COUNTRY RISK ANALYSIS: Time for a new approach

   Though perceptive people have been analysing country risk since times immemorial (observations of many famous travellers since Antiquity who have left us their memoirs often include useful information in that sphere), the formalization of the exercise is only a few decades old. The re-emergence of sovereign lending in a big way from the late 1960’s, meant increasing bond issues, and then large syndicated bank loans following the oil shocks of the 1970’s. Directly concerned financial institutions, helped with the growing importance of rating agencies, decided that it was time to look “scientifically” at countries’ ability to pay.

There was probably one of the original sins of the game, with the whole effort concentrating on the ability to service and reimburse external debt. It left aside all the other cross-border activities such as trade and investment which had their own risk patterns, not always linked to currency cash flows. For most analysts, it all became a mere accounting exercise. It left aside the human, political and social aspects, often ignoring geopolitics altogether. It sought a one-size-fits-all methodology, and comparative tables as to which country was “better” or “worse” than another. It introduced totally false premises such as the famous statement by Citibank’s Walter Wriston to the effect that “Countries do not go broke, and they do not disappear”. The serious gap in teaching economic and financial history, or mere geography, in the educational establishments of some countries is reflected here. Countries have appeared and disappeared throughout history, a process still going on, and both old and new countries can go broke, both de facto and de jure (obviously the chairman of Citibank had never read about the “faillite des deux-tiers” formally declared by a Republican French government of old.

This paper only aims to be a sampler of some current mistakes in looking at country risk. It is not a full methodology handbook, though I am ready and available to expand on the subject conceptually, as I have done on many occasions during my nearly 38-year analytical career, 32 of which devoted to Latin America but also encompassing Europe, the Middle East and the Caucasus. I have advised the InterAmerican Development Bank on its analytical methodology in the 1990’s, lectured on the subject on four continents, and trained many corporate and financial sector analysts as well as academics in modern techniques. My contact details are in the heading of this paper. This note can be circulated or published freely, as long as I am given full credit.

A Personalised Approach   The first sin of most country risk analysts is to look at a country intrinsically in terms of risk, whereas they should start by asking: “what am I or my client planning to do there”. This is the weakness of the rating agencies (whose reliability was much affected by the Asian and Argentine crises, both of which they failed to predict). They have to come up with a single “judgment”.

Let me illustrate this with the striking example of the Lebanon at the height of its civil conflict on the 1970’s and 80’s. Prima facie, it would have been the epitome of worst possible country risk. But look again at the particular case of three business risks from abroad into the Lebanon.

The owners of the Beirut Holiday Inn hotel, on the dividing line of the conflict, obviously had the short end of the stick (and were in legal disputes with their insurers for years as to how the conflict could be legally defined for the purpose of cover). Definitely a bad risk. However, if you had a sovereign loan to Lebanon, which at the time had a very low public debt, more than covered by external reserves mainly in gold safely kept outside the country, your risk was neutral. In fact, despite the sharp subsequent deterioration of the country’s public finances, and the continuing political instability, the country has yet to fail on its debt service. A third example would be an exporter of flat glass to the Lebanon, with a warehouse in Cyprus, which became the main entrepot base during the conflict. After each of the many ceasefires, households and businesses would repair their broken windows and glass panes. That foreign supplier never had it so good as during the civil war, and was probably paid without problem too. Positive risk.

In short, one country, at the same moment of time, three businesses, three different risk conclusions. Not something you could deduce from Standard and Poor’s.

This has a corollary when it comes to remedial action taken under salvation or remedial programmes from foreign lenders, bilateral or multilateral organisations. The important thing is to make sure that the right problem is diagnosed and treated. The country crisis viruses have been mutant, starting with balance of payments and currency cash-flow crises, but soon turning (not least often as a consequence of the palliative measures taken against the first problem), into fiscal crises, with several massive defaults of the banking system thrown-in for good measure.

The best example of such behaviour was the handling of the Mexican crisis of 1991/92, which paradoxically was an old fashioned currency cash flow shortage. In order to treat it, in a country which had a balanced budget and single digit inflation, the foreign ju-ju doctors obliged the country to raise domestic interest rates to three digits. The result was recession, inflation, a bankrupt banking sector and a gaping budget deficit. All of these could have been avoided with a U$ 50 bn currency facility, which came partially and much later, after all the damage was done.

The Obsession with GDP   An indecent number of results, investigations and theories, are based on comparisons measured as a % of GDP. These are not approximations and orders of magnitudes, but detailed edifices with two decimals. This is ridiculous. We all know that GDP is a nebulous and capricious figure, the first estimate for which is not available until well into the following year, after which it is often corrected (up or down) in subsequent years, to which one has to add base-date and composition changes, and the impact of erratic exchange rates. Even the components of GDP are uncertain, not least when most of the countries one analyses have a substantial black economy, the quantification of which is problematic.

What matters, particularly when one is talking of debt and payments are the actual quantities. Irrespective of how large the debt or its servicing are as a percentage of a phantom GDP, the important thing is how much money it is, and whether the fiscal, currency and borrowing resources for such an amount are available from different potential sources. Brazil’s current interest bill on its public debt of nearly U$ 1000 bn is U$ 10 million per hour (24/7).

