2.3. Description of Poverty and Impoverishment

Poverty, from human development standpoint means absolute absence of choices and opportunities securing normal standard of life. Hence, along with the amount of the average per capita monthly income, one can single out a number of other indicators characterizing the living conditions of the poor and impoverished family groups. According to the results of permanent monitoring conducted between 1991-1996 by the Institute of Economic Research:

· no less than 90% of all incomes is spent on food, however, meat, fruits and dairy products are totally absent from the menu,

· procurement of industrial goods is reduced to a minimum (clothes, shoes, etc.),

· on the whole, service payments are not made, including those for consumed electricity or for transportation fee,

· falling ill is an unaffordable indulgence; being cured means total bankruptcy,

· higher education for most is almost unattainable,

· there is no hope for improving the conditions of accommodation.

Hence the enormous gap between the real demand for social services of these groups and the actual capacity for satisfying these demands through the state budget or by their own consumption budget.

Despite various views, not only the pensioners, the unemployed, families with many children or incomplete families are traditionally considered to be the weakest and socially most unprotected groups. The core of the poor and impoverished strata of the population, or, its "backbone," nowadays consists of those who until recently were the numerous middle class, represented by artists, scientists, trained workers and builders, intelligentsia - the majority of the population in Armenia.

2.3.1. Phases of Impoverishment

Impoverishment in Armenia may be provisionally split into four main chronological phases.

1. Shadow Poverty (before 1988). The former USSR had an operative system of social benefits, privileges, and subsidies, donations. Starting in January 1975, the State introduced child allowances for more vulnerable families thereby officially asserting the existence of poverty. However, those considered deprived at that time were, no doubt, much better provided for than are today's needy people.

2. Sudden Poverty (1989-1991). This phase, mostly generated by the earthquake and the influx of refugees, accounted for an abrupt impoverishment of the population. The already grave situation deteriorated further due to the utter ruin of one third of the country's territory (loss of accommodation, inventory and jobs) and 25,000 casualties in the earthquake. Out of her scarce resources Armenia had to provide material assistance to 520,000 refugees displaced as a result of the Karabagh conflict, before the anticipated international aid would arrive.

Box 2.2. Housing Problems in the Earthquake Zone and Their Possible Solutions Today, ten years after the earthquake, housing is still the gravest problem for the disaster zone, especially the existence of temporary shelters, the so-called "domiks". In 1998, the US Urban Institute and the Public Research Center of the American University of Armenia (PRC of AUA) conducted a joint survey1 of the `dwelling' settlements in the disaster zone. According to its results, nearly 60% of households live in metallic, and some 30% in wooden dwellings, while the rest stay in "domiks" or other temporary shelters. These dwellings usually have less than 20 square meters. In terms of poverty, the difference between the inhabitants of these dwellings and the needy segment of the Armenian population is negligible. Around 63% of the disaster zone's urban population is below the poverty line. For the rest of the country's population, this index is 54.7%. In this regard, of special importance is the Rehabilitation of the Disaster Zone emergency program, adopted by the Government of Armenia in 1998, as well as a new policy developed jointly by the experts of the US Urban Institute, the PRC of the AUA, and the Moscow City Institute of Economy. This policy is grounded upon inter-balanced physical, social and financial planning. The physical scheme will ensure a prudently planned removal of dwellings from the site. In parallel, the buildings in the area will be fortified, and some constructions will be built on newly cleared plots. The social scheme will see that former dwellers of houses partially or totally destroyed by the earthquake be included on the list of house-seekers. Provision of houses will be pursued according to the list and in compliance with the actual privileges or appropriate categories of those involved. The financial scheme suggests each household on the list will either receive a `house purchasing certificate' enabling them to buy a permanent residence right away, or to move from its dwelling to another temporary shelter and wait for the fortification of former home or completion of a new constructed building.

