Armenia growing by 10% per year

Financial Mirror, Cyprus
July 25, 2006

Assigned a Ba2 rating

Armenia has been experiencing real GDP growth rates of around 10% per
annum or above since 2001, while inflationary pressure have remained
subdued due to the appreciation of the dram (the local currency)
and to a cautious monetary and fiscal policy stance.

This led Moody’s Investors Service to assign on Monday a Ba2 foreign
and domestic currency ratings to the government of Armenia.

The rating was given in light of the progress made by the country since
1995, the year that marked the end of the seven-year contraction that
followed the collapse of the Soviet Union.

"We believe that, over the medium term, there is sufficient scope
for further GDP growth such that it will help alleviate poverty and
reduce unemployment, both of which remain high in Armenia," said
Moody’s Vice President Sara Bertin.

"Moreover, the rating is supported by the limited level and favorable
maturity structure of Armenia’s foreign-currency denominated debt."

She said that with a 23% debt-to GDP ratio at the end of 2005, the
country compares well to its peers. Ninety percent of the debt is
owed to multilateral lenders on concessional terms representing a
long maturity and associated minimal debt-servicing cost.

"We have also taken note of the high level of dollarzation and the

country’s lack of financial depth," said Bertin.

Capped by geopolitical factors

Moody’s rating is capped by geopolical factors, said the analyst.
Though the worst fighting over the territory of Nagorno Karabakh
ended in 1993, the conflict remains stalemated, with the leaders of
the Armenian-inhabited enclave claiming an independent status that
no other state has recognized.

"Moody’s assigns a very low probability that the conflict between
Azeris and Armenians might resume over the short to medium term,"
said Bertin. "As long as a credible and sustainable solution has yet
to be found, uncertainties remain over the countries of the South
Caucasus. Due to their borders with Iran, countries such as Armenia
and Azerbidjan are potential strategic partners for the United States,
Russia and Iran."

The foreign currency country ceiling for bonds and notes is Baa3,
which takes into account Moody’s recent change in rating methodology,
that incorporates reduced moratorium risk and sometimes distinguishes
significantly between the foreign currency country ceilings and
government foreign currency issuer rating. The country ceiling for
foreign currency bank deposits is Ba3. The local currency guideline,
the highest possible rating that could be assigned to obligors and
obligations denominated in local currency within the country, and the
local currency bank deposit ceiling are at A3 and Baa1 respectively.
All ratings carry a stable outlook.