YEREVAN — Armenia will use most of the proceeds from the recent sale of its first-ever Eurobonds for repaying a $500 million Russian loan ten years ahead of schedule, the government announced on Thursday.

The government said that the rest of about $700 million raised on international markets on September 19 will be spent on lending programs for small and medium-sized businesses as well as partly financing the state budget deficit.

The Russian government extended the commercial loan to the authorities in Yerevan in June 2009 at the height of a global financial crisis that plunged the Armenian economy into severe recession. The money was meant to alleviate consequences of the economic crisis.

The Russians set a 4-year grace period for the credit repayable in 15 years, meaning that the Armenian side was due to start repaying it in the second half of this year. The Armenian government had this in mind when it announced in May plans for a debut Eurobond issue.

The government’s announcement on Thursday amounted to an official confirmation that Moscow will not freeze or reschedule the loan’s repayment despite Yerevan’s controversial decision earlier in September to join a Russian-led customs union.

Speaking at a cabinet session, Prime Minister Tigran Sarkisian rejected opposition criticism of the Eurobond sale. In particular, his political opponents claim that the government is significantly increasing Armenia’s foreign debt without contributing to sustainable economic development.

“This is a process that will boost our international reputation,” insisted Sarkisian. “Unfortunately, there are people who want to throw mud at any achievement.”

“For the first time ever Armenia has found itself on investors’ map, and from now on more than 100 authoritative investors will be closely monitoring financial and macroeconomic processes in Armenia,” Sarkisian said. He claimed that the Eurobond issue will also lower the cost of external borrowing for private Armenian companies.

For his part, Finance Minister Davit Sargsian insisted that the government simply has no choice but to turn to private foreign investors for badly needed funds. “The Republic of Armenia is no longer considered an impoverished country by international standards, and is now entering a category of countries with medium incomes,” he told fellow cabinet members. “This means that financial institutions like the International Monetary Fund, the World Bank and the Asian Development Bank will now be giving Armenia less and less concessional loans.”

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