Institute for War and Peace Reporting
Oct 22 2004
CURRENCY FEARS IN ARMENIA
Worries of economic fallout as the dram surges against the country’s
unofficial second currency – the US dollar
By Naira Melkumian in Yerevan
The first sharp strengthening of the Armenian dram against the US
dollar in seven years is raising fears of economic damage, in a
country where people depend not only on the national currency, but the
greenback too.
Current official rates are about 512 drams to the dollar, while the
market rate is about 505 drams. Just a few months ago, a dollar
fetched 575 drams.
Finance and Economics Minister Vardan Khachatrian has tried to
reassure the public, saying measures are being taken to reduce
negative effects on Armenia’s state budget.
However, many are already feeling the pinch, primarily exporters and
those depending on dollar transfers from relatives working abroad as
migrant labour.
`It is a well-known fact that a considerable part of the population
subsists on money sent by relatives working abroad,’ Yerevan resident
Rita Sarkisian, 49, told IWPR. `Out of the 200 dollars that my husband
sends us from Krasnodar [in southern Russia], my family loses about 20
dollars every month, and that’s a large sum of money considering that
prices of consumer goods have gone up.’
Similar stories can be heard anywhere in Armenia, where up to one
million people, or more than a quarter of the population, have
emigrated, according to official statistics. Though most have gone to
Russia, the cash of choice remains the dollar.
Central bank head Tigran Sarkisian explains the strengthening of the
dram by several factors, both internal and external. `Primarily, it is
the 46 per cent growth of private transfers via the banking system
alone in the first half of 2004, an increase in exports by 40 per cent
and a growth in the number of tourists by 24 per cent, which has
brought about a wide-scale influx of foreign currency into the
country,’ he said.
Economic growth averaging 10 per cent annually in recent years has
also served to boost the dram.
Sarkisian told a parliamentary debate that Armenia was entering a new
stage of economic development, which would be accompanied by rising
incomes and, inevitably, a strengthening of the dram. `It is
impossible to have rapid economic growth, productivity growth and yet
have the devaluation of the national currency,’ he said.
Other experts say it is external rather than internal economic factors
that have made the dram so strong.
Former statistics minister Eduard Agajanov told IWPR that the central
bank’s picture of a booming Armenia was unrealistic. `One gets the
impression that Armenia has suddenly turned into a Mecca for tourists,
and that the Armenians abroad have all got rich overnight and sent
their money to relatives in Armenia,’ he said.
`Armenia is not one of the rich and well-developed countries that are
able to ensure a strong and stable national currency thanks to
internal growth and development alone, however high those might be,’
argued Karine Gevorkian, an economics professor. She pointed to
tendencies on the international financial markets, which are boosting
prices, as well as economic indicators in Russia, Europe and the
United States, as the reason why there has been an influx of foreign
currency to Armenia.
Sarkisian said that a liberalisation of foreign currency rules in
Russia, where there is a large Armenian community, was important. For
example, the limit on cash exports from Russia has been raised to
10,000 dollars.
Now Armenia faces a slowing of exports, Agajanov said. The foreign
trade deficit this year amounts to 285 million dollars, with imports
close to double the volume of imports.
Partly responsible, Agajanov said, are fuel, sugar and grain
importers, who benefit from the currency strengthening. This view was
backed by Areg Gukasian, director of the Avan salt works, who told
IWPR that `the lowered rate is advantageous only for importers who
reap super profits, while
the exporters are suffering serious losses.’ He said his plant had had
suffered a 25 per cent drop in income.
However, the head of the permanent commission for financial, credit,
budget and economic issues at the National Assembly, Gagik Minasian,
told IWPR that any business could profit, `It would be wrong to paint
the situation in dark colours only, especially since entrepreneurs can
take advantage of the situation to import equipment on beneficial
terms so as to produce goods that are competitive both on the domestic
and foreign markets.’
He advised exporters to do their transactions in drams or in foreign
currencies other than the dollar, and suggested that people making
private transfers could do so in Russian roubles. However, several
commercial banks that handle money transfers told IWPR that not all
branches of Armenian banks in Russia carry out rouble transactions.
The economic row is taking on political dimensions.
`I am convinced that the situation at the foreign currency market
suits very well a group of people close to those circles that
influence the currency exchange rate,’ Agasi Arshakian, a
parliamentary deputy from the opposition National Unity party, told
IWPR. `As usual, very few bother to think about ordinary people.’
Arshakian blamed the central bank for not intervening to keep the
dollar stable.
Economist Levon Danieliants also believes that the central bank should
have intervened, `Above all, they could have done an elementary
monetary emission and purchased dollars cheaply, and thus increased
their foreign currency supplies.’
However, central bank head Sarkisian argues against interventionist
policies, warning, `artificial stimulation of exports is a dangerous
phenomenon that can lead to a crisis.
`If the state begins subsidising production, it will become a heavy
burden for the tax-payer, and after the subsidies are over, Armenian
industry will become unable to compete.’
Sarkisian said the bank’s chief concern was to keep inflation
contained. According to the official data, consumer prices in
September were 1.3 per cent lower than in December last year.
Claims that inflation is being held in check are viewed with
scepticism by many ordinary shoppers.
`Personally, I haven’t felt any price containment, because most basic
foodstuffs such as bread, butter and meat have become more expensive,
and fruit was very expensive throughout the summer season,’ said Alla
Hairapetian in the town of Sevan.
Experts believe that the government is not unhappy about the
strengthening dram. The authorities would like to see an increase in
the amount of savings held in drams, thus reducing the influence of
the dollar and the shadow economy. Whether Armenians are ready to put
their trust in the dram or not is another question.
Economist Karine Gevorkian admitted that she preferred to keep her own
savings in dollars and euro, while businessman Areg Gukasian said he
thought the dram’s rise did not reflect any real strengthening of
domestic finances.
`It would be more accurate to call the situation a depreciation of the
dollar, not a strengthening of the dram.’
Naira Melkumian is a freelance journalist in Yerevan.