Armenia faced enormous difficulties at the beginning of its independence from the Soviet Union in 1991. The devastating earthquake of 1988, which had destroyed the northern part of the country, Armenia’s engagement in Nagorno-Karabakh conflict, complete transportation blockade on the part of Turkey and closed borders with Azerbaijan – all of these put the economy of land-locked Armenia under serious constraints.

Despite all of the above, as well as the country’s scarce natural resources, Armenia has made its first successful steps towards creation of knowledge-based society and economy. Although the borders with Azerbaijan and Turkey remain closed, routes through Georgia and Iran are being developed and actively utilized. The government of Armenia has implemented a comprehensive structural reform program leading to consistent growth and low inflation. Trade sector started recovering through international aid, domestic restructuring, and foreign direct investment. Armenia is actively developing new sectors, such as agriculture, precious stone processing and jewelry making, information and communication technology, and tourism. In 15 years, Armenia has become self-sufficient in major agricultural and food products and started exporting some of its output. Besides, Armenia is the only country in the region exporting IT products – the country is ambitions to become the regional IT hub. The privatization of small- and medium-sized enterprises started under a new Law on Privatization adopted in 1997. Besides, a liberal foreign investment law was approved in 1994. In 2003, Armenia became a full member of WTO.

Armenia ranks as the “most economically free” country in the CIS on economic freedom category

Armenia enjoys a high degree of economic freedom occupying the 32nd place in the list of 161 countries, according to the annual survey “Index of Economic Freedom” conducted by the Heritage Foundation /the Wall Street Journal/ in 2007. Among the CIS countries Armenia ranks as the most economically free nation. The appraisal of economic freedom is based on 50 economic indicators within the following categories: capital flows and foreign investments; banking and financial system; monetary, budget and trade policies; salaries and prices; state interference in the economy; property rights and regulations; and black market.

COUNTRY	RANK 2005	RANK 2006	RANK 2007
Armenia	42	27	32
Azerbaijan	103	123	107
Georgia	100	68	35
France	44	44	45
Germany	18	18	19
Hungary	35	40	44
Iran	148	156	150
Poland	41	41	87
Russia	124	122	122
Turkey	112	85	83
Ukraine	88	99	125
USA	12	9	4

The Armenian economy has expanded at a double-digit rate for a fifth consecutive year, reducing poverty and boosting personal incomes. Purchasing power of population has increased leading to the faster growth in the populations’ income than its expenditures for the second consecutive year.

FINANCIAL AND ECONOMIC DATA	2002	2003	2004	2005	2006
Real GDP growth (%)	13	14	10.5	14	13.4
Inflation Rate (%, average)	-1.1	4.7	7	2.2	2.9
Total FDI (USD million)	140	178	235.2	244.3	250.7
Trade Balance (USD million)	-483.8	-481.9	-635.94	-827.8	-1190
External Debt (USD million)	1025.1	1693.6	1884.08	1860.1	2052.67
Unemployment Rate (% of labor force)	9.4	10	9.4	9.6	8
Exchange Rate (AMD/US$ annual average)	573.3	578.77	533.45	457.69	414.7

SECTOR	2001	2002	2003	2004	2005	2006
Industry	22%	22%	22%	22%	22%	22%
Agriculture	25%	23%	22%	22%	20%	17%
Construction	11%	14%	16%	15%	24%	27%
Transport	7%	7%	6%	6%	6%	6%
Trade	10%	10%	10%	11%	11%	11%
Other Branches	25%	24%	24%	24%	17%	17%

Due to stable economic growth and an open trade system, exports have increased considerably since 1999, accompanied by import substitution as a result of an increase in domestic production.

Exports and Imports
Growth Rate          2000     2001      2002     2003      2004      2005        2006
Exports                   28%     14.10%    48%     34%      4.30%   31.50%    3.10%
Imports                 9.10%    1.20%     13%     29.60%  5.60%   30.90%   21.80%

COUNTRY	% of total EXPORT		COUNTRY	% of total IMPORT
Belgium	10.8		Belgium	7.2
Georgia	5.4		Germany	3.9
Germany	14.7		Iran	6
Iran	2.9		Israel	4
Israel	10.6		Russia	16.6
Italy	2.9		Switzerland	3.9
Netherlands	12.6		UAE	6.6
Russia	12.1		UK	3.6
Switzerland	7.2		Ukraine	5
USA	6.5		USA	6.2

Small-scale privatization began in May 1991, which was followed by large-scale privatization from 1995.

Almost 95% of medium and small enterprises, as well as more than 100 large scale enterprises, had been privatized by May 2002.

In 2005, 51 companies were privatized: 31 through direct scale, 17 through tender and 3 through auction.

The steady economic progress has earned Armenia increasing support from international institutions. The IMF, World Bank, EBRD, IFC, USAID, EU, GTZ and other foreign institutions and countries have extended considerable grants and loans targeted at reducing the budget deficit, stabilizing the local currency, developing private businesses and industry sectors, and other purposes.

The Partnership and Cooperation Agreement between the European Union and Armenia came into effect in July 1999. The Agreement aims at improving economic cooperation and trade within the region and with the European Union. In 2003, Armenia became a full member of WTO.

Currently, Armenia is a member of the following organizations: APCTT, An Open Agreement on Organizing Prevention, Avoidance and Assistance in case of Natural and Technological Disasters, BSEC, BSBTDB, CCC, CIS, EEC, EBRD, IFRCRCS, IFC, IMF, ISO, FAO, ECE, ESCAP, IAEA, IBRD, ICAO, IDA, IFAD, ILO, IOS, ICDO, ICAO, INTOSAI, IAPNTELSAT, INTERPOL, International Council of Archival Issues, ICRC, International Astronomical Union, IOC, IOM, ITU, Joint Consultative Group on CFE, Multilateral Investment Assurance Agency, NACC, OIPO, OSCE, RAMSAR, UN, UNCTAD, UNESCO, UNIDO, MIGA, PCCNTBTO, Preparatory Commission for the Organization for the Prohibition of Chemical Weapons, UPU, WEC, WCO, WHO, WIPO, WMO, WOAH, Working Group for the Field of Energy among Black Sea Region and Central Asian Countries, World Bank/IDA, WTO (World Tourism Organization), WTO and the Council of Europe. Armenia has also observer status at ADB, NAM, and participates in NATO PFP.