PROJECT RATIONALE

Soon after independence in 1991, Armenia took steps to liberalize its economy in general, and the agricultural sector in particular, by introducing major reform programs. The Armenian land privatization program is unique among former Soviet Republics in regard to the speed and completeness of its implementation. At the request of the Government of Armenia, to ensure the successful implementation of these programs, an FAO/CP mission visited Armenia in April/May 1994  and assisted the Government in identifying a project that would support the agricultural reform programs. A prior mission from the World Bank visited Armenia in May/June of 1993 and prepared a review of the sector. Strategical paper was prepared incorporating the required reforms of the sector to develop. The Agricultural Reform Support Project (ARSP) was proposed to reinforce the policy changes by providing assistance to the restructuring of privatized agro-industrial enterprises, by making credit available to financial institutions willing and able to extend sub-loans to small farmers on a sustainable basis, and by undertaking significant restructuring of agricultural research and extension and investing in these agricultural services. 

During discussions of the agricultural sector review "Armenia: The Challenge of Reform in the Agricultural Section", the Government of Armenia requested financial assistance to the rural sector for investment activities that would support the policy measures targeted by the GOA to revive production and exports. This request led to the preparation of materials for the proposed project during 1996, by consultants engaged under a PHRD grant from the Government of Japan. Major issues considered during the project preparation and final appraisal in 1997 were as follows: (i) the capacity of the banking system to meet the credit needs of small and large farmers and the justification for creating a new rural finance institution; (ii) the extent of agro-industrial enterprises' demand for investment loans and the capacity of banks to meet this demand through existing funds and lines of credit; and, (iii) the development of of a restructuring plan for agricultural research and extension and delineation of appropriate investments to facilitate the reform of agricultural services.