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Armenia
Rank: 32
Regional Rank: 19 of 41

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Armenia's economy is 69.4 percent free, according to our 2007 assessment, which makes it the world's 32nd freest economy. Armenia is ranked 19th freest among the 41 countries in the European region. Armenia's score puts it above Europe's average—an impressive feat for an impoverished landlocked country. The overall score dropped sharply during the year by 5.1 percentage points, which partially reflects new methodological detail.

Armenia rates highly in many areas, such as fiscal freedom, freedom from government, monetary freedom, financial freedom, business freedom, and labor freedom. Low tax rates, low government expenditure, and low revenue from state-owned businesses contribute to its impressive fiscal and government freedom rankings. Armenia has low inflation, and its banking sector is both wholly private and well regulated. Commercial regulations are flexible and relatively simple. There are few restrictions on foreign investment, except for land ownership.

Armenia could still make some improvement in property rights and freedom from corruption. The judiciary is fairly weak and subject to political interference. For a post-Soviet country, however, Armenia shows an impressive amount of freedom.

Background:
Since 1988, Armenia, a former Soviet republic, has sparred with neighboring Azerbaijan, occupying Azerbaijan's Nagorno–Karabakh region and adjacent lands. President Robert Kocharyan, former president of the self-proclaimed Nagorno–Karabakh Republic, presides over a coalition government that is rife with fundamental policy differences. Despite these differences, however, the government has managed to achieve macroeconomic stabilization in recent years and maintains a positive relationship with various international financial institutions. Armenia's economy relies in nearly equal measure on manufacturing, services, and agriculture, including its famous cognac production.

Business Freedom - 84.5%
Starting a business takes an average of 24 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license can be relatively simple, and closing a business is easy. However, the business environment can be risky because of the poor implementation and application of business legislation. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment.

Trade Freedom - 75.6%
Armenia's weighted average tariff rate in 2001 was a relatively low 2.2 percent. Improper implementation of the customs code is a significant barrier to trade, especially for importers. Consequently, an additional 20 percent is deducted from Armenia's trade freedom score.

Fiscal Freedom - 93.1%
Armenia has low tax rates. Both the top income tax rate and the top corporate tax rate are 20 percent. Other taxes include a value-added tax (VAT) and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 15.3 percent.

Freedom from Government - 91.6%
Total government expenditures in Armenia, including consumption and transfer payments, are low. In the most recent year, government spending equaled 17.5 percent of GDP, and the government received 3.7 percent of its revenues from state-owned enterprises and government ownership of property.

Monetary Freedom - 79.7%
Inflation in Armenia is relatively low, averaging 2.6 percent between 2003 and 2005. Relatively low and stable prices explain most of the monetary freedom score. Government policies distort prices through direct price controls in some sectors, such as public transportation, electricity, gas, and telecommunications. Consequently, an additional 10 percent is deducted from Armenia's monetary freedom score to adjust for price control measures.

Investment Freedom - 60.0%
Officially, foreign investors have the same right to establish businesses as native Armenians in nearly all sectors of the economy. Non-residents may not own land but are permitted to lease it. The major impediments to foreign investors are weak implementation of business legislation and corruption in the bureaucracy. The International Monetary Fund reports that there are no restrictions or controls on the holding of foreign exchange accounts, invisible transactions, or current transfers and no repatriation requirements.

Financial Freedom - 70.0%
Armenia's underdeveloped financial sector is dominated by banking. Following a banking crisis in the 1990s, the government embarked on a process of bank privatization and regulatory reform, including adopting International Accounting Standards and minimum capital requirements. Under the revised rules and standards, many banks have closed or merged; the number of banks fell from 31 in 2001 to 21 in March 2005. The state no longer has a stake in any bank, and all 21 commercial banks are privately owned. However, banks remain hindered by difficulty in debt recovery. All financial institutions are overseen by the central bank. The Ministry of Finance and Economy regulates the small insurance industry. Foreign insurance companies and banks are permitted. The active stock exchange includes 190 listed companies.

Property Rights - 30.0%
The judiciary is influenced by the executive and is also underdeveloped and corrupt, substantially impeding the enforcement of contracts. In November 2005, the constitution was amended to increase judicial independence, but it remains to be seen how this translates into practice. A special Economic Court hears commercial disputes.

Freedom from Corruption - 29.0%
Corruption is perceived as widespread. Armenia ranks 88th out of 158 countries in Transparency International's Corruption Perceptions Index for 2005.

Labor Freedom - .9%
The labor market operates under flexible employment regulations that could be improved to enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is relatively costless.

OTHER COUNTRIES OF THE REGION

Georgia
Georgia
Rank: 35
Regional Rank: 20 of 41
Category: Moderately Free

Turkey
Rank: 83
Regional Rank: 34 of 41
Category: Mostly Unfree

Azerbaijan
Rank: 107
Regional Rank: 20 of 30
Category: Mostly Unfree

Iran
Rank: 150
Regional Rank: 16 of 17
Category: Repressed