STRONG DRAM ‘GOOD FOR ARMENIAN GROWTH’
By Hovannes Shoghikian and Emil Danielyan
Radio Liberty, Czech Rep.
May 30 2007
The dramatic strengthening of the Armenian dram has been a major factor
behind Armenia’s double-digit economic growth recorded in recent
years, a senior economist from the International Monetary Fund said
on Wednesday.
The national currency has gained more than 50 percent in nominal value
against the U.S. dollar since the start of its appreciation in late
2003. The process slowed down in the first few months of this year
but seems to be again gaining momentum.
The Armenian government and Central Bank have attributed the exchange
rate fluctuation to a surge in hard currency remittances sent home by
hundreds of thousands of Armenians living and working abroad. They
also point to the dollar’s overall weakening against other major
world currencies.
Local manufacturers and economists critical of the government have
expressed serious concern at the trend, criticizing the authorities in
Yerevan for their refusal to heavily intervene in the foreign-exchange
market. They say the stronger dram has hurt Armenian exports and
widened the country’s huge trade deficit. Some of the critics have gone
as far as to accuse the authorities of "artificially" strengthening
the dram to benefit government-connected importers of fuel and other
basic commodities.
But both the IMF and the World Bank have dismissed the criticism,
voicing support for monetary policies pursued by the Armenian Central
Bank. David Owen, a senior advisor in the IMF’s Middle East and
Central Asia Department, insisted on Wednesday that the strong dram
has actually contributed to Armenian growth by suppressing inflation.
"We think that the relatively flexible approach to the exchange
rate — allowing more appreciation than elsewhere — combined with
tight fiscal policy have contributed to the very good performance
on inflation and to the high growth rate that has been achieved in
Armenia," he told reporters in Yerevan.
Owen argued that Armenian exports have grown by an average of 20
percent in the last few years even if they were largely flat in 2006.
He said the authorities should help to boost them by implementing
more economic reforms and strengthening business competition.
According to government data for the first quarter of this year, the
exports were up by 25 percent from the same period in 2006, totaling
$231 million. But they continued to pale in comparison with imports
that jumped by 52 percent to $645 million.
The first-quarter official figures also show the Armenian economy
growing by 11 percent year on year, putting it on track to expand at
a double-digit rate for a sixth consecutive year.