Current vs. Trade Account   As mentioned earlier, balance of payments analysis has traditionally been the kernel of country risk evaluation. Here again, it started on the wrong foot and kept at it. Admittedly, high commodity prices and other changes in terms of trade and investment have meant that few countries today (particularly in Latin America, but also elsewhere) have severe external problems. In fact, many have record levels of reserves. However, the situation may go into reverse one day (Mexico in 2007 had a non-oil trade balance deficit of some U$ 55 bn, with a falling oil output which, barring reforms, may mean an end to its oil exporting capacity in the medium term).

Probably one of the most used and also most irrelevant ratios used in traditional country risk analysis has been Debt Service as a % of Exports. This stupidly presupposes that export revenue could and should primarily be destined to debt service. It also presupposes that export revenue (or the resulting currency) accrues to the government treasury (which is true in some countries but they are the small minority). It forgets the fact that the country also needs to import. If it only imports Champagne and Cognac, these could be done away with, but is a country supposed to stop importing the energy with which to operate, food with which to feed its population, and the intermediate and capital goods with which its various sectors develop, in order to service debt? There is only one such experiment in modern times, hat of Rumania’s last Communist leader, Ceaucescu, who in his final years left the population cold and starving in order to repay all the country’s foreign debt, including penalty interest. You know what happened to him as a result. “Penalty” interest took a completely new dimension.

A more logical ratio, which nobody ever uses, would possibly be Debt Service as a % of the Trade Surplus, which is the money left after imports have been paid for. Even then it is insufficient, because the real measure of external health is not the Trade but the Current Account (which includes interest payments). A good measure of the ability to service external debt should be Interest as a % of the Gross Current Account (which I would define as all current transactions but excluding interest payments). I would then use the overall balance of payments in a similar way to deal with capital repayments.

Having said all this, the whole exercise has become somewhat sterile because in the meantime, though many analysts, journalists and politicians talk about the problems of “external debt”, the virus has mutated into a wider definition, that of Public Debt, most of which is internal and therefore irrelevant to the currency flow problems.

The Fiscal Situation   There is not a lot of in-depth dedicated literature on country risk methodology, but at the height of the 1980’s debt crisis, two prestigious publications on the subject were published. One was written by a senior director at the largest Swiss bank of the time, and another (published by EUROMONEY magazine) was from the pen of a bank economist who had also worked at all the main multilateral agencies. Both committed all the sins described above, but the major flaw they had in common was that they hardly mentioned, if at all, the main problem befalling the crisis stricken countries: the fiscal situation.

In the 1980’s, the crisis was mainly (if not entirely) due to the substantial rise in the interest bill of indebted countries, which had accumulated debt throughout the 70’s and in the early 80’s), after the post-Iranian revolution second oil shock caused a rise in inflation, and therefore interest rates. Contrary to the bond issues of the previous century and a half, these loans were at floating rates.

The rise in interest rates on public foreign debt obviously created an extra demand on currency resources, but what nearly everybody overlooked, is that it also paid havocs with budgets. Worse was to come. In an effort to stop another problem (the flight of capital), countries were coerced to increase domestic interest rates, often to stratospheric levels as they had right rates of inflation. The combined impact of costlier foreign and domestic debt service led to a rapid deterioration of fiscal balances, none of which was very healthy to start with. None of the movers and shakers appeared to notice. In fact, there were many proposals to “solve” the debt crisis by replacing foreign borrowing (say at 8 %) by domestic borrowing (costing say 20 %), with the prior effort of  developing a domestic capital market.

As the situation became untenable and debt restructuring followed debt restructuring, sometimes before the previous programme could even by implemented, countries fell in and out of contravention to their IMF agreements. In the late 1980’s, in an effort to save the increasingly shaky reputation of the crisis managers, someone came up with the idea to change the definition of fiscal deficit. They invented the Primary Balance, and made it the target.

Basically, the authors of this aberration decided that by taking away from the figures the worst reflection of the problem, they would make it more presentable. To the extent, as described earlier, that the interest bill had become the main expenditure element in the budget, ignoring it was akin to a clinical director to instruct all doctors and radiologists to omit from their written diagnosis any threatening illness which may turn up in the examinations.

This of course throws the baby away with the water, forgetting that the purpose of the analysis is not to show up artificially distorted figures, or apply cosmetics to a dead body, but to find out how much money the country needs in order to pay its main obligation. The interest bill is not a vague virtual notion but a real expense (and, at the risk of labouring the point), the main expense. In most cases, contrary to capital repayments or other items of expenditure, it cannot even be delayed or rescheduled.

It was to be hoped that this concept, invented as was mentioned to save face in relation to a specific Mexico-IMF agreement, will soon come to pass. On the contrary, it has not only survived, but has developed into the main statistic quoted when referring to a country’s fiscal situation. The self-delusion has been so successful that there is a strong movement to extend it even more. There is now talk of removing from expenditure figures the amounts of “investments” (as if they were not an expense either, even if their effect is a durable one). The innocent may think that such games were reserved for developing countries. Not at all, several EU members, and some of the oldest and largest, in an effort to artificially squeeze within the 3 % of GDP fiscal deficit limit, have been lobbying for years in order to change the deficit definition by excluding capital expenditure from the expense column.

