ARMENIAN PREMIER DOWNPLAYS IMPACT OF NATIONAL CURRENCY DEVALUATION

Public TV
March 4 2009
Armenia

The Armenian prime minister has said that making the recent sharp
move towards a floating currency exchange rate was more effective than
letting the national currency devaluate gradually. He also downplayed
the impact of the move on society.

In an interview with Armenian Public TV aired on 4 March, Prime
Minister Tigran Sargsyan said that the Armenian government had never
backed off from the policy of a floating exchange rate but for some
period of time it simply preferred financial stability.

As a result of the move, Sargsyan said, Armenian banks have increased
their liquid assets and are now able to serve the public and the
economy. This decision was made after discussions on the issue with the
World Bank (WB) and the International Monetary Fund (IMF), Sargsyan
said. "This makes the environment more predictable for commercial
banks, as well as the market, exporters and importers," Sargsyan said.

The government has specified its programmes for the coming three or
four years, after completing talks with the WB, IMF and "strategic
partners", Sargsyan said, adding that this led to the IMF’s decision
to extend 540m dollars in a loan. The WB announced it would extend
525m dollars in a loan to Armenia to be channelled into various
sectors of the economy and the Russian prime minister said their
government would allocate 500m dollars in a loan to Armenia, Sargsyan
added. Other regional banks will also extend loans to Armenia,
he noted. Sargsyan said that thanks to this, the government will
prioritize social projects, meaning in particular that there will
be no delays in paying pensions or salaries to teachers. This money
will also be used to improve the infrastructure and contribute to
economic growth by assisting companies that plan to create more jobs,
he said. The best way to do this is to help small and medium-sized
businesses, Sargsyan added.

Sargsyan predicted that the prices that surged on 3 March would
stabilize within a couple of days. "It is understandable that the
20-per-cent devaluation of the national currency makes importers
adjust their prices," Sargsyan said. He added that importers, however,
operated in a very favourable environment in the past years due to
the strong national currency and have accumulated a lot of funds,
so they would not have many problems. The situation is under the
control of the regulating bodies, he said, and if importers try to
raise prices sharply, they will find themselves facing the risk of
paying more taxes. So, the wisest policy for them would be to act in
a more balanced way. We predict an 8-per-cent inflation rate for this
year, which is the same figure as last year, he said.

Sargsyan noted that the increase in the prices for natural gas,
electricity and water was not big, and that calculations showed
it would deduct some 2,000 drams (about 5.5 dollars) from family
budget. But this is offset by the 14-per-cent rise in pensions that
we have done for this year, Sargsyan said. In addition, the government
will help the most vulnerable groups of society, he added.

Sargsyan said that the devaluation of the dram would help boost
domestic production and exports. He said the plan to devaluate the
national currency was discussed with the captains of the Armenian
economy, so it was not news to them. Also, he said, the government
is helping companies that are having temporary problems due to the
world financial crisis and those that are planning to create more
jobs. "These are successful companies with serious assets, and they
will create new jobs and add to our export potential," Sargsyan said.

Sargsyan also said that Armenia has some strong sides in dealing with
the second wave of the world economic crisis. These include strong
macroeconomic indices, Armenia’s small foreign debt and stable bank
system, he said. Sargsyan also dismissed rumours that Armenia would
enter the rouble zone, calling such a move "illogical."