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1、The impact of global financial-economic crisis on the economy of the Republic of Armenia. Short term and long term perspectives.Ladies and Gentlemen,This conference is devoted to the discussion of a topic, which already has become a hot topic. Before assessing the impact of the global financial econ
2、omic crisis on a countrys economy, first of all one should understand precisely the pre crisis developments taking place in the economy in a global context. This will help us to understand correctly the lessons learned and to construct a new behavior.The features of the time before the financial cri
3、sisIt is not a secret, that pre financial crisis period was featured by monetary expansion, which was accompanied by formation of low interest rate. This policy caused an increase of demand on real estate, which gradually turned into bubbles. The real estate prices through income and wealth effect s
4、timulated the increase of consumption, resulting huge current account deficit of the balance of payments, which in its turn caused big inflow of US dollar into other developed and developing countries. From the other hand, to mitigate the speed of appreciation of the local currency vis-vis US dollar
5、, those countries started to intervene heavily in the foreign exchange markets, which resulted to the replenishment of net foreign assets and supporting the financing of the US budget and current account huge deficits.The above mentioned macro environment in US caused the US dollar to depreciate in
6、the world and forced the rest of developed countries to lower the interest rates in order to soften the appreciation of their currency vis-vis US dollar. Those activities resulted in similar situations in the real estate markets in these countries: increase of demand and formation of bubbles in the
7、real estate prices. As a result, the huge public deficit in the USA, the high level of real estate prices and almost the similar situations in other developed countries resulted in high speeds of income and consumption increase of the developed world globally.As a result the prices of raw materials
8、increased, which significantly contributed to the increase of the export of developing countries, who has such exportable goods. From the other hand, the low level of interest rate in international markets stimulated the increase of direct investments from developed countries to developing countries
9、. The favorable environment of economic activity and high rates of income growth encouraged also the increase of speed of credit expansion in developing countries. As a result, the developing countries in pre-crisis period had unprecedent high growth rates. The consequence of all of this was reflect
10、ed in the real estate market, when the continuously growing demand resulted in a high prices on real estate and created bubbles.An important factor in this regard was the robust growth of financial innovations as a result of which world financial flows and credit volumes accelarated. Moreover, even
11、since 2004, when in many countries the inflationary pressures began to take place and to address this issue countries started to conduct contractionary policy, e.g. increasing Central Bank interest rates and gradually reducing public deficit, the undertaken actions did not have significant effect on
12、 evolving overheating environment. In addition, in the state of overheating, the financial system institutions underestimated the future risks and even in condition of increasing interest rates continued to carry out credit expansion through various financial tools. The macroeconomic environment cre
13、ated in developing countries was almost similarly repeated in the Republic of Armenia. The export growth rate in 2004-2007, in the condition of continuing appreciation of the national currency, was 15 %, the share of net direct investments in GDP increased from 4,6 in 2003 to 8,0 in 2008, the averag
14、e annual growth rate of private investments was 28 % in 2004-2007, the average annual growth rates of the credit to economy and money supply were 46,3% and 45,0% respectively. Moreover, the link between diaspora and domestic economy had an additional and essential impact on the formation of macroeco
15、nomic environment in Armenia in face of private transfers sent to Armenia. The results of analysis on the state and influence of private transfers on our economy, conducted by the Central Bank of RA evidenced that along with altruistic motives for sending private transfers to the Republic of Armenia
16、, there was also the investment motives, and the latter, according to the theory and empirical evidences, has a pro-cyclical nature. This means, that the high economic growth stimulated the acceleration of private transfer growth rates and vice versa. As a result, a 40 % growth of private transfers inflow has been registered since 2004.Like in the rest of the world, in Armenia similarly, the above-mentioned macroeconomic developments led to overheat