The consequence of this silliness is that it is often a substantial effort to find out the exact fiscal situation of a country. Sure, it is available, if you are an Egyptologist and know your way in excavating the websites and publications of the public entities in charge of publishing the figures. It is hardly ever mentioned in the shorter versions of press communiqués.

FOREIGN INVESTMENT CREATES JOBS?  Not necessarily. In fact, for a decade and a half, foreign investment in Latin American and other developing countries has been a very mixed blessing.

It is true that in its heyday, it was hailed as the answer to a maiden’s prayer. It brought-in badly needed foreign exchange, created jobs for a young and growing population, contributed to regional development in underprivileged areas, increased the tax base, and brought-in a technological leap.

For a long time, it did many of those things, and in some countries, still does. Unfortunately, in many others, it has been doing the contrary, and even more unfortunately, the national and international statistical apparatus has not evolved to distinguish between the various types of foreign investment.

The best “positive” foreign investment is the green-field, labour intensive projects, preferably in high-tech industries. A good example of that would be the giant INTEL chip plant in Costa Rica. So good in fact that you could trace its impact on the Central American country’s GDP, though in lean years for chips, the effect was less positive. Marginally less exciting are the natural resource projects such as a mining and investments. Beyond the initial construction stage, they are not labour-intensive, and most of the initial cost consists of imported specialist machinery. If legislation and negotiation were well conducted, there would be fiscal benefits from royalties and income taxes.

When it stops being exciting is when a mature business is transferred from one foreign owner to the other. It appears as a foreign investment in the statistics, often inflating the totals and allowing for triumphant statements from the authorities. In practice, no money or new technology enters the country, no jobs are created except during the week-end preceding the closing, when printers and sign painters redesign the premises in the new name. If the buyer has an existing operation in the target country, it will merge it with its new acquisition, and reduce the combined staff. So much for job creation.

The worst consequence for jobs were the series of privatisations carried out by many Latin American countries since the 1980’s, as part of their debt workout programmes. Admittedly, the buyers (some more than others), brought in new management and technology, and badly needed investment. What is sure is that they started by reducing the payroll. Essential? Probably, but the point I am trying to make is that contrary to legend, foreign investment does not always equate with job creation. Many times, it does not even equate with better management, or is not “privatisation” at all, hence the original sale of the Chilean telephone monopoly to a Spanish state-owed company (idem for its Armenian equivalent), or the Peruvian steel complex to a government-owned Chinese group.

Banking Sector’s Health  As a cause or consequence of systemic crises, major crises in the banking sector have often accompanied a wider deterioration in a country’s situation. Though there has been some improvement in the monitoring of the banking sector in developing countries, most past crises have come as “surprises”. Something as easy as keeping an eye on the percentage of past-due loans in the portfolio, is a good start, though it is insufficient. A close examination of the real quality and efficiency of the supervisors, beyond the impressive regulations, handbooks and legislative texts proudly handed out to visiting delegations, is a better approach. The gap between texts and realities in the developing world is a wide one.

Inflation and Monetary Policy   Monetarists have dominated economic policy-making for the best part of three decades, and they have perdured for longer than the undemocratic governments under which most initially flourished.

It would be very useful if analysts spent some time in the souks, shops and luxury malls of the countries their visits, and learn something about the real situation of interest rates. With most countries in Latin American having inflation rates within the 3 to 10 % range, and official intervention rates often double that level or more, what the borrowing businessman or consumer actually pays to his bank, finance company (or loan shark) has no relation at all with either inflation or the Lombard rate. Even with countries where single-digit inflation has been achieved (at a great cost), borrowers pay from 20 to 200 % on mortgage or consumer credits, depending on the country, their status and the nature of the borrowing instrument.

Why does it matter? It affects the public impact of monetary policy to the point of irrelevance. Reducing or increasing the central bank rate by half a point to “boost” or “restrict” consumption, is really neither here nor there for consumers paying up to 120 % on their in-store credit cards. In many countries, such levels of interest are actually illegal, but authorities turn a blind eye.

Similarly, using monetary policy as a way of controlling inflation, as per the textbook, is often wholly or partially sterile. The current bout of inflation is mostly caused by the increase in world energy and food prices. In many countries, those who have money will use their cars irrespectively of the cost, because they can afford it, and much of the rest of the population will similarly continue because it is essential and they have no alternative forms to transport themselves or their goods. Similarly, to the extent that the increases have affected basic staple foods, which constitute the bulk of the consumption of the lower strata of the population, there is little they can do short of starving. Putting up interest rates, whatever the book says, is not going to influence how much bread the poor eat in these countries.

Other Considerations  I started this note by stating that it had no ambitions to be comprehensive. Its aim is to sensitize analysts as to the necessity to adopt a new approach. Much can be added about the need to study political and social aspects, ranging from the sheer possibility to successfully implement some policies in certain societies, to the background of the economic managers which is a good indication of their future performance (finding out the subject matter of their doctorate thesis is one way of doing it).

I would be the first to admit that much of this is influenced by my Latin American experience of over three decades, but I think I have tried to make the points conceptually, because I am convinced they have a more universal application.

