IMF OFFICIAL REJECTS ‘CONSPIRACY THEORIES’ ABOUT DRAM APPRECIATION
By Shakeh Avoyan and Emil Danielyan

Radio Liberty, Czech Rep.
June 15 2006

A senior official from the International Monetary Fund endorsed on
Wednesday the Armenian authorities’ assurances that the continuing
strengthening of the national currency is not artificial, dismissing
widespread claims to the contrary as baseless "conspiracy theories."

James McHugh, head of the IMF office in Yerevan, reiterated the fund’s
view that the Armenian dram’s exchange rate is purely market-based. He
said the Central Bank of Armenia (CBA) is right to assert that the
dram’s more than 30 percent appreciation against the U.S. dollar over
the past two-and-a-half years is the result of increased inflows of
hard currency into the country.

But many Armenians trust claims by opposition leaders and other
government critics that it has been engineered by the authorities
with the aim of benefiting government-connected importers of key
commodities. The dram’s renewed strengthening against the dollar which
began last month sparked fresh accusations of currency manipulation,
again putting the CBA on the defensive.

McHugh was at pains to dispel this widely held perception as he
answered questions from journalists skeptical about the official
explanation for the exchange rate fluctuations during a seminar
organized by the CBA. "I think it’s like believing in the supernatural
or believing in UFOs. You can tell someone that there is no aliens
and that there is an absence of evidence of it, but people will still
go on believing in it," he said with frustration.

"I firmly believe that market forces are determining the exchange
rates," he added.

The CBA chairman, Tigran Sarkisian, made the same point on Tuesday,
again citing a steady rise in cash remittances sent home by hundreds
of thousands of Armenians working abroad. According to the bank, the
cash transfers totaled at least $1 billion last year and were up 26
percent during the first quarter of this year.

McHugh suggested that the real figure might be even higher as many
Armenians "systematically underestimate the amount of remittances
they receive" and pointed to multimillion-dollar foreign investments
in Armenia’s booming construction sector. He also argued that the
dollar has lost much of its value against other major currencies like
the euro and the British pound in recent years.

"If your point is that the appreciation of the dram is unusually high,
that is not borne out by facts," he told an economics reporter.

"I don’t see that the dram-dollar rate is unusual vis-a-vis other
major currencies."

The IMF official also endorsed that CBA argument that the stronger dram
has kept consumer price inflation in Armenia in single digits amid a
worldwide surge in the prices of oil and other basic commodities. "It’s
very important from a social equity perspective that the Central
Bank maintains its strong commitment to maintaining price stability,"
he said.

Critics will counter that the dramatic exchange rate change has hit
hard a large part of the country’s population which is dependent
on cash transfers from their relatives working in Russia, Europe
and the United States. Some of them have also pointed to a lack of
transparency in inter-bank currency trading which supposedly sets
the dram’s exchange rate.

In addition, there are concerns about the stronger dram’s negative
impact on the growth of Armenian exports which economists believe
is vital for the country’s sustainable development. Some local
export-oriented firms have already reported losses resulting from
the increased cost of their products abroad.

Paradoxically, converting drams into dollars in currency exchange
offices in Yerevan and outside it is now far more difficult than it
was in the past. Retail currency traders routinely cite a shortage
of dollar notes, something which is at odds with the official theory
about Armenia being flooded with the greenback.