EUROPEAN BANK WARNS OF ARMENIAN GROWTH PITFALLS
By Emil Danielyan
Radio Liberty, Czech Republic
June 19 2007
The ongoing appreciation of the dram will endanger continued economic
growth in Armenia unless local companies increase their productivity,
according to the European Bank for Reconstruction and Development
(EBRD).
"Without faster productivity gains, a further appreciation of the
Armenian currency would threaten the country’s competitiveness," the
EBRD warned in an explanatory appendix to an economic report that will
be debated the Council of Europe’s Parliamentary Assembly next week.
The Armenian dram has gained more than 50 percent in nominal value
against the U.S. dollar since the start of its dramatic rise in late
2003. The process slowed down in the first quarter of this year only to
gain new momentum last month. Local manufacturing firms claim to have
been hit hard by the dram’s appreciation, criticizing the Armenian
authorities for their refusal to intervene in the foreign-exchange
market.
The authorities and the Central Bank in particular have dismissed
the criticism, arguing that the much stronger dram is the inevitable
result of recent years’ surge in hard currency remittances sent home
by hundreds of thousands of Armenians living and working abroad. They
say the manufacturing sector can successfully adapt to the new reality
with productivity gains.
Central Bank officials say the exchange rate fluctuation has also
suppressed inflation which has remained in single digits despite the
country’s robust economic growth. The World Bank and the International
Monetary Fund take a similar view, having repeatedly endorsed monetary
policies pursued by the Armenian authorities. A senior IMF economist
went farther late last month, saying that the dram’s strengthening
has actually spurred economic growth.
The EBRD, by contrast, seems more worried about the trend. In an annual
report issued last month, the London-based lending institution, which
is tasked with facilitating former Communist countries’ transition to
market-based economics, listed continued currency appreciation among
factors which it believes pose "significant risks for the [Armenian]
economy in the medium term."
The other factors included Armenia’s "vulnerability to commodity
prices," dependence on low-interest loans and grants from Western
donors, and skyrocketing real estate prices.