3. Market Poverty (1992-1995). Still in the first half of 1992, the hyperinflation rate jumped from 100% to 1,000%. State expenditures on social infrastructures and product subsidies dropped drastically. Poverty in the country reached an unprecedented rate. According to several polls, 97% of the population appeared beneath the provisional "absolute poverty line". Though the first stage of reforms, 1993-1995, was attended by international humanitarian aid, this was a period of struggle against famine and frosts, solely to prevent massive loss of life. This period witnessed mass economic migration, especially to the Russian Federation.

4. Evolutionary Poverty (1996-1999). The year 1996 was marked by the first tangible successes in the economy. Eventually, with the decline having halted, about 35%¹ of households overcame "market poverty". At the same time, material inequity became more visible after privatization. Some 8-10% of households managed not only to overcome poverty but also to prosper². This period saw some economic stabilization. Horizontal borders of poverty were reduced; many people started their own businesses. The survey in 1996 recorded a decrease in the poverty rate to 54.7%³. In the meantime, horizontal poverty tended to grow rapidly in volume. In this instance, the once numerous intelligent-sia in Armenia has become seriously endangered.

In terms of their capacity for overcoming poverty, the 230,000 officially registered needy families⁴ can be roughly grouped in five categories: less needy, needy, poor, impoverished and totally deprived. The first three categories are able to cope with their poverty, provided certain conditions are created to raise their wages, pensions, and to cover their families' minimum needs. Whereas in the cases of the impoverished and the totally deprived, poverty is of a somewhat sedentary nature. These two categories are yet incapable of defeating poverty on their own; therefore, they desperately need to be supported with allowances and social benefits.

Figure 2.2. Classification of Poverty

The classification suggested above will help the Government in developing poverty alleviation programs, as it provides opportunities for a category-based, differentiated distribution of allowances taking into consideration the vulnerability level. Of special importance is drawing a clear distinction between the families entitled to allowances and those who are not, otherwise the latter will find themselves in worse conditions than the former, as it happens nowadays.

Figure 2.2 offers a possible solution for a fair and better-targeted provision of allowances based on the assessment of family incomes. Under this model, the size of allowances is set in a differentiated manner, respective of a family's belonging to any of the given categories.

The adaptation to a new mode of living became still harder, as various practices, which were quite alien to "Homo Sovieticus" started penetrating Armenia, which was complicated by psychological factors.

The residents of the disaster zone failed to cope by themselves with the enormous stress of life after the earthquake. The lack of psychotherapy services brought about common indifference; most people were unable to adjust to the new conditions. Regular humanitarian aid, sometimes merely demonstrative, destroyed their potential for self-dependency. They enveloped themselves in the image of "a creature of misery" no longer able to do anything independently.

Bitter disappointment and negativism is what many felt about the liberal market economy. In some cases, unfortunately, this was the attitude toward independence, equating it with unemployment, low pensions and wages, for fee health care and education, significant deterioration in their quality of life, mass migration and the necessity to temporarily leave families and the motherland in search of minimum conditions for survival. Some found themselves the victims of cheating creditors, or faced many other misfortunes.

2.3.2 Pensioners

Armenians in the elder age group, having had a rather vague idea about capitalism, were among the first to oppose the shift towards a market economy. Also, they appeared to be the main target for the social consequences of the reforms.

Out of 580,000 pensioners in Armenia, 223,000 are old age or retired pensioners, of which 186,402 have been identified as needy and included in the system of family allowances. Pensions remain exceedingly low, with an average pension amounting to 7.5 USD, while the average family allowance is 12 USD.

The difference between the sizes of occupational and social pensions was negligible, and grew even smaller as of April 1, 1999 when the size of the base pension increased by 30%. Yet this increase in some 1.2 USD is likely to be crucial for many people as it deprives them from family allowances. We believe the financial capacities of the State Social Insurance Fund in this respect have been overestimated.