ARMENIA 2007 ANALYTICAL DIARY

     

I took my 9th trip to Armenia in 10 years from September 12 to 28, 2007. It was the second year running that I chose to go in what is usually a pleasant month, climate-wise, with the double advantage of still agreeable weather without the intense heat, and the presence of people in town rather than on holidays, which is what you increasingly face if you go in the summer.

Contrary to other years, I took very few notes during my stay, so much will have to come from memory, or be completely forgotten. I shall divide this note in two parts, the first of which will be the overall review of “good news / bad news” about the evolution of the country, backed by a statistical summary appendix at the end. The second part will be specific cameos and reminiscences from my stay, non-comprehensive as already mentioned, but which in many instances illustrate the general analysis.

This year’s journey marked some important milestones. It was the first time that I travelled from Western Europe to Yerevan by Air France, rather than the usual British Airways franchise BMA. It was a mixed experience, as the Air France short and medium-term routes are not as deserving of praise as its long-term product. Still, they are cost-efficient and allow you to go to and from Armenia with a single stopover.

The other novelty, besides the commemoration of the 10^th anniversary of my sponsorship of the Avemaria choir, was that I was accompanied by long-standing Armenian friends from Chile and Argentina during the first third of my 15-day stay, which was a very rewarding experience, about which more later.

Yerevan One Year On   It was exactly a year ago since my previous visit, when I took part in the Diaspora Conference. The first impression one gets from Armenia’s capital is that of a gigantic building site. Though specific construction activity was visible in earlier years, but on this occasion, everyone seems to be having a go at it with a vengeance.

Private housing and commercial premises, new or refurbished hotels, public buildings, underpasses, it is all happening. This does cause problems not just to the increasingly impossible traffic, but even for pedestrians with many streets and payments dug up for repaving or underpasses. There is also embellishment activity to public squares, gardens and park. On the other hand, it does provide investment and is labour intensive, none of which can be bad for the economy. The work is not exactly quick, which appears to be due to a mixture of cash flow, inefficient use of labour and bad overall planning. It is to be hoped that once it is finished, the city will be more citizen-friendly.

Accompanying this boom is a continuing exponential growth in the number of cafés, restaurants and upper crust shops, including the first real supermarkets which are larger than mini-marts but not quite as large as the premises we know in our countries.

High speed internet, which I experienced at my hotel, is not mega-speed but it did not get interrupted once during my stay, which is more than I can say for any other location I have used it (which means each country I have travelled to since I became cybernetic).

The multiplication of mobile phones, including very sophisticated models, has continued apace (admittedly a phenomenon seen in other “poor” countries), and there are many taxis on the street. Nevertheless, the more reliable (mechanically rather than in terms of safety) radio taxis can be scarce during peak hours. Another sign of relative prosperity is the fact that many people are able to take holidays, albeit short ones, with the better off going abroad (Antalya in Turkey being a popular destination).

Artistic activity, both home-grown and with visiting foreign performers, continues to be overwhelming. As I mentioned last year, it would put many Western cities to shame and is even more remarkable considering we are talking of a crisis recovery town of only around 1.4 million inhabitants.

Where is the bad news? Firstly, much of the above applies to the capital, Yerevan, whereas those (unlike me) who go to the second largest city, Gyumri, report unpaved streets just a few blocks from the city centre, and people still living in containers some two decades after the earthquake that devastated the city. The situation in rural areas is even more critical, and this has now become a priority, particularly for foreign NGOs. The water shortage in rural areas is a serious problem (and even parts of Yerevan still get just two hours of daily supply in summer months). Being close to nicely dressed and made-up girls with body odour could be due to that water shortage, as well as the lack of proper bathroom facilities in some older accommodation, and the unaffordability of dedodorant.

Though wages have gone up (according to the Central Bank, they averaged a gross U$ 240 per month in August), so has the cost of living. The official inflation index of below 5 % does not reflect two of the fundamental problems: the high cost of buying or renting property, and the fall in the dollar against the Armenian DRAM. The property boom in the first instance allowed those sitting on well located apartments or houses to sell and trade down, freeing capital for anything from setting a business to just finance current expenses. When I first started going to Armenia, U$ 20 to 25 thousand would buy you a more than respectable flat, which would now be in the 100-150 thousand range, depending on condition and location.

However, the new generations looking for housing (if unable or unwilling to doss at the in-laws, as is the tradition), find it almost impossible to afford. There is pressure on housing at both ends of the market, from Diaspora-led purchases at the top to internal rural migration at the cheaper end.

The DRAM, having peaked at 590 per U$ in March 2003, is now at around 330, and unless friends, relatives and aid organisations from abroad were able to increase the dollar value of their remittances by 80 % in just over 4 years, the recipients find themselves poorer, at a time when weather problems has affected fresh produce supplies. Armenia is not as cheap as it used to be for a tourist destination, particularly if you factor-in the level of facilities and service.

It would also make any export activity, already suffering from the land transportation problems, that much less competitive. As in many things, the locals have conspiration theories about the management of the exchange rate.

