Author: Varosian Antranik

IMF SUPPORTS CBA’S DECISION TO RETURN TO FLOATING EXCHANGE RATE REGIME

Noyan Tapan

M arch 4, 2009

YEREVAN, MARCH 4, NOYAN TAPAN. The Central Bank of Armenia (CBA) on
March 3 stopped its interventions in the currency market and returned
to a floating exchange rate regime. The International Monetary Fund
(IMF) Armenia Office has presented its approaches to this fact,
responding to a number of questions.

Question: What is the IMF’s view about the exchange rate adjustment
announced by the CBA?

Answer: The IMF strongly supports the decision of the Central Bank of
Armenia to return to a floating exchange rate regime. In recent days
and weeks, the CBA has had to sell large amounts of dollars almost
every day in its attempt to keep the exchange rate stable at around
305 dram per dollar.

This policy has proved to be unsustainable. Moreover, maintaining a
dram that is too strong is bad for Armenia’s competitiveness. A weaker,
cheaper dram will help to make Armenian exports more attractive.

Q: Why is a floating exchange rate necessary? Why not just move to
a new, depreciated, fixed rate?

A: The IMF has for many years been of the opinion that a floating
exchange rate regime is the best choice for the Armenian economy,
because Armenia has a small, open economy that is dependent on
what happens in the rest of the world. The problem with a fixed
exchange rate is that it is very difficult for any central bank to
correctly choose the optimal level of the exchange rate, and in fact,
the optimal level is constantly changing, depending on what happens
to international prices, the economies of trade partner countries,
etc. If the exchange rate is fixed at a level that is too strong,
like we believe was recently the case in Armenia, this means that
Armenian exports become too expensive, which negatively affects
economic growth, and could lead to a loss of jobs and an increase in
poverty. On the other hand, if the exchange rate is fixed at a level
that is too weak, this means that the economy can overheat, which
can lead to high inflation. Therefore, it is best to let the exchange
rate float and let the market find the optimal level at any time.

Q: Why was the rate previously appreciating?

A: For the last several years, there were large inflows of foreign
currency, mostly dollars, into Armenia (in the form of remittances,
foreign direct investment, exports, and foreign aid). Expected
appreciation also led to dedollarization, which further increased the
supply of dollars. More supply of dollars meant that the price of the
dollar was falling, which is why the dram was previously appreciating
against the dollar.

Q: Why does the rate need to depreciate now?

A: Because of the global financial crisis, there is a significant
reduction of foreign currency inflows into Armenia. In particular:

Export prices have fallen significantly (copper and molybdenum prices
lost about 2/3 of their value), leading to lower export revenues
for exporters.

Global demand for Armenian exports has fallen, meaning a further
reduction in export revenues.

The Russian economy is experiencing serious problems, meaning a
reduction in remittances (money transfers) from Russia to Armenia,
as well as in foreign direct investment from Russia.

In short, there are now significantly less dollars coming into Armenia
than before. Now that the CBA has decided to let the exchange rate
float and to let the market determine the equilibrium level for the
dram, fewer dollars means that the price of the dollar should go up,
which means that the dram should depreciate.

Q: By how much will the dram depreciate?

A: Neither the CBA nor the IMF can tell you exactly by how much the
dram will depreciate, because under a floating exchange rate regime,
it is the market that will determine what is the optimal level of
the dram, and this depends on the total demand and supply of dram
and dollar in the economy.

However, we have tried to estimate the so-called equilibrium exchange
rate for the dram, and based on these estimations, we expect that
the dram will depreciate by about 20 to 30 percent. We in fact used
three different models for estimating the equilibrium exchange rate,
and each model gave a similar result, which was that the dram is
currently overvalued by 20 to 30 percent (see chart). We will soon
publish a paper on our website where we explain the details behind
these estimates. The CBA has also made similar estimations, posted
on its website, which are within the same range.

Note that Armenia is only just catching up with other countries in the
region: Belarus and Kazakhstan both recently devalued their currencies
by 20 percent, and Georgia devalued by 11 percent. The Russian economy
has been the most seriously affected, due to the large fall in oil
prices, as a result of which the ruble has gradually lost 35 percent
of its value. For Armenia, we expect less depreciation than in Russia,
but more depreciation than in Georgia. Probably it will be something
similar as in Belarus and Kazakhstan. However, from now on, it will
be the foreign exchange market that will determine what the new dram
rate is going to be on any given day.

