An Interview with Brian Kearney
Chief of Party, Armenia Social Transition Program / PADCO

The Armenia Social Transition Program (ASTP) is a 5-year USAID funded program which aims to assist the Government of Armenia with the development of an integrated legal, regulatory, and information framework that supports sustainable social insurance and health programs.

The main contractor for the ASTP is PADCO, a US-based company specializing in development work. PADCO has worked on housing, environment, utilities, and social protection projects in over 100 countries including Bosnia, Colombia, Egypt, India, Indonesia, Nicaragua, Peru, South Africa, Thailand, Ukraine and Albania.

Brian Kearney, the ASTP Chief of Party has been working in Armenia since September 2000.

This interview was held at the PADCO office in Yerevan, Republic of Armenia for the Armenian News Network-Groong on 11 August 2004.

ONNIK KRIKORIAN: How, when and why did PADCO come to Armenia?

BRIAN KEARNEY: This contract was awarded to PADCO in July 2000 and was devised by USAID to help the Government of Armenia address severe social problems in the health and social sectors. While we have a broad range of tasks to fulfill, our main role is to assist the Government of Armenia to do what they want and I always stress this because it isn't the case that we came in with any set ideas.

Of course, we had identified key areas that needed addressing based on the analysis of World Bank materials that indicated the need to improve the targeting of poverty family benefits, for example, but there was also the need to improve the administration of social services and implement family medicine in Armenia. This last area comprises the health side of our program and we have a subcontractor working on that. We work as a team in the same building and I am also responsible for them.

I've been in Armenia since the middle of 2000 and was selected because of my experience working for thirty years with the Ministry of Social and Family Affairs in the Republic of Ireland. Through the Ministry I have worked in countries such as Georgia, Kyrgyzstan, Kazakhstan, Lithuania and Latvia, helping these countries modernize their social services. There are also many similarities between Ireland and Armenia in terms of population and history and there had also been tremendous emigration from Ireland in the 1930's, 40's and 50's which affected virtually every family in the country.

For example, I was recently stunned to learn that there are actually more Irish-born people living in the UK than in Ireland itself. About 3.3 million people live in Ireland whereas there 3.7 million people born in Ireland but who now live in the UK. There are also 70 million people of Irish descent living in the US. Anyway, I was selected to work here and I replaced the former Chief of Party in Armenia over a year ago. He's now working in Romania.

This project is a five year USAID contract that runs until the end of July 2005 and our main focus is to now assist the Ministry [of Social Security] implement the Social Security Card system in Armenia which is a major task. We also work to a lesser degree in other areas such as the further reform of pensions as well as the reform of the state social insurance fund system.

As you know, every employer has to make a return indicating the number of people that they employ and how much they are paid. From this year, however, a process has begun in Yerevan that requires employers to also report the names and social security card numbers of their employees as well as their salaries which will help build up pension entitlements.

The state social fund will later be able to determine what contributions a person has made and this in turn will determine the size of their pension. At the moment there is really no form of personal income tax. There are social insurance contributions so the higher your salary, the more your contribution will be and rightly so. This will determine the size of an individual's pension and is a much fairer system, I believe.

OK: What you're talking about is a base level pension with additional payment on top of that determined by the number and amount of contributions made?

BK: Yes and it will also help build up a working profile of employees as well as help identify those working in the shadow economy. For example, if you have an employer with a restaurant on Abovian Street who reports that he pays his workers the minimum salary of $10 a month according to his books while another restaurant at the top of the same street pays his employees two or even ten times as much, these employers will be "encouraged" to record the correct amount that they're actually paying in salaries.

OK: How will they be encouraged to do that?

BK: I'm being soft by using the word "encouraged" -- they will be forced into making proper returns. What will happen will be that visits will be made to the premises of employers reporting that they pay their workers low salaries. At the same time it will also help employees because if their salary is recorded as only 15,000 dram then their pensions will be based on that amount even if they are in fact, earning more.

Through public education, employees might actually start to push their employers to record the correct amount that they're being paid because let's face it, you're working in a hand to mouth situation in Armenia and you want to get everything into your hand and I don't blame people for that. Paying people under the counter was also something that was common in Ireland.

OK: Isn't there the danger that some employers will try to get around this system, especially if they're "connected?"

BK: That's a political obstacle and it is up to the Government to decide how best to approach that problem when it arises. However, if such a situation does come to the surface then it will have to be addressed just as it is in other countries. For example, I've worked in Turkey with the State Social Insurance Fund and spoken to Inspectors who quite openly state that their biggest problem in collecting social insurance fund contributions is overcoming obstacles associated with well-connected individuals. They were quite open in saying this at meetings and I would imagine that exactly the same problem will exist here. I don't know why I picked Abovian Street as an example although, of course, it is one of the main business streets in Yerevan. Regardless, the issue will have to be addressed.

OK: Do you know the extent of the problem of under-reporting salaries?

BK: I don't and no one does because it is just a perception based on experience in other countries such as Ireland where it was common practice until we addressed the issue by making it easier for an employer to be in the system rather than not. In Ireland, it is now much harder to understate earnings and evade taxes and most employers have no interest in employing a person under the counter because the penalties are so severe.

Besides, being identified as doing something like that will bring the full weight of other public inspections down on you. If you are found to be evading one tax, all the other tax agencies will be interested in checking your books. There's also the issue of educating the public to help them demand their rights. If you are recorded as receiving the minimum wage then you will receive the minimum pension so it will be a many-pronged approach. However, at the moment, we're really at an embryonic stage.

OK: Could the extent of the problem be reduced if the minimum wage was increased? Last year, many arguments were made in Georgia to prevent raising the minimum salary from $10 to $35 a month before reaching $50 a month in 2005. However, would such a move help resolve the problem?

BK: Armenia's approach to the minimum wage is the appropriate one with gradual, rather than sharp, increases proposed. This helps create a more stable business environment and also encourages investment, leaving the main responsibility for increasing salaries to the market. Having been here for 4 years and having Armenian friends I have seen that market forces are having their effect.

Certainly, the increases in salary that I have seen while I've been here are due more to employers competing for skilled workers than connected with the minimum wage although, of course, an increase in the minimum wage would address the problem of underreporting salaries in a very direct way. However, this might also adversely affect the steady natural rise in salaries. Basically, I believe that there are other more effective ways to address the problem.

OK: How many people have taken Social Security Cards to date?

BK: I know exactly as I prepared this last week [hands print-out showing that 1,754,602 applications for Social Security cards have been received and 1,340,000 social security numbers have been generated].

OK: Does everyone aged 16 years and up have to apply for a Social Security Card?

BK: No. Anyone at any age is entitled to apply for a social security card and everyone is encouraged to do so. For example, families in receipt of poverty family benefits need to apply for a social security card for their children. There has been a lot of public rumbling about social security cards, especially from the religious sects, but the proof of the pudding is in the fact that over 1.7 million people have applied.

OK: Do you have any ideas on how to overcome the problem of those not wanting to apply for a social security card?

BK: This is one of the areas in which we're helping the Ministry and I think they're doing a good job in this respect. Basically, they go on TV as much as possible and explain to people why they need them. We've helped the Ministry print question and answer brochures and leaflets for distribution and we've also helped establish hotlines in every marz (region) where people can find out more about the cards.

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