The break-up of the centrally directed economic system of the former Soviet Union contributed to a severe economic decline started in the early 1990[1] .The last decade is characterised by a collapse in trade with central Europe and former Soviet republics; a drastic fall in production; a high rate of inflation; erosion of real incomes and purchasing power; privatisation of lands and the state enterprises; and economy restructuring along with real cost lines. Since the implosion of the Soviet Union in 1991, the Armenian economy recorded a significant drop in output and suffered from hyperinflation. The GDP decreased by 60% from 1989 to 1993, and consumer prices rose 110 times only in 1993. Armenia has switched to small-scale agriculture away from the large agroindustrial complex of the Soviet area. However, the agricultural sector has long-term needs for more investment and updated technology. Despite the positive trends, output of the agricultural sector as a share of the total output has been decreasing every year since 1994. By 1994, however, the Armenian Government had launched an ambitious IMF-sponsored economic program that has resulted in positive growth rates in 1995-98.

The state social policy pursued in Armenia in the recent past could be characterised as a survival policy, which due to the scarcity of resources and the purely chosen liberal model, amounted to symbolic budget funding. In 1997, proportion of public expenditures directed towards social needs was equal to 5.9% of the GDP. Considering the absolute amounts in drams, the financial resources allocated to the Ministry of Health and Social Security, as well as to the, Ministry of Education and Science, are so limited, that they seriously handicap attempts to design a comprehensive social policy. Most of their revenues are spent on wages. In 1997, doctors were paid 6-7 thousand AMD (12-14 USD) a month and teachers received 5 thousands (10 USD), on average[2]. The limited state financial recourses, divided among education, health, science, and culture, and allowances to vulnerable groups, do not solve any social problems and only dilute the budget resources. Psychologically, people found themselves unprotected from social dangers such as unemployment, lack of access to medical services and education, and insufficient nutrition.

International financial organisations and donor countries became actively involved in financial and technical assistance to Armenia, in addition to continue in providing humanitarian assistance. However, the economic recovery of Armenia decelerated in comparison to previous years, and the actual volumes of main macroeconomic indicators are currently lower than their projections. The highest level of the current account deficit is basically covered by grants and humanitarian assistance received from donor countries, by loans from international organisations and private transfers.