Q: Will the central bank continue to intervene, and if so, when?

A: The authorities’ program will allow for some, but only very limited
central bank interventions. The fact that the CBA has decided to
return to a floating exchange rate does not mean that the CBA will
not intervene at all.

Our recommendation for Armenia is that central bank interventions
should be used only to reduce excessive exchange rate volatility
(that is, to avoid large changes from one day to the next), and the
central bank should not target a specific level or specific path
for the exchange rate. By the way, the CBA can use these limited
interventions also to purchase foreign exchange, not just to sell it.

Q: What will you (or the CBA) do if the exchange rate overshoots?

A: We are not concerned about a temporary "overshoot". In fact, it is
quite normal for exchange rates to overshoot, that is, to temporarily
go above the expected equilibrium level. It is therefore possible
that we will see first a fairly large depreciation, followed by some
appreciation. If this happens, there may not be any need for the CBA
to intervene, because if the exchange rate overshoots sufficiently,
people will start using this opportunity to sell their dollars for
a very good rate, and as a result, the exchange rate will come back
down to its equilibrium level.

Q: Is there a risk of bank failures? Should we take our money out of
the banks?

A: There is no reason why Armenians should take their money out
of the banks. In fact, the banking system is very liquid, very
well capitalized, and very well prepared for this depreciation. In
particular, banks’ liquid assets to total short-term liabilities are
above 100 percent, and their average capital adequacy ratio (CAR)
is well above the CBA requirement of 12 percent (it was 27.5 percent
at the end of 2008). In addition, there is a good deposit protection
system in place. And finally, the CBA stands ready to inject more
money into the banking system if needed.

Q: Why is there a need for an increase in the refinancing rate?

A: A temporary increase in interest rates is needed for several
reasons.

First, it will help to increase confidence in the banking system,
by rewarding Armenians for keeping their money in the banks. Second,
it can help to reduce the inflationary pressures that are likely to
result from the depreciation, and sends a signal that the central
bank is still serious about inflation. Finally, it will help to reduce
incentives for banks to engage in speculative behavior, because it will
become more expensive for banks to borrow dram from the central bank.

ARMENIA: NATIONAL CURRENCY DEVALUATION RESULTED IN REFINANCING RATE INCREASE

PanARMENIAN.Net
03.03.2009 19:32 GMT+04:00

/PanARMENIAN.Net/ CBA Council increased the refinancing rate and
fixed it at 7,75%, CBA Chairman Arthur Javadian declared. According
to him, CBA decision was adjusted to deflationary environment crisis
and slow rate of growth for domestic demand at the world market ,
which contribute to formation of low inflation rate. Nevertheless
under devaluating currency, risks to exceed the inflation target are
becoming real.

The last time CBA increased the refinancing rate was on Feb 10, 2009,
when it was lowered by 0,25% and fixed at 6,75% The dram-to-dollar
exchange rate has gone up to AMD 360/$1 in few hours today against
yesterday’s 305 -310 index for sale and purchase respectively.

Dram/euro exchange rate reached AMD 440 (against 387).

The upsurge followed CB President Arthur Javadian’s statement on
cessation of control over the foreign currency market and return to
floating rate policy.

According to the Central Bank, the dollar exchange rate will fluctuate
from AMD 360 to 380 in 2009.

UNWILLINGNESS TO NEGOTIATE WITH NKR INDICATES AZERBAIJAN’S WEAKNESS

PanARMENIAN.Net
03.03.2009 10:40 GMT+04:00

/PanARMENIAN.Net/ Formidable obstacles should be cleared for soonest
resolution of the Nagorno Karabakh conflict, an Armenian expert said.

"During a 2-day visit to Stepanakert, OSCE MG Russian Co-chair Yuri
Merzlyakov was quite right to say that atmosphere of trust should be
created for resolution of the conflict," Ruben Zargaryan, adviser
to the NKR Minister of Foreign Affairs, said in a piece of opinion
obtained by PanARMENIAN.Net.