Prices, as I could check both in supermarkets and street markets, are by no means cheap, taking Chile as a basis for comparison. Fuels, which used to be more expensive, are now marginally cheaper thanks to the refusal of Chilean authorities to mitigate the increases by tax reductions they could easily afford. Decent hotels are in the U$ 120-250 range and meals at good restaurants can set you back U$ 15 to 40 a head. Taxis are still a bargain with U$ 2 to 3 taking you virtually anywhere in town, and the 100 DRAM (around 30 cents) public transport fare remains unchanged. Sure, it is not New York or Geneva, but in U$ terms, it is 40 % more than just a few years ago.

Decent education and health cover continues to be a financial challenge, and for many people, that is probably the main deterioration from Soviet times. Less visible immediately to the naked eye, but increasingly mentioned by the locals and sensed on closer contact, is another phenomenon common to savage capitalist countries. In my early visits I was impressed by the solidarity and mutual help attitudes of family and friends. This is steadily being reduced in exchange for selfish uncaring attitudes, which is a great pity.

Going to work abroad continues to be an aim, if only to provide a decent income for the family left behinds. This is very stressful on separated couples and children growing up without a father around. This may be the reason why some people want Armenia to get closer to NATO and the EU, and away from Russia. There is generally no political bias in such wishers, but the thinking that it would mean instant prosperity and visas. One sweet story to show how desperate people are to calling to any hope, is the rumour that went out during the pregnancy of Spain’s princess Letizia. It was said that if she gave birth to a male heir, there would be an amnesty for illegal immigrants in Spain (including the thousands of Armenians who have gone there in recent years).

The truth is that the West has historically done nothing for Armenia or Armenians, selling us down to river whenever it was convenient to them, from the time of the Genocide and through the Baku Soviet, to the present day attitude to the congressional resolution by president Bush (who according to one non-Armenian columnist in the Los Angeles Times, “had to choose between Turkey and truth, and he chose the former”.) Remaining close to Russia is still Armenia’s best bet, politically and strategically, which does not rule out trade and cultural links with the West.

Despite all efforts, 13 years after the cease-fire, there does not seem to be any short-term solution in sight for the Karabagh conflict. Things are not made any easier by forthcoming legislative lections this year and presidential next year, though most people appear to be cynical about their significance.

Crime has increased but Yerevan continues to be the safest city I know where to walk alone at night. The number of beggars has also increased, but they remain fewer than in almost any (prosperous) European city.

ARRIVING AT EURNEKIAN’S AIRPORT

Yerevan airport has been run for years under a concession given by Argentine Armenian Eduardo Eurnekian. The first few years showed little in return, but in September 2006, a brand new arrival terminal was inaugurated (a few days after my own arrival so I could not experience it). This year, I managed to experience it in full, and it is indeed very impressive. There are even “greeters” to direct people on like in Japanese department stores, and though my own suitcase was among the last off the belt (so much for my Gold membership of the Air France frequent traveller scheme), the actual flow started as soon as we arrived in the hall, which was previously unheard of.

One hopes that a new car park will ease the traffic chaos outside the terminal and that a departure facility will similarly improve on the current lugubrious check-in area.

Our Air France flight from Paris is only slightly late, and I am accompanied on board by Buenos Aires friends Peter and Marie-Flor Couyoumdjian who were already in Paris. I am ahead of them deplaning, and as soon as I arrive in the immigration area, a security man asks me if my name is Kouyoumdjian (how we guessed from my face I still ignore). He asks me my first name, and when I say “Armen”, he appears to lose interest. Peter is less lucky as he is held back and interrogated a bit longer before being waived on. Obviously they are looking for a Kouyoumdjian who has been up to no good, but it is not us. Otherwise, the immigration check is swift and courteous, as is the customs control where the inspector is understandably curious about why I am bringing 50 small alarm clocks in my luggage (they are 10^th anniversary presents for the choir). Still, he accepts the explanation without problem.

On the return journey, I notice that the special booths where you pay your U$ 30 departure tax have disappeared, and the sum (which has to be settled in DRAM) is now paid at the offices of Converse Bank. As it happens, Converse Bank is also now owned by Eduardo Eurnekian. Choirmaster Artashes Baburyan, together with his two car-driving  brothers-in-law, is waiting to take us to the hotel. Normally, one car would do but because many cars in Armenia run on LPG, stored in a tank in the boot, there is little room left for luggage. We head for the hotel.

ACADEMICS CAN’T RUN ANYTHING

Last year, I stayed elsewhere, as my usual hotel in Yerevan, the HyBusiness Suites, was being extended and refurbished, after it was bequeathed by its American Armenian owner to the American University of Armenia (AUA). Though the manager and staff are unchanged, and as warm and welcoming as always, the facilities are smaller and less well equipped than in the past. Still, from U$ 130 per night including breakfast, you have a comfortable spacious suite, in an excellent location, and without the crowds that fill other lobbies. All amenities and services are controlled by the new owners, which leads to some idiosyncrasies that are not the end of the world, but more tending on the ridiculous. Living in a country where academic economists call the shots of government, one can only come to the conclusion that such people should stay in their classrooms and not try to interfere with real life.

Peter Couyoumdjian’s Chilean-based brother, vice-admiral ® Hernan Couyoumdjian and his wife Luz Maria have already landed the same morning, having travelled from London with British Airways/BMA. It is the first visit to Armenia for all of them.

