EXTERNAL "SHOCKS" AND PRICE INCREASE
Lilit Poghosyan

Hayots Ashkharh Daily
Oct 30 2007
Armenia

Yesterday the government submitted the draft budget of 2008 to NA
Standing Committees’ consideration. During the break President of
the Central Bank Tigran Sargsyan responded to the questions of the
journalists.

"What qualification would you give to the budget of the coming year?"

" It is a budget of a strictly social trend, conditioned by the fact
that the government has essentially increased the sums bound for
the social system. This is the first and foremost peculiarity of the
budget of 2008.

The second issue that must be considered is the level of the prices and
the pressure of price increase that we get from the world markets. It
is not a secret for anyone that the situation is really difficult in
the world markets at present. Both Central Bank of Europe and the US
Federal Reserve System are trying to overcome this crisis.

On the one hand this crisis is associated with the reduction of the
interest rate, which is aimed at helping the financial sector to
prevent the existing problems from turning into a real crisis. On
the other hand it is associated with the unprecedented increase of
prices in first of all the fuel and the food markets. Taking into
consideration the fact that Armenia mainly imports these two groups
of products, logically the price pressures can’t pass round Armenia.

Consequently, in 2008 the control of level of prices must be in the
focus of attention.

Central Bank must implement it with monitory tools and the government
must control the markets, to provide fair and competitive pricing and
to neutralize the pressure of price increase in Armenia, by means
of the growth of production. This means we have lots of work to do
inside Armenia, in terms of controlling the product-markets."

" Taking into consideration the continuous fall of dollar exchange
rate, don’t you think that Armenia will be able to pay off its external
debt much earlier than it has to?"

‘The thing is our external debt is rather small and we have long-term
means involved (35 and more years). And the interest rates are rather
low, that is why it is not appropriate to refuse such privileged
loans, especially because in future we will have to take short-term
and more expensive loans. Naturally we are not facing such a problem,
especially because, I must repeat, our external debt is rather small."

" What new methodological innovations do you intend to introduce to
control the increase of prices?"

‘The methodology connected with the increase of prices hasn’t changed
and for the coming three years we considered it appropriate to target
the 4% price increase. This means by implementing its monetary policy
CB must consider this program index for the coming 3 years. As well
as the government, by using its levers must consider that society
will follow the 4% price increase, in the probability of fluctuating
between the limits of 1,5%.