Economists say Armenia is unlikely to have another ‘Black Tuesday’ when [on March 3, 2009] its currency collapsed and panic buying began in Yerevan and elsewhere in the country. Yet, they say, the dram has been dethroned – and “that’s already the fact.”

In the past two weeks alone the Armenian national currency lost almost five percent in value going down from 375 to 392 drams per dollar as of the middle of this week.

This is the first time the dram loses so much within such a short space of time since last March when the Central Bank decided to let the Armenian currency free-float after several months of intervention to keep its value high. The currency market then reacted within hours, with the dram rate (then below 300 per dollar) taking a plunge and stabilizing at around 375 per dollar.

Economist Ara Nranyan who represents the parliamentary faction of the opposition Armenian Revolutionary Federation thinks the further depreciation of the dram is unavoidable.

“But it will be depreciating not in such a sharp manner as it was last year,” predicts the lawmaker.

And economist Narine Mkrtchyan believes that the depreciation of the dram is a natural phenomenon, which, however, has been restrained by the Central Bank for a long time.

“This depreciation of the dram could be felt still since November, however, the Central Bank would intervene by introducing dollars into the market,” says Mkrtchyan.

That same policy of intervention, or fixed rate policy, of the Central Bank proved wrong last year when the decision to stop it for one day led to a 22 percent depreciation of the national currency.

“Perhaps there will be no such extreme danger today, since the Central Bank now has the experience of a bad precedent, however an oligarchic economy is unpredictable, the economic policy is handled under oligarchs’ pressure and economic estimations do not work in this case,” Mkrtchyan told ArmeniaNow. Since its announcement about reverting to the so-called “floating rate” last March, the Central Bank of Armenia has repeatedly stated that it wasn’t intervening in the formation of the foreign exchange rate. However, in December last year deputy chairman of the Central Bank Vache Gabrielyan said that periodically the CB may intervene for the sake of “financial stability”.

Nranyan argues, however, the economy will not recover with such injections and inflation will be checked only temporarily.

Meanwhile, after several months of remaining stable petrol prices again started an upward movement. Regular and premium class petrol that sold for 360 and 380 drams per liter, respectively, only a couple of weeks ago can be bought at most gas stations today for no less than 380 and 400 drams, accordingly.

(Like other lucrative importing businesses, petrol importing and selling companies are sensitive to the dollar/dram exchange rate and usually react quickly to major shifts by raising retail prices).

“It becomes more and more evident every day that by checking the dollar rate you cannot check inflation for long,” says Nranyan. “The depreciation of the dram has objective reasons and it won’t be redressed until the economic policy changes and fresh impetus is given to export.”

One of the objective reasons for a weaker dram is the fall by nearly 30 percent of cash remittances to Armenia from Armenians living or working abroad (it made about 300 million in 2009) and a 12 percent decline in industry and, as economists contend, only when these matters are solved will it be possible to expect a stronger dram again.

While the dram is losing its value, inflation appears to gather pace. According to the data of the National Statistical Service, in February Armenia’s consumer price index showed a 9.4 percent growth compared to the same period of last year. Meanwhile, the projected inflation maximum for the current year is 5 percent.

The rise in natural gas prices by 37.5 percent beginning next month is expected to entail a hike in retail prices for other goods and services.

Economists agree that monopolies constitute the main problem for Armenia’s economy as these monopolies prevent the flexibility of prices. Meanwhile, the Prosperous Armenia party’s lawmaker and deputy chairman of the legislature’s economic affairs committee Vardan Bostanjyan, instead of finding legislative solutions, advises: “If you don’t have money to pay for gas, then go to your villages and burn dung.”