There are two other Armenians from Latin America also staying at the hotel. One is also from Argentina, and the other, Mr Iskenderian, originally from Lebanon, has been living in Venezuela for half a century, though he has taken a side bet with Chavez by also having a foot in Boston where one of his daughter lives. In his early 70’s, and very active despite a quadruple bypass, he specialises in selling caiman skins from the jungles of Venezuela to the fashion industry in Italy. Another daughter is based in Yerevan, where she coordinates an NGO which brings young Diaspora Armenians to Armenia for a reencounter with roots and voluntary work. Two other couples from Argentina are also in town, staying at the Europe Hotel down the road.

FOOD & CATERING

An urgent investment in Armenia is in a good training facility for catering staff. I mused that it was contradictory that people were so hospitable in their homes, but so disorganised and even sultry when it came to restaurant service. One answer was because in the latter case, they are paid for it and you are neither their friend, nor in their homes. I am not sure it is so simple.

The matter is even more dramatic considering the amazing amount of eateries, including luxurious ones, which have sprung up in recent years. Some, like the Middle-Eastern Phoenicia, live on an unwarranted reputation (at U$ 40 a head), and for a third of that price, you get better food in the unpretentious Lagonid (opposite the KGB building). A good discovery was the terrace of the Sayat Nova restaurant, which is very popular and serves delicious food despite the slow service.

To be avoided are the plethora of places that have sprung out in the gardens around the Opera House (where all customers have to share a couple of single cubicle toilets at both ends of the garden). This may be a good place to mention that the level and equipment of public toilets is rather good, always a sign reflecting a civilised society.

The shortcomings of the Opera garden facilities, which circumstances made me use up to half a dozen times, are best illustrated with a single example. We sit down for a light lunch with a friend. From past experience, service is slow, so my friend suggests we also order the dessert from the outset.

After a certain time, the dessert arrives, together with my friend’s drink, before the main courses. The desserts are cakes, and it is hot, so my friend suggests that he takes them back and serves them after the hot dishes. “I can’t”, says the waiter, “they have already been checked out”. He goes away, and sometime later comes back with the main courses, but not the Fanta I ordered. “Where is my Fanta?”, I ask. “We have no Fanta” (he never mentioned the fact when I first ordered), “only Mirinda”. “OK, so bring me an orange Mirinda”. He goes away and eventually comes back with an apple Mirinda. Yerevan is the only place in the world where you start missing Chilean waiters, and that is saying something.

I had two other “park” experiences in other public gardens, unrelated to catering but still worth a mention. On one occasion, taking a late night constitutional walk not far from the hotel, a guy sitting on a bench mumbles something to me. I do not catch it so ask him to repeat it. “I have papyrus” he is saying. I did not for a moment think that he was a dealer in stolen Egyptian antiquities, but concluded he was selling jointgs. I politely refused, and he did not insist.

On another occasion, in broad daylight, I am walking back from a choir rehearsal with Artashes, and a TV crew approaches us. Artashes is not very voluble by nature, so he excuses himself. I on the contrary always like to give my opinion, even when not requested, so I cannot pass on the chance. The question is an interesting one: “What do you think of the authorities efforts to mother the population by media campaigns about not smoking, healthy eating, road safety, etc..”?. My answer “ In some societies, such attitudes are taken for granted, though from childhood at school and in the home, so no belated campaigning is required. In others, where people are by nature individualistic, you have to bang the drum”. I never knew if it was broadcast.

LOST & FOUND

After 9 trips, I have yet to suffer an attempt at taking advantage from me in Armenia, and I am not a lucky man by nature, so there must be a natural goodness in the people. This is reflected when one of our party left valuable objects on three occasions in various places and the people in charge went to great length to trace her and return the objects.

IN AND OUT OF THE HOLE AND TO THE MUSEUM

Though I had done most of the tourist destinations around Yerevan on my earlier trips, I had never made it to Khor Virab, the site of the well where Armenia’s evangelist, Saint Gregory, was imprisoned for many years before being released due to his curing the king from madness, and converting the country as the first Christian nation, by tradition in 301 AD.

On the way there, we stop at a beautiful covered market in Yerevan, selling fresh produce, spices, dried fruit and dairy products. It is so spotless and well presented that it is closer to the Harrods food hall than a market in a developing country. That is the sort of thing which makes Armenia different and GDP per capita one of the stupidest measurements invented by economic science. Reminds me that I once told off a former Polish prime minister giving a talk at the UN’s regional seat in Santiago, with tables that “proved” that Armenia was behind several African countries.

The monastery is close to Mt Ararat and the Turkish border. We make jokes about staging a raid into Turkey, just a stone’s throw away. From the location, you can get the clearest view of Ararat, and it is a good photographic spot. The well itself is a popular destination for foreign and local visitors alike. You can go into the well, but between vertigo and claustrophobia, I do not volunteer. As we are chatting, mainly in Spanish, among ourselves, a group of rather attractive young ladies come into the monastery. We start to comment among themselves about their charms. NOT A GOOD IDEA!  It turns out they are students of Spanish from the Bruzof Institute, the foreign languages faculty of Yerevan University. They are out on a field trip, and cannot believe their luck when they see a group of native speakers with whom they can practice, and they readily offer themselves as impromptu guides. Contrary to their companions studying other European languages, they have no possibility to travel abroad to Spanish-speaking countries as there is no Spanish embassy in Yerevan to offer bursaries. I take down the teacher’s details, for reasons that shall be explained later.

