11994 Figures are all estimates based on available data in October 1994. 21994 GDP estimate is in billions of Armenian drams.

Grain, fuel and other assistance imports not included.

4Other U.S. assistance was available through regional programs for which a country-by-country breakdown is not available. Sources: the Armenian Ministry of Economy, the Armenian State Statistical and Analysis Committee, and the Central Bank.

1. General Policy Framework

In 1994, the severe economic crisis in Armenia continued. Almost all Armenian industries suffered shortages of fuel, electricity and raw materials, as a result of the embargoes by Azerbaijan and Turkey, and civil unrest in Georgia. Rehabilitation of regions damaged by the 1988 earthquake has been progressing slowly. The average purchasing power of the population decreased as compared with 1993 and further limited trade opportunities. Corruption remained a problem. However, the relative stability afforded by the cease-fire which has been in place since May 1994 for the Nagorno-Karabakh conflict has enabled the government to devote more attention to the economy and invigorate its reform efforts.

The present Armenian government has demonstrated a firm commitment to turning Armenia from a centralized state with a planned economy into a democratic society with free-market economic relations. The disintegration of the ruble zone in 1993 led Armenia to introduce its national currency, the dram, which lost value rapidly at the beginning of 1994. The general economic crisis and severe shortages of energy resources during the winter period resulted in a significant decrease in industrial production. The standard of living has continued to erode, and a significant out-migration of the population has occurred. The Nagorno-Karabakh conflict had forced the government to convert many of its operating machinery manufacturers to defense production, but the cease-fire, which has been in place since May 1994, has helped stabilize the economic situation.

The government has taken measures to lift almost all trade barriers for exporters, and to reinforce the role of the Central Bank by granting it significant authority to conduct state monetary policy and license individuals or organizations engaged in banking and related activities. However, the government budget deficit in 1994 decreased markedly due to increases in grants, decreases in lending, and lower levels of current expenditure. The deficit was partially financed by borrowing from the Central Bank and commercial banks, and by credits received from Russia, other countries, and multilateral institutions. Since June 1994, the Central Bank has exercised strong control on the emission and the exchange rates policy, set higher reserve/deposits ratio requirements for banks, and started to conduct credit auctions. This, along with a slight increase in exports during the summer and a number of international credits, contributed to a sharp decrease in the rate of inflation, from 30-40 percent in January/February to 3-7 percent in September/October.

In 1992, Armenia privatized almost 80 percent of its agricultural land. In 1994, Armenia began major privatization of industry. The privatization program will be conducted in three stages during 1994-1997, and is considered to be a key step in improving the economic situation. In 1994, more than 4,700 small and medium-sized enterprises were planned to be privatized. Privatization of dwellings also took place throughout the year and is expected to end in 1995.

During 1994, the Armenian government worked hard to improve operating industries' export performance. Concentrated efforts were made to upgrade energy industry infrastructure, and to find new sources/suppliers of energy and fuel. An agreement has been reached with Russia on joint exploitation of the Metsamor nuclear power plant which may reopen in 1995. In the meantime, Armenian and Russian specialists continue to test and modernize the plant, which was closed after the 1988 earthquake for safety reasons.

Armenian business laws have gradually been readjusted to match those of western developed nations. Present Armenian law permits the establishment of almost all types of private companies existing in the West, and the country's banking system, which currently is very backward, is expected to improve in the near future. Armenia is open to foreign investors and maintains a liberal foreign trade policy. 2. Exchange Rate Policy

At present, Armenia's banking sector consists of two state banks, the Central Bank and the Savings Bank, and more than forty private commercial banks, some of which are partially controlled by the state. During 1994, in an attempt to stabilize the exchange rate and fight the hard currency black market, the Central Bank adopted a number of contradictory measures including a liberal policy toward issuing licenses for exchange operations to any businesses, no strict control on exchange rate policy, and numerous dollar interventions (though of modest value). Then, the Central Bank decided to set obligatory exchange rates for all exchanges in Armenia, and finally, to close many of the private exchanges, granting the right for exchange operations to the existing banks only, and determining exchange rates at the regular hard currency auctions. Exchange rates may vary from the Central Bank's exchange rate by up to three percent. In addition to the market rate, the Central Bank maintains a second, lower official exchange rate to be used in non-cash transactions between state enterprises.

No strict measures exist for control of hard currency outflow from Armenia. Armenian residents are currently permitted to take a maximum of USD 500 with them when they leave the country. Permission to export foreign currency in excess of USD 500 is granted only upon presentation of a document proving that the money was purchased officially, or legally obtained. In May 1994, the Central Bank ordered all Armenian resident companies to close their business accounts in foreign banks, transfer funds to Armenia, and conduct all their international transactions via Armenian resident banks.

