It is not a secret that economic environment in Armenia has acute need of business environment improvement, regulation of business processes, and facilitation of the tax and customs administrations. All these measures, which the government is enforcing consistently despite conflicts of interests, aim to recover business environment, reduce administrative barriers and corruption level, optimize state resources, and, finally, simplify the life and activity of the citizens. One of the government’s key measures is the recently created fundamentally new state institution, the so-called "Regulatory Guillotine”. This government conception is estimated at 1.8 million EUR. The government has invited Armen Yeghiazaryan, an acknowledged professional, economist, minister of economy in early 90s, and dedicated reformer, to manage the institution. The well-known economist kindly agreed to give ArmInfo an exclusive interview.
Mr. Yeghiazaryan, your organization is entrusted with quite a delicate mission to ‘guillotine bureaucratic dragons’ i.e. inaccurate, outdated and even harmful laws.
You are partially right, and it is one of our functions. The mission of our organization is to monitor legislative acts, regulatory and other decisions of the government. What we must do, first of all, is to reduce the barriers to normal development of the public life and activity, business and economy.
As regards the ‘bureaucratic dragon’, speaking in images this multi-headed dragon reflects the big number of regulations in the country that are wrapped in red tape and hinder development of business. We must work to reduce the number of such regulations and conduct inventory, a peculiar clear out of the legislative and regulatory acts that are obstacles to economic development.
Have you enough powers, technologies and human resources to achieve that?
It is not nuclear physics. It is quite a simple work based on the technologies widely practiced in the world. These technologies help making the right decisions and changes and allow not making a real mess of things. There are specific criteria of adopting decisions, or more precisely, recommendations, on the basis of market surveys. It is a marketing survey, opinion polls of market participants that will allow revealing the ‘weak points’, real, but at first sight invisible barriers. Studying regulatory decisions in the business sector, we try to find out where they are coming from, if there are any elements connected with lobbying the interests of certain groups that seek preferential advantages, which create unequal terms of competition. We will have our interactive feedback website soon, which is a good opportunity to reveal the existing problems and receive information.
So far, we are engaged in ‘trifles’, e.g. regulation of the taxi sector. For instance, the population demands that taxi drivers stop smoking while driving, look well groomed and drive at normal speed.
Too many rules, while you are called to facilitate…
This is also an important function – protecting the population against low-quality services. This sector needs certain level of quality and the government must regulate it.
You are talking about improvements. What about facilitation of procedures?
There are different regulations. If we seek quality, it requires relevant regulation. If the government seeks to create jobs and do that very quickly, it requires quite different regulation. This is not so easy even in the case of taxies. If we just need jobs, anyone who has a driving license (not professional) can become a taxi-driver even if he has no experience in driving. If we need quality and security, we should display quite different approach to regulation of the sphere. New regulations are very close to engineering that pertains state conceptual approach.
But if the country lacks lawmaking traditions, it leads to "black holes”. Very often bureaucracy deliberately creates a regulatory bog, in the muddy water of which a goldfish is easily caught, as one might call. Moreover, as you remember, initially we copied out the US legislation at the expense of American grants, afterwards, we started synchronizing with the European standards, and then we considered possible reintegration into the post-Soviet space and chose that path. We have made so many dirty marks with so many unclear decisions that we have created numerous barriers for business and development of free entrepreneurship and economic fields.
Our function is to clear, to polish, to remove the unnecessary. Actually, such complicated spheres as tax and customs administration, will be in the focus of our attention. But before getting to it, we should gain some experience, work at simpler subjects and to develop the mechanism. For instance, it is necessary to improve the internet services in the country, which is a very interesting sphere; to work at the public transport – minibuses and buses; to address the issue of medical services – medicaments, polyclinics, dental offices and drugstore networks. We should start with these spheres not to twist our neck in case of more serious subjects.
The regulatory guillotine is a western know-how. Experts and professional consultants will shortly visit us, and we will take up the work very seriously. They will bring their technologies and the needed software. This idea is commercialized, applied in practice, and the states pay for it as for a very useful thing in the matter of regulation and improvement of lawmaking. Our state has provided us with premises and repaired them, bought all the necessary equipment and also covers the current costs. The rest is being done at the donors’ expense: the salaries are at the expense of the Austrian Development Agency’s grant, the western consultants and specialized software are the expense of the World Bank and USAID. UNDP has provided grants for designing a website and ensuring communication with the public, and OCSE – various grants, even for fact-finding trips. Thus, this project is the result of joint efforts of our Government and the donor community.
What are the methodology of the "guillotine” and the procedure of adoption of recommendations and decisions?
