Our Recession; Their 'Depression'

By: Ruben Vardanyan
RubenVardanyan@yahoo.com

One need only look at the Bureau of Labor Statistics publishing of unemployment figures to grasp the grim economic tides America finds itself in today. Forward going updates by the media have reassured us time and again of the uncertainties that lay ahead. It eventually became apparent that the catalyst of this supersized blunder was the unregulated packaging and repackaging of so called mortgage-backed securities. The incessant resale of these bundled mortgages as stock market instruments gradually increased the price of the houses they represented, as each intermediary seller aimed to profit from his sale. If it’s not about profit, it doesn’t belong on Wall Street!

Alas, this was only the beginning. Defaulted mortgages, hedge bets gone awry, poor loan recovery, curtailed lending and many others became headline worthy issues indicating the cat-and-mouse nature of problems clogging the financial infrastructure. The effect of failing institutions such as Fannie and Freddie served as the cause for other instabilities, the most prominent of which became the credit freeze within the banking sector. In retrospect, the past ten months or so have been seriatim “reality checks” for Americans. They have coaxed all of us to micromanage our finances by shedding the impractical spending practices of an age in which debt was just an unfriendly neighbor and credit, a teenager’s best friend.

But what bearing does our domestic dilemma have on nations halfway across the globe one might ask? Given modern day’s interconnectivity, primarily the influx of capital flow across borders, one could easily invoke the “world is flat” doctrine and answer that other states in fact have much to lose.

Let us briefly analyze the standing of the Armenian state and consider the consequences that may stem out of a tumultuous economy. Long been admired for its mountainous but tranquil beauty and its persevering heritage, this land of Tigran the Great and Artashes the Conqueror is not immune from the modern fixtures of econo-politics.

The recession plaguing the West has most definitely spilled over to the Caucasus, where nations like Armenia were already burdened by disproportionate imports to exports. Large scale layoffs have become prevalent in various regions of the state as producers of key exports like copper, gold, and zinc are raking in less revenue due to the depreciated value of these commodities on the world market. These businesses, most of which are within the mining complex of Armenia are unfortunately not the only beneficiaries of ill-fate. The job shedding has crept into construction firms, farming and harvesting corporations and even the services industry, as some non-governmental entities estimate nationwide unemployment to be at twenty seven percent.

But although lay-off figures in Armenia remain within the thousands, Sona Harutunian, head of the State Employment Agency, claims that since Armenia has such a small labor market, “the [loss] of even several hundred jobs creates serious problems.” The toll of job losses has reverberated in the consumer sector of the population as citizens are more inclined to spend frugally, not knowing if the next paycheck awaits them or not.

The Dino Gold Mining Company, a sixty percent Canadian-majority owned gold processing facility is a paradigm example of the difficulties beleaguering the state. It is one of the largest employers near the Armenia-Azerbaijan southern border, once sustaining 1,526 laborers. For the past three months though, the company’s doors have been shut and operations sealed off. Strikes were waged by company employees, and intervention by three ministers was needed to resolve the situation and ameliorate the conflicts.

The situation mirrors itself in the northern region of the state as well. Half of Armenian Copper Program Company’s 1,044 employees were laid off beginning late last year. Portentous waves such as these two may signal not only the domestic capping of Armenia’s economic capacity, but can incite large scale civil unrest as well. In addition, given the baggage of the 2008 presidential elections, Armenia’s fragile union system, and the poor communication between local governments and the state, the spark of protests seems inevitable in areas hardest hit by the disintegrating employment.

It’s unfair to compare Uncle Sam’s governmental resources to Armenia’s futile interventionist policies. Whereas Treasury and Federal Reserve funds are for the taking in America by corporate giants like AIG and Citi to keep themselves afloat, most Armenian businesses will end up swallowing losses since the government’s apportioning of aid will be fractions of what they need to survive. Furthermore, since the recovery process of Armenian firms will be far more protracted, the government has yet another incentive to invest less, even if it has hopes of capitalizing on these buy-ins.

The pros of global synchronization are myriad. The cons, however, surface in smaller nations like Armenia, whose economies are still in their infancies. Armenia would benefit handsomely by looking at Western strategies for dealing with prolonged economic downturns. Some say experience is the best teacher. But if so, then Armenia is still an untrained youngster. While Armenia was under the auspices of the Soviet Union in the 1930’s, America was independently blueprinting its way out of the Great Depression.

Though circumstances are not as severe now, the tools of the past are nevertheless invaluable. Given the growing opposition between employers and employees in Armenia today, the government should already look at preemptive measures to forestall large scale protestations. The restructuring of unions and their lobbying efforts in government must be realized sooner rather than later. Also, the government may at least temporarily experiment with subsidizing (lenient taxation, greater resource availability, etc.) the setup of foreign corporations so as to attract investment and broaden employment opportunities. Little by little, headway can be made into more self-sufficient infrastructures and a sounder economy. In the caucuses, Armenia can undoubtedly be a pioneer state in this capacity and serve as the mold for struggling nations on its periphery as well.