Similarly inefficient was the decision to set a ceiling for social insurance obligatory payments at 20,000 Drams, since earnings of the Fund were thereby decreased, while providing advantageous terms to super profit-makers in monopoly industries. Hence, this is an instance of obvious deviation from the principle of social solidarity.

The collection of obligatory payments is poorly organized. Two-thirds of the pensions for the elderly living in rural areas are covered at the city-residents' expense whilst, according to selection grades for vulnerable families, the rural population has a lower poverty rate than the urban population.

The Government is currently implementing a relief policy in respect to outstanding social payments, arrears, fines and duties of defaulting enterprises. This fails to comply with the insurance doctrine and will not encourage fund raising, either. Moreover, some businesses are always sure to by-pass it through lobbying. Given the current situation, debts may be suspended to ensure further payment of obligatory contributions, but never forgiven.

The flawed scheme of reimbursements including social, perennial, privileged, and those for loss of, or damage to, health at the employer's fault, is still in operation. This contradicts the basic concept of the Fund's foundation, which suggests that insurance exceptionally serve the insured. Besides, the scheme leaves it open to inappropriate expenditures.

2.3.3 Family Allowances as Poverty Alleviation Tool

A new allowance system based on family vulnerability was introduced on January 1, 1999 to substitute all various kinds of social benefits and allowances active on the territory of the Republic of Armenia since January 1, 1992 and operates through the database of the former PAROS system. On the whole, it could be concluded that this rather risky and large-scale endeavor succeeded in fulfilling the set tasks. Nonetheless, it has certain serious drawbacks, which seek consideration, as their amendment will serve the overall improvement of the system.

· It seems inexpedient to start similar broad-scale activities addressed to the needy segments in January when living costs are rather high. The New Year celebration, no matter how scanty, means additional expenses. At that time of the year Dram inflation and increases in charges for some services are also observed.

· It was wise to introduce the scheme of recording energy costs however, it was not well-reasoned through, as it considered electricity alone, ignoring other options of energy consumption, such as gas pipes, gas-cylinders, wood, diesel fuel or coal used for house heating. This accounts for considerable distortion in the index.

· Incompetence of some local self-governance officers, `solidarity' on the part of certain village council heads; high turnover of social service employees; their inexperience; some practices of partiality; limited mandate given to the Ministry of Social Security's personnel to influence the quality of their performance.

· The large number of people with vulnerability grades below `36', and therefore not entitled to family allowances. Eventually, they appeared in a poorer condition than those entitled to assistance.

· While replacing social privileges by social transfers, all grantees received financial compensation, whereas with the introduction of family allowances their great majority was assessed as "not needy" (often quite fairly) and was eventually deprived of benefits, thus raising complaints.

· Disproportion between the sizes of allowances and those of pensions, wages, scholarships, and unemployment benefits. When setting the average size of allowances, it was seen important that the amount not be lower than the former remuneration rates. However, family allowances often exceed a teacher's monthly wages, which makes receiving an allowance more advantageous than employment itself. This is the reason for the increased number of applications to Employment Services by around 10,000 since January 1999.

· The tendency on the part of local authorities to include on the list as many beneficiaries as possible. To prevent this, at least 40 % of local administration budgets should be involved in family allowance financing. This, in turn, would allow increasing the quota granted to local bodies, meanwhile promoting their responsibilities and people's trust in them.

Being aimed at poverty alleviation, the system of family allowances, however, does not exercise a distinctive approach towards the poor and the impoverished as distinct from PAROS. In any case, it is worth mentioning that the newly introduced system has certain advantages over similar ones operative in the past.

2

¹ All data of the survey presented in A New Housing Policy for the Earthquake Zone Final Report (21 December, 1998)

¹ Materials of the September 1996 Conference, Yerevan.

² Human Development Report 1998.

³ Random survey among 5,000 households by the MS in Nov. - Dec. 1996 with the WB financial and technical assistance.

⁴ The number of households entitled to family allowances under the PAROS system.