Economy of Armenia - Overview

Overview

Under the old Soviet central planning system, Armenia had developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy. Since the implosion of the USSR in December 1991, Armenia has switched to small-scale agriculture away from the large agroindustrial complexes of the Soviet era. The agricultural sector has long-term needs for more investment and updated technology. The privatization of industry has been at a slower pace, but has been given renewed emphasis by the current administration. Armenia is a food importer, and its mineral deposits (gold, bauxite) are small. The ongoing conflict with Azerbaijan over the ethnic Armenian-dominated region of Nagorno-Karabakh (which was part of Soviet Azerbaijan) and the breakup of the centrally directed economic system of the former Soviet Union contributed to a severe economic decline in the early 1990s. By 1994, however, the Armenian Government had launched an ambitious IMF-sponsored economic program that has resulted in positive growth rates in 1995-99. Armenia also managed to slash inflation and to privatize most small- and medium-sized enterprises. The chronic energy shortages Armenia suffered in recent years have been largely offset by the energy supplied by one of its nuclear power plants at Metsamor. Continued Russian financial difficulties have hurt the trade sector especially, but have been offset by international aid, domestic restructuring and foreign direct investment.