ARMENIAN CURRENCY APPRECIATION HURTS EXPORTERS DRASTICALLY
by Armine Avetyan

168 Zham, Armenia
Nov 27 2007

"Only importers are good businessmen in Armenia"

The US dollar became cheaper for 35-40 drams last week; then the
dollar gained 20-25 drams but it did not grow enough to reach the
previous level. Currently, 1 US dollar is traded at 296-300 drams at
Yerevan’s currency exchange offices.

According to a media report, a record 20m dollars was traded in the
Armenian Stock Exchange last Friday [23 November]. The average rate
was 312.9 drams and the closing rate was 312.5 drams. Meanwhile, the
rate was 275-300 drams at currency exchange offices on the same day.

Experts attribute such a difference in one day to financial schemes.

Many think that the depreciation of the US dollar is a result of
schemes in general. Compared with 2003, the US dollar has already lost
50 per cent. Some analysts say that this is a unique "tax" imposed
by the Armenian authorities on remittances Armenians get from abroad.

[Passage omitted: this "tax" is higher than the 20-per-cent VAT
applied in Armenia]

Armenians who rely on remittances sent by their relatives living abroad
suffer the most. While they could get 58,000 drams for 100 dollars in
2003, they get only 30,000 today. Exporters suffer too because they
sell their products for dollars but make their expenses in drams at
home. Manufacturers constantly complain that their production costs
keep rising making their products uncompetitive in world markets.

"If the trend continues, we may stop our production," Hovhannes
Iskajyan, chief accountant of Yerevan champagne factory, says. The
factory exports champagne and wines to Russia. [Passage omitted:
appreciation made the factory to cut production for 30-40 per cent]

Karen Stepanyan, deputy director of the Armenmotor company that
produces meat grinders, says the company has planned to export 1,000
grinders to Russia in 2008 to be sold within three months. [Passage
omitted: the company fears it will lose the Russian market due to the
dram appreciation; another exporter says they lost the US market in
2005 because of the dram appreciation]

In response to these complaints, the Armenian authorities –
and especially Central Bank chairman Tigran Sargsyan – say the
manufacturers should boost their productivity instead of complaining.

"That’s stupid," Hovhannes Musayelyan, director of the Synopsis
company that produces and exports information technologies, says.

[Passage omitted: appreciation has already made Armenia a risk zone
for the Synopsis company]

"The interests of manufacturers are ignored in Armenia, and it
turns out that only importers are good businessmen in Armenia,"
Musayelyan says.

Due to the US dollar depreciation, another field that has been deemed
as priority has lost more than 60 per cent: the diamond-cutting
industry. The Shoghakn factory, a giant in this field, is on the
verge of going out of business. The company suspended production
in the summer for a long time; it resumed a small-size production
in September.

However, the company may stop working by the end of the year or in
the beginning of 2008. "The US dollar was 340 drams in the summer,
and I presented the owners with a new plan and persuaded them not to
shut down the factory," Shoghakn director Sergey Gasparyan says.

"Now, only 300 workers are employed in the factory. I was planning
to hire more people but what happened those days changed our plans."

[Passage omitted: Gasparyan says he is unsure of the factory’s future.]

P.S. Former Central Bank of Armenia chairman Bagrat Asatryan offered
his comments yesterday [27 November] to the website A1+. "If thinking
boyishly, one can be even proud of the dram appreciation, but if you
start thinking in more details, this is a tragedy for the country in
terms of economy," Asatryan said. "The appreciation of the dram should
be considered in the context of the economic conditions, there can
be no baseless appreciation. If the appreciation is translated into
cheaper, let’s say, potatoes, bread and other products, it would be
great. But what we have in the result of this policy is that potatoes
are cheaper in the USA than they are in Armenia."