On the way out, we come across other Spanish speaking tourists. “Are you Spanish? “No, we are Basque, from San Sebastian”. Another product of the Spanish state’s decision to structure the country on the basis of folklore. Before we board the bus, we have a chat with a young diocesan priest who works in the region. One of our party uses the toilets, which she finds spotlessly clean. It turns out the monastery is being refurbished by an Argentine Armenian family know to our friends. They make a note to congratulate him on their return home.

After Khor Virab, we have an important engagement. We are going to the Genocide Museum on Tsitsernagaberd hill in Yerevan, to deliver to its director a copy of the June 5 unanimous resolution by the Chilean senate, recognising the Armenian Genocide.

The handover is made by vice-admiral ® Hernan Couyoumdjian, in his capacity as chairman of Chile’s Armenian community. It is received by the museum director, an impressive young historian called Hayk Demoyan. As we arrive early, we take a short tour of the museum prior to meeting Demoyan. There is an additional bonus to the visit. In fact two. Their accountant is also called Kouyoumdjian (spelt differently but that is irrelevant), and Demoyan himself is working on a magnum opus about Armenians in the armed forces of various countries through history. He is very interested to meet Hernan Couyoumdjian and asks him to send his photograph and details for incorporation into the book.

He tells us about Turkish visitors breaking down in shame after seeing the exhibits. I wonder if the three Yiddish-speakers I came across on a subsequent solitary meditation visit to the museum grounds are similarly ashamed of Israel’s unspeakable cooperation with Turkey in the matter of Genocide denial.

I put together a press release in English and Spanish about our handover ceremony, and am pleased to hear in following days that it received mentions in the media in both Armenia and abroad.

COMMEMORATION CONCERT

Though we have had several recitals by “my” Avemaria choir during some of my previous visits, this year, there is going to be something special to commemorate 10 years of my sponsorship, including a small reception after the concert. For various reasons, we decide on Sunday September 16. This is the eve of the day when most of the Latin American friends return home, and of course I want them to be there. The venue is to be the Armenia choirs’ union headquarters, which has an auditorium seating 300, though we are not planning to have so many.

In fact, it turns out to be an unfortunate day, as it coincides with Holy Cross, the day they honour the deceased in Armenia (like November 1 in Catholic countries), and furthermore, a famous choir from Russia is on its first post-Soviet visit to Yerevan, and many people, including the Minister of culture who had expressed interest in attending our concert, have been “diverted” towards that even in the Opera House. Still, it cannot be helped.

On the Friday before, the choir rehearsal is being held in the concert auditorium with which they are not familiar. Also present are two young ladies who run a catering business which is in charge of the post-concert reception. I fret a bit at this because I have no experience of contracted catering in Armenia, and the experience at restaurants is not reassuring.

One of the partners is a friend of one of the choir members, and they seem to be rather professional. We were planning to have the drinks in the foyer adjoining the auditorium, but it is cluttered with a sculpture exhibition which is both space-consuming and potentially dangerous in case something gets broken. We settle on having it in the rehearsal room instead. I take advantage to distribute the remaining alarm clocks to those girls who did not come to the previous rehearsal.

The day of the concert, we gather the “Latinos” by various means and get to the hall with plenty of time. The auditorium is nearly half full, which is not too bad under the circumstances (in fact, previous concerts, all of which are by invitation) were held in smaller venues which were rarely full

The concert, which includes two female solo performances (one of which by a former choir member now embarked on a solo career but who comes in as guest singer) and a novelty in the form of a male singer solo, goes well and appears to be liked by all. We then move on (my personal guests from Latin America and selected friends from Yerevan, and the girls) to the reception.

I am pleasantly surprised and relieved by the very nice layout of delicious food, a small but smart drinks buffet with two smartly dressed waiters, and a jolly atmosphere. What a relief. If you ever need catering in Armenia, ask me for the reference.

Over the period of my stay, I tried to spend as much time as possible with the members of the Avemaria choir, which after all is my “raison d’être” with Armenia. Of the original 30 odd we started with 10 years ago (the choir itself was created in 1994), only about half a dozen are still members. About half the current singers are now married, and most of those have children. Some are better off than others, but artistic careers are not a way of making a decent living. Two are already separated. The conversations, particularly those singly and in small groups, are very interesting and rewarding, because it is a good way to get to know the people and the country.

Attitudes to security remain mind-boggling. One of the girls’ husband is a gymnast/personal trainer. They came to see me with their one year-old son. The father threw the child in the air and caught him several times (itself a pretty dangerous thing with such a small person). That was not all. The father also picked him up high in the air, holding him by just one tiny arm. I dare not say anything, but another girl also visiting me ventured .”Isn’t that dangerous”? “Not at all, answered the father”.

TO THE MOVIES

A group of young expats is going to see a new Armenian movie, and asks me to join them. Not only have I never been to the movies in Yerevan, but I have yet to see a single post-Soviet Armenian feature film.

