Economist Andranik Tevanyan says his and other analysts’ predictions from months ago came true when this week when Armenia had its “Black Tuesday”, as the Armenian dram devalued by 22 percent in a matter of hours and prices of goods rose an equivalent amount.
A few weeks ago Tevanyan called the policy of the RA Government ostrich-like, and he joked that “the crisis is knocking at the door, and they say there is no one at home.”
Tuesday, the crisis broke the door.
News of a dollar value that went from 305 to 380 or more led to panic shopping by consumers who saw prices rise as quickly as the dram fell.
At one of the shops of Yerevan City supermarket a buyer argued at the cashbox for the butter he bought. “I do not understand,” he said. “The price read 1,660 drams per a kilo of butter.” The cash register clerk explained however: “The price has just risen, you must pay 2,200 drams.”
Economist Andranik Tevanyan says his and other analysts’ predictions from months ago came true when this week when Armenia had its “Black Tuesday”, as the Armenian dram devalued by 22 percent in a matter of hours and prices of goods rose an equivalent amount.
A few weeks ago Tevanyan called the policy of the RA Government ostrich-like, and he joked that “the crisis is knocking at the door, and they say there is no one at home.”
Tuesday, the crisis broke the door.
News of a dollar value that went from 305 to 380 or more led to panic shopping by consumers who saw prices rise as quickly as the dram fell.
At one of the shops of Yerevan City supermarket a buyer argued at the cashbox for the butter he bought. “I do not understand,” he said. “The price read 1,660 drams per a kilo of butter.” The cash register clerk explained however: “The price has just risen, you must pay 2,200 drams.”
Some shops simply closed their operation while clerks put new prices on products. By Thursday, matters had settled as shoppers and merchants adjust to the new rate which has leveled out at about 360 drams to the dollar – an increase about 20 percent over Monday’s rates when Central Bank announced that it would no longer hold the dram at an artificial point.
“This was envisaged; and everything is under control. Simply it was necessary not to serve oligarchs but rather to think about the rescue of the economic and social situation in the country,” Tevanyan, Head of ‘PolitEconomy’ Economic Analysis Center, told ArmeniaNow.
At the beginning of the week – on Monday, an extraordinary situation was registered in Armenia’s stock exchange when $31 million was sold during one day. This is a rather great amount taking into consideration the fact that, according to the Central Bank’s (CBA) data, a week ago such amount was sold in the exchange during a week.
The same day it was clear that a loan from Russia will be late, since Russian Prime Minister Vladimir Putin told RA Prime Minister Tigran Sargsyan told that the promised $500 million will be allotted only after Russia’s new budget is approved.
The result is that Armenia no longer had the means to hold the dram at 305.
Just four days before the dram deflation RA Minister of Economy Nerses Yeritsyan bragged that “many countries would dream about having such a stable monetary as the dram.”
The Minister, however, did not clarify how it happened that the dram was stable in a country where the export was reduced by 44 percent, and transfers decreased by 30 percent. Nevertheless, a few days later the myth about a strong and stable dram collapsed.
On Tuesday morning Chairman of CBA Arthur Javadyan announced that “the policy of floating exchange rate is returning.”
“It will essentially improve the foreign competitiveness of the country, and will promote the process of new job-creation.”
Essentially the government bank was announcing that it had been keeping the currency unnaturally high while the rest of the world saw the dollar rise. Until Tuesday CBA had repeatedly denied charges that it was propping up the dram unrealistically.
The assertion that the policy of stronger dollar will promote foreign competitiveness and creation of new jobs was met with skepticism.
“This means that they realized everything very well, however, they were criminally devastating the economy of the country for years, and they were doing it for the benefit of some importing oligarchs,” independent economist and sociologist Narine Minasyan told ArmeniaNow.
Nevertheless, the confession of the CBA was, most probably, compelled, because an hour after the announcement, Ninke Omes, International Monetary Fund (IMF) representative in Armenia called a press conference and announced that the IMF will support Armenia for the return of the ‘floating’ exchange rate policy; particularly, Armenia will be given $525 million loan, with $247 million coming as soon as next.
IMF and other international finance institutions have for some time challenged Armenia’s claim of its suspiciously strong currency and it appears that now the local institution has finally succumbed to outside recommendations of making the dram relevant to dominant world currencies.
Economist Tevanyan says that if Central Bank adjusted to a ‘floating’ exchange rate policy in the middle of last year there would be no fluctuation, and about half a million dollars would not have been squandered from the state reserve funds for keeping the exchange rate.
“Now the authorities say that you wanted us to pass to the ‘floating’ exchange rate, we did it. What else do you want?” However, according to Tavenyan the late adjustment is like a sick person taking 10 days of medicine at the end of a prescription, rather than once per day and getting sicker as a result.
Economist Ara Nranyan, a member of the ARF (Armenian Revolutionary Federation) Dashnaktsutyun faction also spoke about the transfer to the ‘floating’ exchange rate.
“This is a late step,” says the economist, envisaging that it would probably not be possible to suppress inflation, “The fact of the existence of monopolies in the import sphere forces having a non-optimistic viewpoint.”
The immediate reaction of Tuesday’s movement was price gouging, which should be illegal. Petrol rose from 250 to 350 drams per liter and a kilo of sugar went from 230 to 350 drams in a matter of hours.
“This is completely illegal, because, first of all, now they sell the products which were imported long ago, under the conditions of inexpensive dollar, secondly, the very prices were not decreased when the dollar had been decreased. It means that the oligarchs involved in import sphere had superprofits for years, and they were not subject to taxation,” says economist Narine Minasyan, “They probably will reason that they raise the prices of products because now they will have to buy dollar at higher prices for importing a new amount of products, but this is also false, because they bought dollars long ago. Do you believe that millions of dollars sold at the exchange were bought by common citizens? Of course not.”
Minasyan says that the importers, under such conditions, will get “profit of superprofit at the expense of robbing people.”
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