3. Structural Policies

In 1994, U.S. commercial exports to Armenia were insignificant, and were more affected by the Azerbaijani and de facto Turkish blockade, unrest in Georgia, and the conflict in Nagorno-Karabakh than by Armenia's tax and regulatory policies. In Armenia, resident foreign business owners receive national treatment, and are generally subject to the same taxes and regulations as Armenian businessmen. Joint ventures with more than 30 percent foreign investment are granted significant tax benefits and other privileges.

Basic Armenian taxes include a profit/corporate tax (12-20 percent), a valueadded tax (16.6-20 percent), an excise tax (5-70 percent) for sale of certain products, a personal income tax, and taxes paid to social security and pension funds. Amounts of duties and fees paid for export/import licenses and licenses for certain professional activities are normally dependent on the current minimum monthly wages set by the government. Though Armenian tax law describes ten more types of taxes, including a property and a land tax, relevant necessary legislation and collection mechanisms have yet to be adopted.

All exports from Armenia are duty-free. The law sets minor customs duties (5– 10 percent) for imports of certain goods.

In 1992, Armenia and the United States signed a bilateral investment treaty and an Overseas Private Investment Corporation (OPIC) incentive agreement, which allows OPIC to offer political risk insurance and other programs to U.S. investors in Armenia. In 1994, Armenia adopted the Law on Foreign Investments in hope of providing a legal structure for secure investments in the country's economy.

4. Debt Management Policies

In 1992, Russia assumed responsibility for managing Armenia's share of the former Soviet Union's external debt of $561.6 million. In 1993, Armenia incurred ruble and hard currency external debt totalling $220 million. This included credits received from the World Bank, European Bank for Reconstruction and Development (EBRD), as well as from other international institutions and foreign governments. No debt service payments were made in 1993.

At the end of 1994, the Armenian external debt increased to $592 million. It included loans received from the World Bank for rehabilitation projects in the earthquake zone, irrigation projects, an EBRD loan for reconstruction of the Hrazdan natural gas-fired power generating unit, a credit for construction of a cargo terminal at Yerevan's Zvartnots airport, and a number of other foreign credits. Debt service payments by the end of 1994 are estimated at $45 million.

In December 1994, the IMF approved a $25 million IMF Systemic Transformation Facility loan to support Armenia's reform program. The World Bank is also expected to offer financing worth about $80 million during 1995, which will support reform. The United States, France, and the Netherlands pledged about $110 million in humanitarian assistance and trade credits which also will support Armenia's reform program by addressing its balance of payments needs. Earlier in 1994, Russia also agreed to extend a 110 billion ruble credit, part of which will be used for retooling the Metsamor nuclear power plant.

5. Significant Barriers to U.S. Exports

In 1994, the following factors acted as significant barriers to U.S. exports to Armenia: a partial road and rail embargo of the country, fuel shortages, lack of market information, lack of a modern telecommunications system, nonconvertibility of the Armenian dram outside of the country, inflation, a backward banking system, insufficient protection of foreign investments, the extremely low purchasing power of the population and local companies, and lack of international trade experience.

Local or foreign companies registered and operating in Armenia which receive their revenues in hard currency are required to sell 50 percent of their hard currency profits to the state for drams at the official exchange rate.

In 1994, government procurement practices were mainly based on countertrade transactions, as well as competitive bidding in certain industry sectors and programs financed by international credits.

6. Export Subsidies Policies

In 1994, export-oriented industries continued to receive government assistance. As was the case during the Soviet period, the government subsidized some state enterprises and provided resource discounts to producers in critical industries.

7. Protection of U.S. Intellectual Property

An agreement on trade relations between Armenia and the United States, signed in 1992, states that the parties shall ensure that domestic legislation provide for protection and implementation of internal property rights, including copyrights on literary, scientific and artistic works, including computer programs and data bases, patents and other rights on inventions and industrial design, know-how, trade secrets, trademarks and servicemarks, and protection against unfair competition.

In August 1993, the Armenian parliament adopted the Law on Patents, and the government established a Patent Administration. Patents are granted for a period of 20 years. Laws on trademarks and copyrights are being considered by the Parliament.

Armenia plans to join the Paris Convention for the Protection of Intellectual Property, the Madrid Agreement concerning international registration of trademarks, and the Patent Cooperation Treaty.

Meanwhile, piracy of video and audio materials, books and software in the poorly controlled private sector is widespread. Items are copied locally, and some are imported from neighboring states, mainly Russia. No exports of pirated materials from Armenia to other states have been observed. Armenian state television and numerous illegal private cable channels regularly air Western video materials, many of which are unlicensed and of low quality.

