ARMENIA: CURRENCY DEVALUATION LEAVES CONSUMERS FEELING UNEASY
Haroutiun Khachatrian
EurasiaNet
March 5 2009
NY
Two days after Armenia’s Central Bank let the dram float against the
dollar, an uneasy calm has returned to Yerevan after a round of panic
buying cleaned many stores out of basic food items.
At the close of trading on March 5, the dram stood at 366.38
against the dollar, marking a slight gain from its previous close
of 372.95. The rate represents just under a 20 percent change from
March 3, when the Central Bank stopped trying to keep the Armenian
currency steady.
A few hours after the announcement, Armenians went on a collective
buying spree. Staples — such as sugar, vegetable oil, macaroni,
and rice — quickly disappeared from several Yerevan grocery stores
visited by a EurasiaNet reporter. In other stores, clerks refused to
sell the items until prices were revised to reflect the new dollar-dram
exchange rate.
Television news reports showed that some shops were closed for several
hours "for technical reasons," while others were crowded by people
trying to buy as much food as possible.
By March 5, the situation appeared to have calmed. The owner of
one Yerevan grocery store told EurasiaNet that some items, such as
imported juices, remain at previous prices; others, though, have
increased by 10 percent at the supplier’s request. Another grocery
store owner noted that new, higher-priced supplies of sugar and flour
were selling slowly, and described shoppers as "quite angry."
For the government, trying to keep a lid on resentment has become a
top priority. Prime Minister Tigran Sargsyan, a former head of the
Central Bank, appeared on public television late on March 4 to urge
viewers to avoid a panic, which, he alleged, could spark a vicious
cycle of escalating prices.
Armenia’s price control agency, the State Commission for Protection
of Economic Competition, also tried to ease consumers’ fears. After
the dram’s drop, prices increased in only four or five out of the 40
food categories, according to Ashot Shahnazarian, the Commission’s
head. The Commission has no plans as yet to take legal actions against
food sellers for speculation, he added.
World Bank Country Office Manager Aristomene Varoudakis emphasized
the need for Armenian state agencies to be "vigilant, strong and
independent to prevent [a] speculative growth of prices."
The International Monetary Fund’s representative in Armenia took
a similar approach on speculation. "It is natural that [a] dollar
appreciation would make imported goods more expensive. But for goods
that were already in the supermarkets, there is no reason for them
to become more expensive," said Nienke Oomes in an interview with
Shant TV on March 3.
One economist believes, though, that the panic has already passed. With
time, importers will gradually move to more reasonable behavior,
predicted Ashot Khurshudian, an expert at Yerevan’s International
Center for Human Development. Khurshudian characterized the Central
Bank’s 2009 inflation target of 8 to 10 percent as still "quite
realistic."
Both the IMF and the World Bank have cheered the Central Bank’s
decision to stop buttressing the dram. The IMF subsequently
agreed to loan Armenia $540 million to shield its economy from the
global financial crisis; $239 million of the sum could be extended
immediately. The funds come on top of a 15-year $500 million loan from
the Russian Federation. [For details, see the Eurasia Insight archive].
Experts had repeatedly urged a return to what is known as a "floating
rate policy" to increase the competitiveness of the Armenian economy,
which is partly cut off from outside trade thanks to its closed borders
with Azerbaijan and Turkey. [For background see the Eurasia Insight
archive]. Central Bank Chairman Artur Javadian told reporters that
the delay in implementing the floating-rate policy had been intended
to keep the banking system stable. The bank has forecast a 24 percent
decrease on average in the dram’s value "in the nearest future."
Sensing an opportunity to score political points, the Armenian
National Congress, a bloc of opposition parties led by ex-President
Levon Ter-Petrosian, issued a statement claiming that the delay in
restoring the floating rate was designed to help oligarchs who run
import monopolies. The bloc claims that the policy cost the Central
Bank $800 million in foreign reserves over the last four to five
months. It did not substantiate the claim.
Editor’s Note: Haroutiun Khachatrian is a Yerevan-based writer
specializing in economic and political affairs.