"Although NKR is mentioned in the international documents as a party
to conflict, statements on necessity to re-engage Nagorno Karabakh
in the process dash against Azerbaijan’s destructive opposition,"
he said, adding that unwillingness to negotiate with NKR indicates
Azerbaijan’s weakness.

He also emphasized that any agreement which fails to take into account
the reasons of the Azerbaijani-Karabakh conflict will be short-lived.

"Baku’s position bases on ungrounded territorial claims. Azerbaijan
plans to capture entire Nagorno Karabakh after the liberated
territories are returned," Zargaryan said.

"Meanwhile, recognition of NKR should be the starting point in
talks. This will help overcome the consequences of the conflict,"
he added.

Another obstacle to resolution of the conflict is the myth about
Armenia’s weakness disseminated by Azerbaijan, according to Zargaryan.

"In an attempt to convince the international community and its own
people that Armenia is too weak and will have to make unilateral
concession, Azerbaijan at the same time grossly exaggerates the amount
of its oil and gas resources," he concluded.

TURKEY: THE POLITICAL CONTEXT OF ENERGETIC DEVELOPMENTS
Sargis Harutyunyan

"Noravank" Foundation
02 March 2009

Recently it has been much spoken about the prospects of Turkey to
become an international energetic centre. For example, according to
some calculations presented by the Ministry of the Foreign Affairs of
that country in 2008 if Turkey’s oil transportation capacities (first
of all oil pipelines) go on working with the same extent and if the
planned projects are implemented then in 2012 6-7% of oil will flow
through the territory of Turkey. In accordance with the same organ
Turkey is in close vicinity of 72,7% of proven oil reserves and 71,8%
of proven natural gas reserves.

Taking into account the well-known geographic advantages of Turkey
it becomes clear that this country cannot but have serious financial
objectives in the energy carriers’ transportation business. But on
the other hand, the essential changes, which can be observed in the
foreign policy of Turkey both in general and in regional approaches,
let us conclude that the aims of energy strategy of Ankara derive from
Turkish foreign policy and must be firstly observed in that context.

Situational analysis Even today there are a number of factors,
which speak about the close increase of the role of Turkey as an
intermediary country in the international energy system.

Mainly after the Russian-Georgian war and recent gas conflict bet ween
Russia and Ukraine European states began to take more seriously the
idea of getting Middle East, Caspian and Central Asian utilities
through the territory of Turkey. For example, in the issue of
natural gas the Europeans suppose that they have three alternatives
to Russia, i.e. Norway, Algeria and Turkey1, but even today it is
clear that the first two are not simply able to supply the necessary
amount of gas, so that it would efficiently lessen the dependence on
"Gazprom"2. Meanwhile, in the line of Turkey the sector, where almost
the half of proven gas reserves in the world is concentrated, becomes
available3. Of course, in the past the Turkish direction has also
been topical for Europe but the new item is that now they reconsider
the time schedule and we are still to see the new indices.

The second important factor is the American-Iranian and
European-Iranian negotiations and the end of the Iraqi campaign of
the US, which is planned for 2011. In case if those two processes
have a successful result European consumers may get the access to
two countries (Iran and Iraq) with reach utilities. Together those
countries possess 20,5% of world proven oil reserves and 17,5% of
proven gas reserves. But for Europe and the United States Turkey, in
fact, is the only convenient option for the transportation of that
oil and gas to the European Union and to lessen its dependence on
Russia. The aim to reach the agreement in strategic sphere of energy
must be regarded as one of the reasons of the current negotiations
between the US and Iran. Energetic is the only sphere, perhaps,
which creates an opportunity for serious agreements between Iran,
the USA and Europe.

And finally, the third factor is the aspiration of Kazakhstan and
mainly of Turkmenistan to enter western markets. Though till now Russia
has managed successfully to keep its control over energy capabilities
of Central Asian countries, one should not exclude that the "opening"
of Iran will create an opportunity for the US and Europe to get to
the energy resources of Central Asia.

