ARMENIAN EX-PREMIER COMMENTS ON APPRECIATION OF NATIONAL CURRENCY
by Hayk Gevorgyan
Haykakan Zhamanak, Armenia
Nov 27 2007
"A merely Armenian phenomenon"
The uneven appreciation of the dram has been a hot topic in the last
few days.
The dram has appreciated against the US dollar by about 6.5 per cent
in just three days. We have already got used to the appreciation of
the dram, but what happened has exceeded all expectations. What is
going on, what are the causes?
Former Armenian Prime Minister Hrant Bagratyan says there are several
factors behind the appreciation of the dram. "Twenty per cent of it is
conditioned by the US dollar depreciation in the global market (wars
in Iraq and Afghanistan, strengthening of the Chinese economy and
transformation of currency reserves, introduction and strengthening
of the euro, faults in the US economy and the relative decrease in
the US dollar circulation, increase in the price of energy resources
and so on). However, 80 per cent of the problem is merely an Armenian
phenomenon – it is the state policy in the sphere of imports (the
current leadership of Armenia is engaged in imports – they are making
money), necessity to relatively control the prices and, partially,
monetary transfers from the Armenian diaspora. Of course, the problem
has an easy solution, but it [the solution] contradicts the economic
interests of the political leadership of the country," Bagratyan said.
The former prime minister said that the Central Bank should sterilize
the excess amount of US dollars, liven up the stock market, do
everything possible to withdraw the excess amount of dollars from
consumption and to direct it to future needs. In reality, however,
the opposite is being done. "I do not know whether it is being done
deliberately or out of lack of knowledge: it looks like the economic
order of the political authorities is being implemented," Bagratyan
said. However, this is all the general picture.
What is the reason for the uneven appreciation of the dram in
recent days? "The following has been added to all of the above –
the volume of transfers from abroad (related to the New Year), big
monetary inflows from abroad (this one still needs to be analysed)
and the Central Bank’s N 367 decision dated 21 November this year –
the Central Bank’s Council, led by the chairperson, decided on 21
November to make a change in Procedure 2 and the minimal size of
the Central Bank’s reserves in foreign currency (the US dollar) was
changed to 12 per cent (previously it was 8 per cent, there was an
immediate increase of 50 per cent). Clever people should have done
the opposite at the present moment. However, by making this ill-timed
decision they made commercial banks to get rid of US dollars starting
from Friday [23 November]. The problem, which was grave anyway, was
aggravated by this and became catastrophic," the former prime minister
believes. Bagratyan said that nothing good could be expected in the
future. "It has been said on many occasions that the Central Bank has
become an incompetent entity, there is no political alternative in the
official sphere, no-one is held accountable and no-one is punished. And
this impunity creates the absolute lack of knowledge," Bagratyan said.
Meanwhile, on Friday [November 23], when the dram’s exchange rate went
up by 5 per cent within a day, a transaction of unprecedented size –
20m US dollars – was recorded in the stock market. On 26 November
the amount of transactions already reached 25.69m US dollars. On
Friday [23 November] the purchase rate of the US dollars at exchange
offices was 300 drams [per 1 dollar], whereas the Central Bank set
a rate of 312.89 drams. The Central Bank explains the difference as
follows – the rate set by them was based on transactions implemented
in the stock market, and these transactions were carried out in the
morning. The abrupt appreciation of the dram at exchange offices
started later. According to the Central Bank, things that happened
over the weekend [the abrupt appreciation of the dram] are the
result of the non-operation of the stock market, and the exchange
rate during these days climbed up. The Central Bank also said that it
would carry out inspections into the fluctuation of the exchange rate
during these days. The Central Bank is particularly interested in the
fact that some exchange offices carried out unilateral transactions,
that is they only purchased US dollars but did not sell dollars,
and vice versa. More exchange offices are expected to be closed down
on this tide, but as the experience proves such measures are not
efficient. Yesterday the exchange rate set by the Central Bank was
305.46 drams. A new record has been set at the stock market – sales
and purchase worth 25.69m US dollars – at the average exchange rate
of 305 drams. We will still see what record will be set on 27 November.