USD RATE WILL REACH 450 USD
Gayane Sahakyan

March 23, 2010

One of the main issues that currently concern the population is
the USD revaluation. And the reason is not that everybody clearly
understands the crazy situation in the stock market of Armenia but
because the AMD devaluation creates inflation.

Judging from the bitter experience of the previous years, now everybody
knows that once the AMD is starting to devaluate the price of bread,
butter, natural oil, gasoline, sugar and other stapled goods is getting
high. But we all know what actually is going on. Inside the republic
the deficit of the currency is so evident that even at the expense
of its own reserves the Central Bank cannot rectify the situation
even through its immense interventions in the market. And the reason
of the lack of the USD and the Euro in the country is connected
with the reduction of monetary transfers and rapid slump of foreign
investments. Due to these two factors currency deficit was created,
which cause the AMD devaluation. There are also opinions that the
current situation has very political rather than economic reasons.

Considering the internal political tension and also the fear that
it is not excluded that the scenario of the last year March 3 may be
repeated (meaning the increase of the USD rate by over 15% within a
day) the main businessmen are insuring their monetary means. According
to certain information they have bought immense amount of currency
and have moved it outside the country. Now we have a situation that
the Central Bank won’t be able to fix regardless of its big wish. By
tossing several million dollars in the market it is not possible
to maintain the rate of the AMD. Vice versa this will even more
complicate the situation as the last reserves will be gone. We have
spoken to the former president of Converse Bank Smbat Nasibyan about
the created situation in the country. "It is very difficult to make
any predictions regarding the currency rates but I may say what the
tendencies may be. In our country the gap between the exportation
and importation is covered at the expense of currency inflows, which
was deducted causing a deficit of currency means. This motive will be
continuing. I knew that the AMD would devaluate starting from February
but this was restrained due to interesting factors. By saying factors I
mean the rapid reduction of monetary volumes and consumption rates,"
says Nasibyan. As a response to the question whether he finds it
possible that a similar situation of March 3 of the previous year
may repeat Nasibyan said, "Last year on March 3 the Central Bank
announced that it is transitioning to a policy of a floating currency
rate. The interesting thing is that prior to this the Bank has never
announced that it had been conducting a different policy. After this
event the IMF posted information on the Internet, according to which
Armenia appeared among the 25 poorest countries in the world after
Tajikistan, Congo, Kenya, Burkina Faso and some other states. The
publication also read that the country is facing a financial calamity
and needs financial support. That is the time when they’d provided
the 500 million USD worth of loan. Of course this wasn’t publicized
for us. I feel pity that a similar thing may happen today and this is
totally within the framework of feasibility. Of the current monetary
policy of the Central Bank then I think that in the market a very
big speculative wave is raised and the resistance to this process
requires waste of resources. Under these circumstances it is very hard
to say whether through the interventions of the Central Bank they are
attempting to correct the situation. But one thing is clear for sure.

The AMD rate is plummeting because our monetary inflows in the
currency have decreased. Regardless of our resources we cannot go
opposite the reality." In the opinion of Mr. Nasibyan regardless of
to what extent the government makes efforts to overcome the created
situation a little depends on it. "In Armenia even the most talented
steps of the government have 10-20% impact. The rest of 80% depends on
foreign factors. We are not independent and depend a lot on foreign
factors. However, there are certain steps that the government could
have implemented. For example, in our country the tax pressure is
quite high. In conditions of crisis other countries relieve the tax
burden. In our country they have done the opposite. On the other hand
we need to collect taxes to fill our budget. It means that a closed
chain is formed within the government. Besides that in the event of
crises such reforms are normally not undertaken. These reforms should
have been made in 2005-2007 when large amount of money was flowing in
the country and the AMD was revaluating. During that period we could
have created certain reserves. If holes are opened on a ship during
the storm it is necessary to close these holes instead of improving
the state of the sails." In the opinion of the economist all the
macroeconomic indices are creating a situation when the devaluation
of the AMD will be continuing. "Indeed the volumes of consumption have
drastically decreased. People buy fewer clothes, expensive food, cars,
etc. But the population consumes stapled goods no matter what. But
even for that our money won’t be enough. This year is going to be
very difficult. The 2-3% economic growth of January is not essential
and will soon vanish. In the near three years there will be minor
economic growth – 5%. I think that by the half of the year the USD
rate will swing around minimum 450."