Currency Question: Is dram value, inflation based on economics or self-interests?

“We recalled how we used to live with $8 some 4 years ago. That would not suffice for a dog,” says the retired engineer.

“We recalled how we used to live with $8 some 4 years ago. That would not suffice for a dog,” says the retired engineer.

Despite the news that pensions were about to rise – announced by Republican candidate and Prime Minister Serzh Sargsyan in August – Ohanjanyan and thousands like him found the rise in allotment useless.

That’s because the cost of basic living (bread, cooking oil, butter, pasta, etc.) went up even before the new pensions kicked in, some items even doubling. The issue became even more dramatic when the cost of commodities rose inexplicably in tandem with what economists say is an unsupported drop in the dollar that on one November weekend hit as low as 270 in some exchange services. Though the dram “rebounded” to about 305-310, many of the 530,000 pensioners throughout the republic see their raise in pensions as nothing more than cruel manipulation.

Many economists, pensioners, professionals and the public maintain that political and banking leaders artificially manipulate inflation and the dollar-dram fluctuation to compensate for campaign expenses, to limit the effect of anti-corruption election efforts by foreign aid organizations paid in U.S. dollars, and to protect large monopolists who trade in the various commodities – all at the expense of many Armenian’s pocketbooks.

“More than 50 percent of the population in Armenia gets money from abroad. 40 percent of it is simply ‘paid’ to the authorities due to the artificial depreciation of the dollar, and the remaining 60 percent is lost because of inflation, because the price for some goods has grown by 60-70 percent,” says Zoya Tadevosyan, doctor of economics and an expert at the Armenian Center for National and International Studies.

The professor of economics says the country’s precarious economic state does not justify the dram appreciation, which, she believes, is artificially set.

“There is no country that has 40 percent unemployment (though 8 percent is the official statistic), high poverty threshold, exports thrice less than imports, collapsed industry, but an appreciated currency like there is in Armenia,” Tadevosyan says.

Those responsible for the country’s financial affairs, namely the Central Bank, condition the drop in the dollar rate with a number of factors, particularly the depreciation of the American currency across the world.

Yet during the last half of 2007, the dram rose higher against the dollar than the more economically stable Euro.

Former MP and doctor of economics Tatul Manaseryan questions the explanation by the Central Bank that the dram’s appreciation is due to the large inflow of dollar investments from abroad and the private transfers that various estimates say make $1-1.5 billion per year.

“An equal amount of foreign currency goes out of the republic for imports that exceeds the volume of exports. What economic growth or dram appreciation are we talking about, when, say, the growth in one of the most important spheres – agriculture – is zero, and the already ruined industry is in agony also because of the dram appreciation,” Manaseryan says.

Economist Eduard Aghajanov also questions the economic grounding of the dollar-dram exchange rate.

“The appreciation of the Armenian dram is a myth; it is artificially exaggerated in the advantage of a group of large importers. There is no economic logic here; this is a country where the interests of several tycoons, their whim, decide everything. In election time money is collected for campaigning. Let people die. No one cares about it,” Aghajanov says.

The economist underlines the dram appreciation’s negative impact on local producers, because exports become drastically less profitable than imports.

“The small and the medium businesses that give the largest portion of our budget revenues are simply on the verge of collapse. Supermarkets have flooded the city, while the small shops are lost. This may be a natural process and would be viewed as a normal matter, if the leverage and the super-income did not accumulate only in the hands of several oligarchs,” says Aghajanov.

The monopoly importers widely use their leverage. For example, while the cost of butter rose by 18 percent in Europe, it increased by 60 percent in Armenia.

The unusual drop in dollar exchange rate caused serious problems also for all dollar-funded organizations.

International donor funded Mission Armenia organization has no answer to give to its 8,000 beneficiary elderly people about why the projects targeted at them become fewer every year.

The US Government funded 6-year project was signed in 2003 when the dollar was at its strongest and cost 585 drams. Since, 46 percent of the $6 million was simply lost because of the dollar depreciation. As a result, many elderly people did not receive the expected support – the program for everyday care for single elderly people has closed.

“We suffer both because of the dollar depreciation and rise of prices,” says founder of the project and its coordinator Hripsime Kirakosyan.

According to forecasts, the dollar depreciation will continue and inflation is expected also after the election.

Armenian Revolutionary Federation faction secretary, economist Artsvik Minasyan thinks the Central Bank has to quit being a passive viewer of price growth and should become an active participant in controlling inflation.

“The government has to apply a system of inflation/price retaining and its major instrument should be a life provision minimal budget and a flexible financial policy. The State Commission for Protection of Economic Competition is dependent [on the authorities], it has to have a practical independence, use stronger leverage to destroy the monopoly field. That will result in a price drop,” says Minasyan.