As it was mentioned, the purpose of Turkey to become an international
energetic centre is not restricted to mainly energetic or financial
aims. It is remarkable that on January 2009 in Brussels during the
talks on the possible accession of Turkey to the European Union,
the prime-minister Erdogan connected the issues of the expediency
of the "Nabucco", which will be built on the territory of Turkey,
and the accession of Ankara to the EU.

Of course, the problem of "Nabucco" can hardly have any essential
influence on the accession of Turkey to the EU but it seems unlikely
that Ankara pins its hopes on it. This step by Erdogan pursues the
aim to show the approaches formed in the foreign policy of Turkey
while relating with the countries, which import energy carriers and
in the future with the countries, which sell those energy carriers;
to use the opportunities offered to an intermediary country.

If we try to formulate briefly that innovation, then Ankara intends
to bring the facilities of the country, which is an energetic center,
to the level of geostrategic position and military and political
capabilities, and this will only attach weight to the country in the
regional and global relations4.

The aforementioned is manifested by the fact that at present moment
Turkey starts rather active energetic (first of all oil and gas)
collaboration with all its neighbours: Georgia, Iran, Iraq, Syria,
Greece, Russia, Israel, Balkan states. It is not a mere chance that
the process of the normalization of the relations between Armenia
and Turkey coincided with the agreements in the sphere of energetic
(the agreement about purchase and sale of electric energy).

Conclusions The strategy of Turkey to become the energetic centre
pursues two aims.

The first aim is to ensure the proper presence of Ankara in global
decision-making in the ongoing process of the transformation of
international political and economic system. In the past it was done
mainly by being the NATO member and the most important ally of the
US in the Middle East and Muslim world. But in new conditions when
the weakening of NATO and the deterioration of the relations between
Turkey and the U S can cause reduction of the weight of Turkey,
Ankara believes that the capabilities introduced to the energetic
centre-country are to compensate those losses.

On the other hand, the energetic strategy of Turkey must be considered
in the context of the changes taking place in regional policy of
the country.

If since the establishment of the Turkish Republic Ankara has been the
strong point of the western world in the Middle East, then today Turkey
tries to take on a key role of the Ottoman Empire in the Middle East
and Turkey’s transformation into the energetic centre is to enhance
the influence of Turkey in the region. From this point of view, the
decision of Ankara to initiate the process of the normalization of the
relations with Yerevan is more notable than the unprecedented sharp
approach of the Erdogan government to the actions of Israel in Gaza.

>From the point of view of the prospects, the security system Turkey is
going offer to the changing region (the Middle East, South Caucasus,
and the Balkans) is important. It is obvious that the transformation
of the energetic picture of the region (the transformation of Turkey
into the energetic centre is just it) cannot but cause the changes in
the regional security system. "The Caucasian platform of stability and
collaboration" initiated by Ankara is the part of the supposed offer
of Turkey but it is almost out of question that the main initia tives
of Ankara are still to come. A lot will depend on the developments
in Iraq, in the line of Syrian-Israeli relations, in the relations
with Russia, Iran and Armenia and the developments in South Caucasus
in general.

In case of our country, the essential factor is that the
"transformation" of Turkey and the formation of new situation in the
Middle East can "open" that region for us and increase the involvement
of Yerevan in this direction. This means that in the near future the
developments in the Middle East may have even more serious impact on
the national security system of our country.

1Libya may also be regarded as one of those alternatives but,
taking into consideration that fact that this country is only to
"open" for the western companies, Libyan direction is considered to
a perspective one.

2Today "Gazprom" provides about 40% , i.e. 140 billions cubic meters,
of natural gas import in the European Union.

3According to the "BP Statistical Review of World Energy, June 2008"
eight countries of the Persian Gulf (Iran, Iraq, Kuwait, Saudi
Arabia, Bahrain, Qatar, United Arabian Emirates, Oman) and four
Caspian countries (Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan)
together possess 45,05% of proven natural gas reserves of the planet.

4Though today Turkey due to its inner capacities provides only 30%
of its energy demand.

NEXT RALLY OF ARMENIAN OPPOSITION SCHEDULED FOR MAY 1

ArmInfo
2009-03-01 16:28:00

ArmInfo. The next rally of the Armenian opposition will take place
May 1 2009, the first president of Armenia Levon, the leader of the
opposition Ter-Petrossyan said during an opposition rally today.