In fact, I set the cat among the pigeons in Cannes this year, in front of most of today’s leading directors gathered in a single room, by complaining why in the Year of Armenia, not a single Armenian movie was included in the festival programme. (I was reprimanded afterwards for my outburst, but let us consider it my private cocktail Molotov, and if my accreditation is downgraded next year as a result, it was worth the sacrifice).

The movie house itself is an interesting art deco building, which has been refurbished. The film is called The Priestess, and is a recent release which tells a story around the fate of Saint Gregory of KhorVirab fame. It is lavishly produced in terms of locations, costumes and extras, but it is heavy going. The dialogue is mainly in the classical solemn declamation style which is a bit passé, if it ever was fashionable. The story is somewhat dishevelled, and the whole thing is slow (about par for the course for Armenian movies). Maybe the Cannes selection committee had a good excuse, though I do not think they even tried.

The best part of the evening was the comment by our good friend Nareg, who burst out as the credits (in Armenian) were finally rolling in the screen: “You know when you always look out for Armenian names in the credits at the end of a film? Well, you do not need to do that now. They are all Armenian names!

INDEPENDENCE DAY

September 21 is the 16^th anniversary of Armenian’s independence. Last year, I attended the military parade, standing among the crowds, and I was getting ready to repeat the experience. However, I find out that they only have parades every 5 years, so there ain’t one this year. Nevertheless, I am invited to something more original. A former choir member who is a music teacher at a state school tells me that her pupils are taking part in an independence day show at another arts school, and would I like to come. I accept readily, as I like events that are close to the people, and this is definitely not on the tourist circuit.

The show is taking place at a specialist school where all the arts are taught at an intensive level. Aimed at the talented children during Soviet times, it is now more geared to those who can pay, as the notionally free education demands an extra payment of around U$ 15 per month to pay the specialist teacher, an amount not everyone can afford. You can see that the school, like all of Armenia, has seen better times. I counted three grand pianos (find that in a public school anywhere in the Western world). It also has a large auditorium, which quickly fills up.

We have to wait for the local mayor to turn up, and he arrives late with a bunch of cronies who look like younger versions of the types at the Godfather scene, where the capos gather in order to declare a truce. He makes a speech about the glories of independence, which gets only mild applause. Then the show starts. It is a varied programme of folklore, ballad, modern song and dance, solo and ensemble. My friend’s pupils, who are teenagers, perform a wonderful collage of Disney extracts, in both song and dance. The final act, which brings the house down, is performed by very young children in military uniform singing a song in praise of the army. Pure Soviet-style nostalgia, and you can feel from the thunderous applause how nostalgic the audience are.

SPANISH LECTURER

Towards the end of my stay, I contact Lusine, the teacher of Spanish who accompanied the group of young students we met at Khor Virab. I offer her to give a talk to her students before I leave. She does not answer for a few days, so I think she is not interested. However, it was only because she was out of town, and as soon as she sees my message, she is very keen to accept. We agree for the morning of my last day.

I rapidly concot a talk in Spanish about the varieties of language and culture up and down Latin America, the various influences from both within and outside the continent, and such phenomena of interest including the Latin soap operas (which are very popular in Eastern Europe). Luckily, I have a close friend in mexico who is a sopa opera actress and I have visited her on the st and spent the whole day at the studios, so I know something about the subject behind the scenes. I spend nearly two hours with the students, talking to 24 girls and a single male student (one did not know if to envy or pity him). The Bruzof institute is known for attracting pretty young things (their Spanish is not bad either). On my return, I put up a note on the Armenian-Hispanic website www.ian.cc inviting Spanish-speaking Armenians visiting Yerevan to volunteer a couple of hours to talk to them, and if their luggage allowance permits, take some magazines to use as reading material.

OFFICIALDOM

Buenos Aires-based Armenia ambassador to Chile, Vladimir Karmirshalyan, is in town to attend a yearly gathering of Armenian diplomats abroad. At the last minute, he kindly offers to take me to meet Arman Guiragossian, the deputy foreign minister under whose jurisdiction comes Latin America. Very relaxed atmosphere (though I feel a bit awkward being in casual clothes as I did not bring a suit with me to Armenia). We have a friendly chat about the Chilean Senate resolution, as well as another idea I am working on to foster Chilean-Armenian relations.

I am leaving first thing next morning, a 36 hour door to door journey to include a stopover of nearly 12 hours in Paris, which will give me the opportunity to see my sister, who lives in France,  and my eldest son  (who flew in for the day from London). Has this been a good trip? Yes, but probably too long. The problem is that time-management is not very efficient in Armenia. Things take longer to happen and there is a lot of “down” time waiting for people to respond or turn up.

STATISTICAL APPENDIX

Real GDP (January-August 2007)   + 10.1 %   Inflation  (12 months to September) 2.7 %

Sector Performance:   GDP was helped by a 44.8 % advance in financial services and 20.5 % in Construction. Transportation grew by 11.6 % and Commerce by 6.6 %. Industrial production was  flat (-0.9 %) and Agriculture declined by 3 %.

Trade Exports in the first 8 months grew by 23.2 % to U$ 734 million, whereas imports rose by 46.7 % to U$ 1,926 million. The trade deficit grew by 66.2 % to U$ 1.19bn.  External reserves as of end September were U$ 1.3 bn.

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