes, the privatization committee was dismissed, the government (actually the president) was given exceptional rights to decide forms, methods, prices, terms etc of privatization of objects. As a result of changes as if aimed at raising the prices of objects that were liable to privatization, those prices were not raised but on the contrary, still reduced. The percent of object subscription was reduced from 25 to 1. It was then announced that the important factor was not the price but the investment program presented by the buyer (experienced showed that it was impossible to have normal monitoring in any investment program in a country with low level of development). Concepts of “direct sale” and “alienation” were introduced which allowed to sell objects not publicly, without including them in privatization program and getting the National Assembly approval. Thus instead of improving the privatization system, absolute voluntarism of the RA President was established: the Minister of Justice privatized aviation, the CB Chairman – banks and Haypost, Minister of Transport – the railroad, the Minister of Defense – energy sector. The principle was: it’s easy to fish in troubled water.    

88. Elimination of pressures on agencies conducting statistical research. The sphere of regular statistics and accounting is problematic. Trying to emphasize the importance of their governing period, authorities merely play with macroeconomic figures. Thus according to official statistics, in 2009 the GDP has been 140.9% of  that of 1990, the per capita GDP – 178%, real income – 21.9%, retail commodity circulation – 76.4%, services – 84.9%. These are all official data. Such a paradigm does not exist in any other country of the world. Respectively, checking of macroeconomic indices basis and “inventory” of figures is inevitable. 

89.  Reducing the list of business activity licenses. The list of activities requiring permission should be reduced at least 10 times bringing their number from several hundred to several dozen. For instance, it is impossible to understand why a man should get a permit to work in a stall and pay an immense sum for that. 

90.  Regulating the payments for state property alienation. While alienating state property, in case of later payment, interest equal to minimum refinancing rate should be imposed.

Agriculture

91.  Subsidizing agricultural production. Further development of agriculture, raise in the specific weight of cultivated land is connected with midterm state subsidizing of some part of agricultural production and encouraging export of farming products. Agriculture should be granted state support. Particularly, every year names of products and villages (especially mountainous and remote villages) for which subsidies are anticipated in the given budget year, should be mentioned in the RA budget by a separate appendix. In return for corresponding purveyance fact the peasant should get subsidies for every unit of produced provision. In separate cases (mountainous rural settlements) the policy of subsidies should be combined with the policy of guaranteed prices.  

92.  Promotion of small farms. The extremely bad situation created in agricultural sphere demands urgent treatment to the economic policy led in this sphere. According to the data provided by current authorities the GDP of agriculture has grown 2.14 times in 1990-2009. But in recent years events move in a way that peasants are being land-dispossessed and become farm laborers. In those conditions the class of independent prosperous farmers or peasants who work on their own lands cannot be formed in Armenia, something that has been the main goal of the reforms. Thus the analysis shows that enacting the agrarian code in 2001 the current authorities did not aim at continuing the started reforms but handed lands to big oligarchs, bureaucrats, high ranking public officials and their bodyguards. In particular, they got 20% of reserve lands that were privatized during that period. Other than that they massively bought the privatized land from peasants for nothing. The disregard of the fact that the members of rural community have primary right of ownership in respect to land, brought to the dominance of big landowners who had come from cities. Class antagonism formed in the village very fast. Attention of authorities is directed to big landowners (after all, representatives of the government are the land owners). Day after day their activities bring the farms to bankruptcy and make their existence economically senseless. The peasants massively abandon their lands, sell them if possible, become farm laborers, move to cities or leave Armenia. In 2007-2009 the cases of refusal to cultivate arable lands became very obvious. Consequently the fight against big land owners, encouragement of small farms both legislatively and practically, reestablishment of the given community peasants’ primary rights of ownership to arable lands are the pivotal problem of economic policy. 

93.  Creation of Wholesale Markets. In 1998 the RA authorities turned down the Wholesale Market Program. The latter was a program financed by the Eurobank according to which in some parts of Armenia markets with state participation were to be opened where peasants could realize the produced goods. Nowadays when sheep are being massively exported, representatives of the Government are looking for excuses: they say what they can do if the peasants voluntarily sell their sheep to foreigners. If the Wholesale Market Program did not fail, the peasants and the republic would not find themselves in such a situation. Then demand and offer for every provision would be balanced so that only excessive product would be exported. So the program of state controlled 5-10 markets is an urgent issue. Their absence deprives the peasants of the chance to compete with big enterprises in state purchase. In particular, the RA Defense Ministry and other budget consumers practically destroyed farms and agriculture by purchasing a considerable part of provision from big landowners. 

94.   Foundation of retail markets by farmers. In 1999-2005 authorities without giving an account alienated collective markets in Yerevan. The funny thing is that they had never belonged to the state. They belonged to collective farms. The state had to change their administrative legal form and establish retail markets with participation of farms. After all, people having no connection with villages got those markets. Soon it resulted in increase of retail prices of provision while the wholesale prices did not change. Now in respect to the great majority of provision the wholesale price is only 25-30% of retail price. There is no such thing in the world. The market owners get 70-80% of peasants’ work. One of the main ways to bring agriculture out of this hard situation is to restore the old markets established by farms in towns and build new ones. 

95.   Application of differentiated VAT on seeds, fertilizers, pesticides. The VAT on imported seed should be abolished otherwise it affects peasants. With respect to some agricultural products (pest killers, fertilizers etc.) differentiated VAT should apply. 

96.  Creation of agricultural cooperatives and mutual aid funds to finance irrigation, agribusinesses, provision realization and carrying out agricultural works. Agriculture has found itself in the hardest situation. Nothing new has been done for peasants after land reforms. To improve the state of things in agriculture it is necessary to widely spread cooperation and mutual agro aid. The application of the concept of “Four Clothes” (in harmony with seasons) will allow to create agricultural cooperatives and mutual aid units (MAC) to finance irrigation, agro service, realize provision and carry out agricultural works.

97.    Conducting a reform in the irrigation sector. For instance, remaining thе owner of his land the peasant will get share in the irrigation system which will be given to peasant cooperatives managing the system. Members of the cooperative should only be the peasants whose lands are irrigated by the system. MACs will decide irrigation water price. MAC member peasants will bring their participation in irrigation works. Peasants should get income both from their lands and from participation in irrigation MAC. 

98.  Diffusion of MACs. Participation of peasants in MAC who do not have farms must be banned by la3w. The typical mechanism of irrigation system cooperatives should also apply in cases of preliminary cultivation of products, in agro service and in creating mutual aid funds. Some 1200-1500 such MACs should be founded throughout the republic with up to 150.000 farms participating in them. 

99.  State support of small farms, specialized in elite and ecologically clean production. Abovementioned measures will allow recovering small farms based on labor resources completed by families and mutual aid unit members. After all the dominating type of farms will be the ones that have 5-10 hectares (maximum) and mostly use labor of family members and other peasants within the frames of mutual aid. In a short period of time agriculture of Armenia can be specialized in producing and exporting elite, ecologically clean provisions.

100.  Organizing specialized schools for farmers. Dozens of schools should be opened where peasants can receive basic agricultural and economic knowledge at the expense of the state.

22 February 2010