By Albert Khachatryan

In dealing with the consequences of the global economic crisis, many governments’ top priority is improving the population’s solvency. They are employing various mechanisms, the aim being the same – preventing the reduction of population’s real incomes and, within the limits of the possible, improving the population’s solvency.

Of course, steadily rising prices for goods and services causes a relative reduction in solvent demand. The recently observed steady tendency toward higher wages, which form a major part of the Armenian population’s incomes, is counterbalancing this process. The minimum basket of goods may serve as a standard for estimating wages.

Specifically, this January-September the average nominal monthly wages reached 98,400 AMD (about U.S. $258) in Armenia – 3.6 times as much as the cost of the minimum basket of goods in the 3rd quarter of 2009. One would only be happy about such “fine figures” but for…

The monthly cost of the minimum basket of goods for a four-member family (two parents and two children) is 109,500 AMD. Thus, if only one of the parents is the breadwinner (which is usual in Armenia), the aforementioned average monthly wages mean such a family will find itself among “poor” families. With the income tax, 6,500 AMD, withheld from the nominal monthly wages, the actual amount received by an employee is reduced to around 91,900 AMD.

According to the Introduction to a table compiled by the RA Statistical Service, the cost of the minimum basket of goods was calculated “as a result of an integrated survey involving 6,816 households and conducted with the use of methods developed by the World Bank, from April 1, 2004, to March 31, 2005.” The first question is: who are the respondents? The richest sections of the population were hardly involved in the survey. We do not think that the statisticians would deny this fact. So the actual figures could have been better. It is not a question of principle, however. What is worse is that the “aim” of the basket itself is poverty – abject poverty.

Citizens of developed countries may be shocked at the figures showing the minimum daily amount of food used by their counterparts in Armenia, so we are citing annual indices. Well, the annual amount of meat per capita is 19.3 kg (against 40 kg in the mind-1980s), fish 3 kg (several kilos less than 20 years ago), and so on and so forth. On the other hand, baked goods and potatoes “have made progress” – 178.5 kg and 56.4 kg respectively. Of course, Armenians are great lovers of bread, and bread consumption in Armenia much exceeds the “refined” European standards. It is a deplorable fact, but low-income families have to use relatively cheap bread as “compensation” for high-calorie and much more expensive products – meat, fish, eggs…

The daily caloric value of the minimum basket of goods is 2,232 calories. Before analyzing this figure, we would like to note that children aged 7-10 need at least 2,380 calories daily. This shows that the caloric value of the food basket in Armenia actually means chronic malnutrition. The problem is, however, much more serious. Baked goods are the main source of calories, their share in the daily “caloric content” being 61%. The caloric value of one “weight unit” of baked goods is 1.4 times as much as that of meat products, whereas the price of one kilocalorie is 3.9 times as low. So minimizing the cost of the minimum food basket will bring double “gain”!

Although our citizens are complaining about a massive price rise, the cost of the minimum food basket rose by only 249.6 AMD in the 3rd quarter of this year as compared with the corresponding period last year! The explanation is quite simple. Against the rising prices for most of the “basket-forming” products, a 7.9% fall in the price for baked goods was registered. As a result, due to baked goods, the cost of the minimum food basket even “fell” by 513 AMD, which was a partial compensation for a rise in price for meat products (3.2%), for fish (86.8%!), for fats (3.6%), and so on.

As regards the fall in the prices for baked goods, particularly for bread, it is common knowledge that the actual weight of one loaf of bread is much lower than the figures indicated on the labels. The competing producers reduce the price – and weight — of one loaf to attract consumers. So what is really behind the “cheaper” bread – a lower price or producers’ new trick?

The low caloric value of the minimum food basket and the “overweight” of “cheap” baked goods result in its purely “symbolic cost.” In the 3rd quarter of this year it was less than 17,700 AMD, which, in turn, allows the “derivative”, minimum food basket, to be “optimized.” Unlike many countries, where the nonfood component of the “basket” is calculated on the basis of natural consumption coefficient for key products and services, Armenia chose a much easier way – multiplying the cost of the monthly food basket by 1.55. Thus, the monthly cost of the minimum food basket turned out to be less than 27,400 AMD in the 3rd quarter – less than U.S. $77 a month, a “standard” amount in poor countries. The situation is slightly better in the Baltic States, which had the same initial position as the Commonweal of Independent States (CIS). Specifically, in Latvia in the 2nd quarter of this year, the monthly cost of the minimum basket of goods was around U.S. $348. It would be naïve to speak “in terms of prices.” We are all well aware of the fact that the prices for consumer goods have reached the much talked-about European standards, and, in some cases, have even exceeded them.

In “rich” countries the cost of the minimum basket of goods is much higher than in Armenia, with even recreation and car maintenance costs included. We had better not make any unfavorable comparisons. The social consumption standard in effect is essential for normal life, and its norms must be constituents of the basket of goods. The “1.55” coefficient implies that expenses on food constitute a major part of the population’s expenses (almost 65%), against 10% in developed countries.

Other questions can be raised as well. In Russia the law determines the “federal basket of goods”, and the Government approves the quarterly living wage (the cost of the minimum basket of goods inclusive of mandatory taxes and duties). In Armenia, it is a speculative index, which is not “underpinned” by any statutory acts or Government resolutions. Even in the statistical reports released by the RA Statistical Service this most important index is included in the section entitled “Entertaining statistics”. No comments… A logical question is: who, and what for, needs a “basket” without any legal force?

The answer is a simple one. The low cost of the minimum basket of goods “justifies” the low minimum monthly wages (30,000 AMD or about U.S. $90). The average monthly wages are 2,000 or 3,000 AMD higher than the cost of the minimum basket of goods, aren’t they? Well and good! The employer, without feeling any remorse, can square up with a hired worker by paying him the aforementioned sum! Another important fact is that the minimum basket of goods makes “struggle” against poverty much easier. Armenia has made “dramatic” progress on this front: 56% of Armenia’s population was below the poverty line in 1998-1999 (the per capita income was lower than the cost of the minimum basket of goods), whereas the figure was brought down to 25% in 2007!