Once again about the dram: Armenian currency gains in exchange-rate value while losing in buying power

US Dollar continues its breathtaking fall.
It’s been half a year since Anzhela saw her husband last. Like many Armenians he is now in Russia to earn money for his large family in Yerevan. But as Anzhela says, the ‘kopecks’ he is wiring back home can buy less and less as the dram is getting ‘stronger’ and the cost of living is rising.

The greater the rise of the Armenian dram against the American dollar and other major currencies is, the less there appear to be protest from people, many of whom suffer from this situation. As a large part of the population and the country’s production sector are reeling under the admittedly increasing effect of the dram upsurge, the newsworthiness of the topic appears to be declining, making no newspaper headlines and stopping to be a hotly disputed matter during television talk shows.

“Two or three hundred dollars that I used to receive some four years ago are not the same money today. If I and my three children could live on that money then, today we can only survive,” says 47-year-old Anzhela Beglaryan from Yerevan.

According to different estimations, Armenia will have seen over $1.5 billion entering its economy from abroad by the end of this year. The amount of currency influxes has been steadily on the rise over the last few years and is expected to increase in the future.

Some economists say that this, coupled with multi-million dollar investments in the booming construction sector in Yerevan accounts for the drastic appreciation of the Armenian dram, which is conventionally called a “Dutch disease” by specialists.

Since 2003 the dram has gained more than 45 percent over the dollar, rising from 580 drams per dollar to the current 320-324. Armenia’s financial authorities admit it is not a limit and the dram is likely to get even stronger as Armenia is on track for a double-digit economic growth for the sixth consecutive year.

However, independent economist Eduard Aghajanov says the future doesn’t look that radiant as the country continues to produce and export far less than it imports.

“In the final analysis this appreciation of the dram affects everyone despite what the Central Bank contends. In particular, it affects local producers for whom it becomes unprofitable to export locally produced goods. On the contrary it creates a favorable setting for increasing imports, in other words siphoning out the currency that enters the country from abroad to the benefit of large importers,” Aghajanov said to ArmeniaNow.

The Central Bank discards all allegations of critics who claim “tampering with the exchange rates” to enrich oligarchs involved in lucrative import businesses. It routinely explained to ArmeniaNow this week that the exchange rate is the logic of its “floating rate” policy. In particular, it is a mechanism responding to several factors, such as the global fall of the American currency, excessively growing currency remittances from abroad, multi-million foreign investments in Armenia’s construction sector, etc.

But the economist counters: “It is a myth that the Armenian currency is gaining in value. It cannot happen in a country that is going to have a foreign trade deficit reaching up to $1.2 billion. It is the exchange rate of the dram rather than its value that is rising, since the dram’s purchasing power is declining because of the high inflation. Why is the Central Bank ashamed of admitting that?”

Meanwhile, Armenia’s major international donor organizations, including the World Bank (WB) and the International Monetary Fund (IMF), are known to be supportive of the Armenian Central Bank’s monetary policies that have a declared goal of primarily maintaining macroeconomic stability and checking inflation.

However, some analysts and politicians challenge these policies not least because of the upsurge in prices for some consumer goods observed in Armenia recently.

In particular, speaking in parliament last week MP Artsvik Minasyan from the Armenian Revolutionary Federation urged the Central Bank to step in and perform its constitutionally vested function of checking inflation.

“The government should introduce a system to check inflation and the main tools of this should be the minimum life-sustaining budget and a flexible revenue policy,” Minasyan said.

The subject of the dollar-dram situation and price increases was not avoided at the large public rally of the opposition in Yerevan’s Liberty Square last week.

Armenia’s first president Levon Ter-Petrosyan, in particular, charged that the Central Bank is “one of the key chains securing the regime’s activities.”

“Its financial policy, in particular, the dubious process of the dram’s appreciation, destroys the country’s industry, which is in a poor state as it is, essentially restricts the possibilities of exporting local products and consumes more than 40 percent of the real value of transfers from abroad, which lands in the pockets of monopolists and state officials patronizing them,” he claimed.

According to Ter-Petrosyan, “the criminal administration” has “stolen” at least 3-4 billion dollars from the people in the past five years.

“By their buying power, today’s 100 dollars can be compared to 20-25 dollars ten years ago,” Ter-Petrosyan, in particular, said.

He also leveled criticism at international financial institutions for turning a blind eye to Armenia’s “trickery” in drawing up official statistics.

The ex-president’s claims echoed Aghajanov’s and other critics’ concerns over alleged internal use of ‘real’ statistics by such institutions as the IMF and the WB.

“They are not holy, you know,” Aghajanov reiterated this week. “They can, too, yield to temptations.”

Both the IMF and the WB have dismissed such criticism all along. ArmeniaNow was told at the Central Bank that it is not their practice to respond to political statements.