"We may also conduct intermediate rallies. Any change of government
must be carried out constitutionally by means of legal elections. In
politics resolution implies a long and persistent struggle. We
have already made progress in this struggle by creating serious
institutional opposition," Ter-Petrossyan said.

He said that the Armenian National Congress was an embodiment of
fully fledged opposition. "Change of government is not an end in
itself for us.

Our key principles are interests of our state and the security and
welfare of our people," Ter-Petrossyan said.

He said that for the moment there was no need for round-the-clock
rallies, pickets and processions. He urged the demonstrators to be
careful in their actions.

In conclusion, Ter-Petrossyan said that Mar 5 the Armenian National
Congress and its supporters will mark the 50th birthday of Prime
Minister of Armenia Vazgen Sargsyan.

NO PROBLEMS IN ONGOING TURKISH-ISRAELI MILITARY COOPERATION: OFFICIAL

Hurriyet
Feb 23 2009
Turkey

There were no problems in Turkish-Israeli relations and in the ongoing
projects carried out by the two countries, Turkey’s undersecretary
for the defense industry said on Monday.

Recent media reports suggested some military projects between Israel
and its main regional ally Turkey could be cancelled after ties between
the two countries became strained over the latest Gaza operation.

Turkey and Israel carried out several "long-term projects"
and no last-minute changes could be made in any of them, Turkish
Undersecretary for Defense Industry Murad Bayar was quoted by Anatolian
Agency as saying at the International Defense Exhibition and Conference
(IDEX-2009) in Abu Dhabi, in the United Arab Emirates.

"Turkey and Israel have mutual benefits in these projects. The projects
are carried out within such framework," Bayar said.

Relations between Turkey and Israel, who have close diplomatic and
military ties, have been strained over Turkish and Israeli officials’
remarks following the Jewish state’s 22-day Gaza offensive.

In the latest incident, Ground Forces Commander Avi Mizrahi said
earlier this month that Turkish Prime Minister Tayyip Erdogan, who
severely criticized Israel’s military campaign in Gaza, "should first
look in the mirror", and accused Turkey of "committing a massacre of
Armenians, as well as suppression of the Kurds".

After Mizrahi’s remarks, Turkey summoned the Israeli ambassador
to the Foreign Ministry and handed a note of protest demanding
clarification, while the military denounced them as "excessive,
unfortunate and unacceptable".

The Israeli army chief telephoned last week his Turkish counterpart
to apologize for Mizrahi’s harsh remarks in an effort to prevent a
deterioration in military relations with Turkey. Israel’s Chief of
General Staff Lt.-Gen. Gabi Ashkenazi also sent an official letter
to the Turkish General Staff regarding the issue.

Turkey and Israel conduct joint military exercises and have a strong
partnership in military equipment and arms. Trade volume between
Turkey and Israel was $2.6 billion in 2007 and some suggest $1.8
billion of this is attributed to military equipment trade.

GEORGIA DOESN’T GIVE UP ANTI-ARMENIAN POLICY

PanARMENIAN.Net
23.02.2009 13:37 GMT+04:00

For the past 15 years, both Yerevan and Tbilisi have been trying
to turn the problem of Javakhk into a social issue, an Armenian
expert said.

"Whatever officials say, the problem is a political one. Armenians
are deprived of the possibility to study in their native language
and are persecuted. The Russian factor also serves as justification
of anti-Armenian policy. Moreover, absence of Georgian diaspora in
Armenia also has its role in Georgia’s governmental course," Sergei
Minasyan, deputy director of Caucasus Media Institute told a news
conference in Yerevan on Monday.

For her part, Noravank Foundation expert Tamara Vardanyan emphasized
that Georgia has always pursued anti-Armenian policy.

"Armenians are not mentioned in Georgian text books," she said,
adding that the Georgian authorities have always viewed Armenians an
obstacle to consolidation of Georgian ethnos.

February 23, 2009

Loyola Law School to Host

Symposium on Litigating Genocide

International Law Scholars to Discuss Legal Aspects of Armenian Genocide

LOS ANGELES – Loyola Law School will host a gathering of scholars and
practitioners on all-day Friday, February 27, to discuss the challenges
American lawyers face in litigating genocide and other mass human rights
violations.

