Where There Is The Ruble There Is The Dram


Vestnik Kavkaza, Russia
Dec 17 2014

17 December 2014 – 10:30am

Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza

The process of devaluation of the dram, which is predetermined by
negative processes in the Russian economy, continues in Armenia. It
started three weeks ago. The national currency is dropping by 3-7
points against the dollar every day. The dram exchange rate fell by
13% against the dollar, reaching 480 drams instead of the previous
411 drams.

The devaluation of the dram caused a price growth of 10-12% for
essential goods, including bread, milk, eggs, flour, and sugar.

According to Artak Shaboyan, the chairman of the State Commission for
Protection of Economic Competition, the fluctuations of the dram led
to a growth in prices for imported goods and some local goods which
include imported components.

The leadership of the Central Bank and many experts connect this with
the dollar rising, which is caused by the outflow of capital from
developing countries to the U.S. due to the growth of the American
economy, a slowdown in Russian economic growth and the fall of the
Russian ruble, as it reduced the number of transfers from Russia
to Armenia.

Karen Chilingaryan, the head of the Consumer Consultative Center,
is sure that the price growth will continue: “Due to the crisis in
Russia, the volume of money which was sent home by labor migrants
has reduced drastically. Before the crisis, the volume was $1.8 to
$2 billion a year. Where there is the ruble there is the dram.”

Meanwhile, Armen Pogosyan, the chairman of the Association of Consumers
of Armenia, doesn’t think the price growth is only connected with
the dollar rising. According to him, the main reason is the monopoly
on imports of meat and sugar, which determines prices. “There is a
nominal price growth and a criminal one. Prices on some goods are
growing for objective reasons, while the growth of prices on local
goods is explained by a desire of producers to get excess profit,”
Pogosyan says.

Economist Vaagan Khachatryan, a member of the opposition party the
Armenian National Congress, has the same view: “Monopoly structures
which are closely connected with the authorities define prices on the
market. The dollar rising is used by monopolists for getting excess
profits. If the country had many exporters rather than a few, the
dependence of prices on fluctuations of the exchange rate wouldn’t
be so big.”

Today consumer prices are three times higher than wholesale prices.

And this is typical for most goods from the consumer basket.

Since December 9th the Central Bank began limited auction monetary
selling for stabilization of the dram exchange rate. This will continue
till the end of the year. The head of the CB, Artur Dzhavadyan,
states that the monetary market of Armenia overcame the shock
situation. However, dram devaluation is going on. And the reason for
the devaluation is the CB’s policy with its restrictions.

According to Armen Papazyan, a financial expert, when considering
the timely selling of a certain volume of dollars and euros, the
participants in the financial market began to adopt their policy
to the terms till the end of December. Banks, organizations and
individuals could buy more foreign money till the end of the year,
and it will undermine the new policy of the CB.

Even if the dram rises, it will happen for a short period, ahead
of New Year’s Eve, after which the situation will become worse due
to the deficit of foreign money, which has objective and powerful
roots. The sources of getting foreign money are almost exhausted. This
is connected with the further reduction of transfers from Russia and
the cutoff of foreign loans and significant reduction of investments
in the Armenian economy and the huge deficit of the foreign trade
balance. The consumer market of Armenia is formed by imports, which
are monopolized.

To fight devaluation of dram and the growth of prices, a real economy
based on development of internal production would be effective, rather
than share selling. It would make the country less vulnerable to the
negative influence of external factors. However, stimulating internal
production and establishing a real competitive business environment,
a struggle against the monopoly structure of the economy, demand a
serious approach which demands political changes.


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