According to a study by a leading Armenian research center, Armenia showed the greatest economic decline in 2009 among twelve former USSR countries, in Eastern Europe and the Middle East.

Only three former Soviet republics, now European Union members Latvia, Lithuania and Estonia, did worse than Armenia in the mentioned three zones, according to the analysis presented by the Economy and Values research center.

The Center’s Chairman Manuk Hergnyan says that the global economic crisis hit nearly all countries of the world because neither governments nor private sectors in these countries had been prepared for such an unprecedented crisis.

According to the study, among the factors that contributed to the strong effects of the crisis in Armenia was the fall in world metal prices. Even so, the country’s metal sector showed a 7.6 percent growth.

“The crisis revealed the vulnerability of economies, and the fundamental cause of this is the global disproportion between the financial and real sectors, as well as disproportion within the financial sector itself, in international trade,” says Hergnyan.

Armenia’s economy contracted by as much as 14.4 percent in 2009, which matches the forecasts of the International Monetary Fund and some other international financial institutions. The economy was also expected to start growing slowly but surely from the beginning of this year onwards.

The opposition in Armenia blamed the government for the high level of decline, accusing it of failing to adopt a proper policy to fend off the effects of the global crisis. In particular, the Armenian Revolutionary Federation (Dashnaktsutyun) believes that social spending should have been cut instead of borrowing from foreign sources.

The government expects the economy to grow by a modest 1.2 percent in 2010, which, according to Finance Minister Tigran Davtyan, is a cautiously optimistic scenario as eventually the growth may turn out to be higher. The IMF, meanwhile, provides a more optimistic outlook for the Armenian economy, forecasting a 2 percent GDP growth in 2010.

According to Hergnyan, their analysis shows that a current account deficit (the difference between exports and imports) was registered in countries where the economic decline was particularly deep and this deficit became a major cause contributing to the spread of the crisis.

“In conditions of Armenia the most serious disproportion which led to the decline was the deformed structure of the economy, particularly the fact that construction had an incomparably greater share in the structure of the economy, several times exceeding similar indexes in other countries,” says Hergnyan.

The head of the Economy and Values research center says the decision of the Armenian government last March to let the national current free-float was right, but late.

According to Hergnyan, on the whole the Armenian government had not provided a proper response to the crisis because the prevailing approach was that it would bypass Armenia, believing that the republic would be insulated due to its limited integration into the world market.

“Construction fed by transfers cannot be stable. Stimulation of export should become a priority,” concludes Hergnyan, adding that the government should at the same time enhance its analytical capacity and develop a strategic model for overcoming crises.