The event, titled "Litigating Genocide: When, Where, and How" is organized
by the Loyola International & Comparative Law Review and the Loyola Center
for the Study of Law and Genocide. The event is sponsored by the law firm of
Geragos & Geragos, APC.

The three panels of the symposium will each address a different aspect of
genocide litigation, ranging from questions on the validity of pursuing
relief for historic human rights violations to an inside look at litigators’
experiences in U.S. courts. The symposium will take a multi-disciplinary
approach to the topic of genocide litigation and will consider litigation in
context of different historical events.

Registration information and additional details are found at:

Loyola Law School alumni Mark Geragos ’82 and Brian Kabateck ’89 helped
establish the Center for the Study of Law & Genocide with funds from a $20
million settlement they secured against the New York Life Insurance Company
for unpaid life insurance benefits in the wake of the Armenian genocide.

The International & Comparative Law Review (ILR) is a student-run
publication that produces three issues each academic year.

Contact: Jeffrey Choi, Executive Symposium Editor, Loyola of the Int’l &
Comp. Law Review,

[email protected].

SERZH SARGSYAN RECEIVED FOREIGN MINISTER OF GEORGIA

Panorama.am
20:04 20/02/2009

The President of Armenia Serzh Sargsyan received the Foreign Minister
of Georgia Grigol Vashadze who is paying a working visit to Armenia,
reports the press service of the President’s Administration. According
to the source, the President signified the closest relations with
Georgia which are based on the warmest relations and long history
within our countries.

The officials have discussed the process of implementation those
agreements made within the both countries during the President’s
official visit to Georgia in 2008.

The President and the Foreign Minister have also discussed the
"Eastern Partnership" project, their membership to the project and
the possible co-operation within it. They have also signified the
stability and security of the region.

EDWARD NALBANDIAN: ARMENIA IS AMONG COUNTRIES EXTREMELY INTERESTED IN STABLE GEORGIA

Noyan Tapan
Feb 20, 2009

YEREVAN, FEBRUARY 20, NOYAN TAPAN. The joint press conference of the
Armenian and Georgian Foreign Ministers Edward Nalbandian and Grigol
Vashadze was dedicated to summing up the results of the Georgian
Foreign Ministry delegation’s visit to Yerevan.

The Ministers said that issues regarding bilateral political, economic,
and cultural cooperation were discussed during the meeting. In
particular, they had discussed processes of fulfillment of agreements
reached as a result of Armenian and Georgian Presidents’ meeting
last September and as a result of Armenian-Georgian Intergovernmental
Commission’s December 2008 sitting.

"We attach much importance to economic cooperation with
Georgia. Armenia is among the countries extremely interested in a
stable Georgia. And not because the most part of our commodity flow
goes through Georgia and our diaspora of more than 300 thousand
people lives there, but because our two countries are connected
by centuries-old brotherhood and traditional cooperation ties,"
Nalbandian stated.

It was reported that Days of Georgian Culture will be held in Armenia
in March, at that, the very Georgian Foreign Minister Vashadze will
head the Georgian delegation. And Edward Nalbandian will visit Tbilisi
in April at the invitation of his Georgian counterpart.

With regard to the latest developments in the Samtskhe-Javakheti
Georgian region populated with Armenians Vashadze stated
that two citizens of Georgia were arrested for the crime they
committed. According to him, Georgians could be also arrested in their
place: national belonging plays no role here. "There is no problem
of Javakheti, like in the whole Georgia there are socio-economic
problems there. That region is one of the regions of Georgia, and
the latter is in an extremely hard situation after the war with Russia.

If someone thinks that people live better in Kutaisi, it is not
so, on the contrary, they often live worse," the Georgian Foreign
Minister stated.

According to him, just the process of Armenians’ integration in Georgia
goes on not so quickly as the Georgian Armenians and the government
of Georgia would like it. "Georgian government’s goal is to protect
the rights of all peoples living in Georgia," Grigol Vashadze stated.

Both Ministers assured that there are no problems the two countries’
governments could not solve in cooperation.