ACCORDING TO IMF OFFICIAL, MORE EFFICIENT POLICY OF INFLATION TARGETING SHOULD BE CONDUCTED IN ARMENIA FOR NEUTRALIZATION OF INFLATION RISKS

Noyan Tapan
Feb 22, 2008

YEREVAN, FEBRUARY 22, NOYAN TAPAN. Among inflation risks in Armenia in
2008 are the considerable foreign currency inflow, a high GPD growth,
the 60% increase of pensions, as well as a rise in prices of foodstuffs
and power-bearing substances, the director of the IMF Armenia Office
Nienke Oomes stated during a lecture-dicussion on February 22.

According to her, in order to neutralize these risks, the appropriate
Armenian bodies should conduct a more efficient policy of inflation
targeting (in particular, extension of competition among banks,
reduction of the dollarization level, development of the financial
markets), contrubute to reduction in prices of imported goods, tighten
the fiscal policy and provide more information about the inflation
targeting policy.

It was stated that in 2007, inflation was quite high in Armenia and
made 6.6% at the end of the year. According to the IMF official, this
index was not so high as compared with other countries. In her words,
one of the reasons for relatively low inflation in Armenia is the
Central Bank of Armenia’s (CBA) policy aimed at inflation targeting
rather than at controlling the exchange rate. In other CIS countries,
the exchange rate of the national currency against the rates of
foreign currencies is stable but the inflation is high.

N. Oomes expressed an opinion that the low level of inflation in
Armenia is also due to the strict tax and budgetary policy conducted
by the ministry of finance and economy, thanks to which the deficit
of the RA state budget is much less than in other CIS countries.

In her words, 6.6% inflation in Armenia was mainly conditioned by a
high growth in prices of foodstuffs, particularly, bread, butter and
vegetable oil, which accounted for 4.5% of the overall inflation. 99%
of the growth of food prices in Armenia was due to the growth of
international prices rather than to an artificial rise of prices on
the domestic market. The prices of these goods grew as much as in
CIS countries.

The IMF official reminded that the inflation in international markets
was caused by a growth of consumption of bread, butter and other
foodstuffs in China and India: 45% of the world population live in
these countries.

She said that the fact that the consumption and prices of fuel
obtained from plants is increasing in parallel with the growth in
prices of hydrocarbon fuel also contributes to a rise in food prices
worldwide. About 50% of the overall inflation in international markets
is due to the growth of the demand of the populations of China and
India, while the other 50% is due to a decline in the supply.