CB’s INTERVENTION PREVENTS INFLUENCE OF AMD STABILIZATION ON PRICES

YEREVAN, JULY 23. ARMINFO. The intervention of the RA Central Bank
prevented possible influence of a slump in the USD exchange rate on
prices, RA Minister of Finance and Economy Vardan Khachatryan told a
press conference. He pointed out that the tactics of the RA Central
Bank, which is responsible for inflation and price stability,
prevented considerable losses that could have influenced the execution
of the 2004 state budget.

He added that the RA Ministry of Finance and Economy intended to
purchase 10mln. USD, but, such operations being within the CB’s
competence, the CB prohibited this transaction considering the slump
in the USD exchange rate. Otherwise, influence on prices would have
been inevitable. The Ministry took this measure with understanding,
but it still intends to purchase foreign exchange in the future, which
will compensate for the expected loss due to profits.

According to Khachatryan, the AMD stabilization rates that have been
observed during the last few days can be accounted for by a number of
factors. These are a 7.2% increase in exports in July and a 12%
increase in the first half of 2004. Gems, precious metals and articles
exclusive, the increase amounted to 34.8%. Specifically, exports of
goods increased by 72mln. USD. Private transfers increased by
20mln. USD, and direct investments by 27mln. USD. Considerable
activity on the real estate market was observed as well. All these
factors could well increase the AMD stabilization rates.

However, Khachatryan pointed out that all this have been taking place
for six months and was supposed to be proportional, but a nearly 7%
slump in the USD exchange rate has been observed during the last two
weeks. “Yes, considerable sums have come to Armenia during the last
six months and it could have its influence, but the developments of
the last few days suggests the existence of other, more influential
factors. On the other hand, we must not forget about the volume of
shadow turnover, which, according to the Ministry, constitutes 30-35
per cent of the GDP, and the lack of information on it might well
cause that fluctuation of the exchange rate,” Khachatryan said. He
does not rule out that this slump in the USD exchange rate was caused
by speculation, as AMD seasonal stabilization was observed, but not at
such high rates.

He reminded the journalists that yesterday the RA President called a
meeting to discuss the recent situation on Armenia’s financial market
and plan stabilization measures. The meeting participants tried to
understand which particular factors caused the situation. The meeting
considered various versions, according to which, all the
aforementioned factors could be prerequisites and influence the USD
exchange rate. To ascertain the causes, the President ordered the
transactions effected by commercial banks during this period to be
examined. Khachatryan substantiated the instruction by the fact that
transactions worth up to 5mln. USD effected on the market within one
day and the launching of such a sum on the market could well cause the
slump in the USD exchange rate. The President ordered the main cause
of the slump to be ascertained on the basis of examination results and
information.

In its turn, on July 14-20, the CB was trying to stabilize the
situation through the establishment of an open corridor, offering
commercial banks Armenian drams in exchange for foreign currency by
means of SWAP-countries worth a total of 900,000 USD, the rate having
been reduced from 4.62% to 3.58%.

Of course, the latest developments will have their influence on the
state budget, Khachatryan said, He expressed a hope that the situation
will get somewhat stabilize before December, and if the indices
envisaged by the state budget fail to be received, deviations will at
least be minimized to prevent considerable losses.

He reported that the RA Ministry of Finance and Economy is already
taking measures to neutralize the influence of fluctuations of the
foreign exchange rate on the budget. Fist of all, in question are the
sums most of which are expected to be received in the fourth quarter,
in particular under international programs and from foreign
countries. Also, payments to external sources of financing are
expected in that quarter. To minimize the influence of expected flows
on the execution of the 2004 state budget, the CB discussed three
scenarios of its monetary policy. Another factor, collection of duties
from imported goods in terms of US dollars by the Customs Service, can
influence the execution of the budget as well.

“Nevertheless, with this behavior of the foreign exchange rate in
conditions of expected 10.2bln. AMD deficit, the budget was closed
with a 6bln. AMD proficit in the first half of 2004. In other words,
we have no problems with budget execution, and whatever losses may be,
the budget will be executed fully and in time,” Khachatryan said.