Everything is done stage by stage. First and foremost, the research field is determined, and then we see how it functions, what problems and what obstacles to development exist. But the most difficult is to understand whether we have revealed everything or whether there is anything latent. Here we gather specialists, talk to them, try to find the truth, the background, reply to the question about the motives of the earlier adopted regulations. Then we outline the scheme, create step-by-step tools, and determine the time and the expenses.
For instance, there is a dilemma: is a license needed for being an internet provider, can’t we avoid complication, and can’t we do without it? The regulatory documents demand compulsory audit and accounting from the providers. What for? One should always ask the questions: "Why?”, "What for?”, "What is the good of it?”, "What if we remove that norm?” The internet provider provides services; it does not keep your money, does it? The shoemaker also provides services, but he undergoes no audit. So, we are trying to facilitate the procedure and create new schemes. And the most interesting thing is that there are market participants, which are not interested in facilitation, because they are dominating in the market and are not interested in the presence of competitors. They come out for obstacles, for artificial narrowing of the number of market participants. And if the companies are large and lobbied by influential people, the regulatory barriers of their entry into the market are removed by means of a couple of telephone calls what the others cannot do, and then it becomes clear how certain companies become monopolists. Such a situation is observed in the sphere of registration of medicaments. Those who have registered them import them to the country and set monopolistic prices. But why? The registration of the medicaments by the state should be enough. Let various companies import them to the country and let there be a price competition.
There are cases when certain spheres lack regulations at all, for instance, regulations on how to connect the gas to the consumers. There are no formal procedures; the companies themselves decide how to do it. But is it correct to leave such procedures connected with provision of public services to their discretion? Maybe, it would be correct to lay down some demands to these procedures. We will also look for the answers to these questions.
Do you hope to scrap these concrete walls with your recommendations to the Government?
Our task is to draft the project, ground it and recommend it to the Government. If a body does not obey the Government, i.e. the matter concerns regulations of public services, they are strongly advisory. After all, it is necessary to change the legislative regulation. You know that there is a governmental commission for legislation improvement headed by the Prime Minister. The heads of economic departments – ministers of economy, finance and justice – are also members of the commission. So, it is for the commission to make the final decision.
Are there forces that are blocking your activities?
No, not yet, we are just starting up, so, those forces do not see any real threat in us yet. But sooner or later they will, or what are we for after all? There is a threat as long as there are interests. In our country there are lots of businesses that have been set up for supporting one or another field and to regulate their activities is not an easy job.
This is not strange, this is normal in the post-Soviet area.
But this annoys me. These are non-risky businesses with guaranteed incomes. In fact, they are not businesses but a sinecure, like, say, a parking lot, where you don’t even pay normal taxes. In civilized countries this "business” has long been replaced by automatic systems, supported by municipal authorities rather than individual taxpayers. There are lots of such businesses in Armenia, one example being motor vehicle inspection. This last problem seems to have been solved though: the procedure has been simplified, the compulsory seals on the ticket – the loophole for earning money – has been annulled. So, we can already see some small steps being taken to make our lives easier and to protect our people from bribery.
Our authorities need to improve our rank on the WB Doing Business rating. Some people say that what they are doing is exactly such formalities rather than real work. In our society and business informal relations prevail over formal ones. What do you think about this? There are ratings that are based on informal procedures. Do you consider them?
The selfsame World Bank has ratings where the world is viewed quite differently, but we must know that Doing Business is about the quality of regulations, about simpler laws and regulatory acts. Georgia’s 16th rank on that rating does not mean that it is one of the 20 most attractive countries in the world. Of course, it is not, it also has problems despite significant achievements.
You are quite right. But in our country formal and informal relations go side by side, with the latter being often a big obstacle to the former. This is our key problem.
Our people have certain stereotypes of human behavior, for example, they believe that a person must offer special remuneration to doctors and civil servants and do not regard this as bribery. But as a result they get confused and can no longer say what should be allowed and what should be not, what helps to live and what makes life harder. We have also traditions. No society – even in developed Europe – can build its life on formal regulations only. Simply in different countries informal relations are different: in some countries they help to develop, in others they are a big problem. Sometimes an informal economy is much better than a formalized one, where for every step to the right or to the left you will be shot down. Of course, I am joking, but oftentimes personal, friendly terms can be an advantage and help people to avoid formal barriers.
Which sectors will be harder to regulate?
The sectors where there are more corporate interests, including health care and education. We have not yet started to regulate education, but we are going to give it special priority. We are also planning to examine ownership relations and the licensing procedure in the field of construction. I hope that the "guillotine” will help us to reform our society. I would not undertake this job if I had no hope.
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