The earthquake on December 7, 1988, had put a large portion of the country in ruins, left 25,000 dead, 520,000 homeless, several important factories had been levelled with the ground and erased 25 percent of country's economy. 14 But even the factories which had survived the catastrophe were now standing still because of the shortage of electricity. The collapse of the Soviet Union had resulted in the collapse of the internal structure of the deliveries between the different republics and Armenia's main source of power, the nuclear power station in Metzamor, was now without nuclear fuel. Besides, the nuclear power station, in the fear of a new earthquake, had been shut down in February 1989, which meant the reduction of the electricity production of Armenia by 36 percent. The harsh winters had also caused sever damages on country's, already old, water pipes.
Bu the problems did not stop accumulate there. At the beginning of the last decade of the 20th century, the trade between the fifteen former Soviet republics collapsed. In year 1992 the Armenian economy had lost the majority of its import and its market. And finally, as a result of the internal disturbances (which led to civil war) in Georgia concerning Abkhazia's demand for independence, the reoccurring explosions of the natural gas pipeline started to take place, a pipeline which ran through the Georgian district of Marneuli, a Azerbaijani populated district, which worsened the situation even more. 17 As a result of all this factors, the Armenian GNP collapsed.
In order to cope with the situation the prime minister of Armenia, Hrand Bagratian, stated a radical program in 1992 for economical reforms and a quick transformation of the Armenian economy to a market economy, which resulted in a swift inflation rate. On June 26, 1993, the Russian Central Bank introduced a new currency and withdrew all the roubles which had been printed prior to 1992, which resulted in that Armenia was flooded with the new roubles and the inflation accelerated quickly during July 1993. Since the conditions laid down by Russia for joining the rouble zone in the reality was equal to abandoning the sovereignty, Armenia decided to reintroduce its old currency, the Dram, and locked its new currency, on November 22, 1993, to the value of 14.30 drams for one US dollar. 18 At the end of 1994, the dram had fallen to 405.40 for one US dollar. 19 The life for the majority of the Armenians became unbearable: the real average salary in the public sector had by the end of 1993 fallen to approximately 6 percent of its value two years before. In June 1994 the monthly average salary in the public sector was around $2 – sufficient enough to buy one kilogram meat – ad $4 to $5 dollar in the economical world. The monthly average pension was around $1. 20
As a result of these negative factors, the Armenians, between 1991 and 1993, experienced the greatest decline within the industrial production among the former Soviet republics. At 1998, the service sector had, for the first time, gone by the industry in regard to its shares in the country's GNP. 25 However, the agriculture continued to constitute the major part of Armenia's GNP. 26
But the country was suffering from another problem as well, something which was partly a remaining of the communistic era but also enforced by the prevailing situation, namely a shadow economy. In 1994, UNDP (United Nation's Development Program) estimated the shadow economy of the country to somewhere between 32 percent to the (unbelievable) 72 percent of Armenia's GNP. 29 By the end of 1997, Artashes Toumanian, head of the taxation department in the Department of Treasury of Armenia, estimated this shadow economy to somewhere between 50 percent to 70 percent of the total economical activities in the country. 30 Independent experts considered the higher estimate of Toumanian to be much closer to the reality and meant that the real figure should be between 65 percent to 70 percent of the actual GNP.
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