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This paper was presented to the Armenian authorities at a conference held in Yerevan on October 25, 2002. The author wishes to thank Ms. Gohar Minasyan (Economist, IMF Office in Armenia) for research assistance on an earlier version of the paper, and colleagues in the European II Department of the Fund for their valuable comments. The views expressed are solely those of the author.
Experience from several countries has shown that real GDP growth rates are relatively high during the initial phase of recovery following a sharp fall in output (catching-up, or starting from a low base of output). Armenia’s real GDP fell by a cumulative 60 percent from 1991–93.
See page 9.
The year 1989 was the year in which officially measured output peaked in the former Soviet Union, as well as in most other countries in the region.
Economic recovery could have started sooner—and proceeded more rapidly—had Armenia settled the Karabagh problem with Azerbaijan and had Turkey opened its border with Armenia.
The full sample includes the following 50 countries: 24 transition economies: Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, China, Croatia, Georgia, Estonia, Hungary, Kazakhstan, the Kyrgyz Republic, Moldova, Latvia, Lithuania, Poland, Romania, Russia, Slovak Republic, Slovenia, Tajikistan, Ukraine, Vietnam, and Uzbekistan; 22 developing economies: Bolivia, Chile, Colombia, Costa Rica, Cyprus, Dominican Republic, Egypt, Ghana, Honduras, India, Indonesia, Kenya, Malaysia, Mauritius, Mexico, Morocco, Pakistan, Peru, Thailand, Tunisia, Turkey, and South Africa; and 4 advanced economies: Ireland, Portugal, Spain, and Korea.
The adverse effect of inflation on growth can be attributed in part to the way rapid inflation, and the uncertainty associated with it, induces consumers and enterprises to resort to barter and hoarding of goods, and financial investors to seek refuge in foreign currency holdings, both in cash and through capital flight. Moreover, high inflation reduces the return from productive activity relative to the return from activities to avoid inflation-induced losses. Under these conditions, the incentive to hold domestic financial assets and to provide financing for private investment is seriously eroded.