8. Worker Rights

The 1992 Law on Employment guarantees employees the right to form or join unions of their own choosing without previous authorization. At the same time, many large enterprises, factories, and organizations remain under state control, and voluntary, direct negotiations between unions and employers without the participation of the government cannot take place. The 1992 Law on Employment guarantees

the right to organize and bargain collectively. Armenia's high unemployment rate makes it difficult to gauge to what extent this right is exercised in practice.

The 1992 Law on Employment prohibits forced labor. Child labor is not practiced. The statutory minimum age for employment is sixteen. The minimum wage is set by governmental decree and was increased periodically during 1994. Employees paid the minimum and even average official wages cannot support either themselves or their families and must look for sources of additional income. Most enterprises are either idle or operating at only a fraction of their capacity. Individuals still on the payroll of idle enterprises continue to receive two-thirds of their base salary. The overwhelming majority of Armenians are thought to live below the officially recognized poverty level.

Figures reflect the federal government's external debt. 7 Merchandise trade only.

1. General Policy Framework

Austria, a member of the European Free Trade Association (EFTA) and the OECD, has a highly developed economy with a high standard of living. Austria's economy is highly integrated into the international economy, with exports of goods and services amounting to almost 40 percent of GDP. The state-owned sector has traditionally played a significant role in the economy. Austria achieved a top economic and political goal-full membership in the European Union (EU), which occurred on January 1, 1995. The Austrian Parliament ratified the EU accession agreement by an overwhelming majority on November 11, 1994.

After eleven consecutive years of growth, the Austrian economy experienced a mild recession in 1993, by contracting 0.3 percent in Austrian Schilling (AS) terms. In 1994, Austria has again entered a phase of swift recovery. The budget deficit has increased, however, from the planned three percent of GDP to 4.7 percent in 1993 as a result of the weak economy and spending increases, particularly for unemployment benefits and a second year of maternity leave. Austria financed its 1993 federal budget deficit of AS 117.1 billion (10 billion dollars) primarily through Schilling and foreign currency bonds. The Austrian National Bank does not set money supply targets, but uses interest rates, in particular the rediscount rate and the rate for open market transactions, as its main tool for maintaining the mark-schilling peg. Formation of the European Union's single market and the transformation occurring in Central Europe have posed significant challenges for Austria, with the need for major restructuring. Austria's Grand Coalition Government of Social Democrats and Conservatives undertook measures to make the Austrian economy more liberal and open by introducing tax reforms, privatizing some state firms, and liberalizing cross-border capital movements. Austria has significantly increased trade and investment activities in Central Europe since 1989, but has also faced stiffer competition from the influx of low-priced Eastern products, and discrimination resulting from the EU's free trade agreements with those countries. In July 1994, Austria's parliament approved the Uruguay Round agreements. Austria ratified the Uruguay Round agreements in December and became a founding member of the World Trade Organization on January 1, 1995.

2. Exchange Rate Policy

Because of the Federal Republic of Germany's importance as a trading partner, the Austrian National Bank (ANB) maintains its "hard schilling policy" by adjusting money supply and interest rates to peg the schilling to the German Mark at an exchange rate of AS 7 equals DM 1. The schilling continued to appreciate vis-a-vis many other European currencies in 1993, which meant that Austria's international competitiveness deteriorated. After a small recovery in 1993, the dollar started to decline again vis-a-vis the schilling in late summer 1994. Austria's foreign exchange regime is fully liberalized. Austrian capital markets were deregulated and liberalized by the new Capital Market Law on Public Securities introduced in 1992. U.S. issuers of bonds and securities are free to place offerings in the Austrian capital market.

3. Structural Policies

Austria's participation in the European Economic Area (EEA) beginning in January 1994 and preparations for EU membership have resulted in broad structural reform. Most non-tariff barriers to merchandise trade have been removed, financial and other services have been liberalized, and cross-border capital movements and market access for foreign bonds have been fully liberalized.

Following a preliminary set of tax reform measures in 1992 and 1993 geared at the environment and tax simplification, a comprehensive tax reform became effective January 1, 1994. Main features of the reform were an increase of the general tax credit for all taxpayers, the streamlining of tax procedures, and the abolition of existing taxes such as capital tax and tax on industry and trade. To compensate for part of the revenue shortfall, the corporate tax rate was raised from 30 to 34 percent.

Other laws and regulations have been amended to open up the economy. A more liberal Business Code became effective July 1, 1993, which reduced licensing requirements. On November 1, 1993, Austria's new cartel law allowing for merger control became effective. The government enacted on July 1, 1994, a new law requiring environmental impact assessments for many projects in the waste, transportation, and energy sectors, and for large industrial projects. Austria's participation in the EEA required Austria to implement its first federal procurement law and to make its subsidy programs consistent with EU regulations.