Yerevan, April 28. ArmInfo. Armenia is in the most favorable state as
to conformity to Maastricht Treaty criteria. The treaty, which came
into force in 1993, determines the fiscal convergence criteria and
single currency for EU member-states. Armenian Central Bank Chairman,
Tigran Sargsyan, stated in his report at the International Conference
"Caucasus 2005," Friday. The event organizer is Caucasus Media
Institute (CMI).

According to Tigran Sargsyan, Armenia is in the low inflation zone due
to an effective monetary policy, international organizations
say. Moreover, unlike Azerbaijan and Georgia, the Armenian CB has
toughened its policy in the period of heavy pressure by political
circles and economic entities demanding stable foreign exchange rate
and not low inflation. Armenia displayed a strong political will
starting inflation targeting in 2006, T. Sargsyan believes. It
required introduction of necessary monetary policy instruments. Both
Azerbaijan and Georgia need at least 3 years to start targeting
inflation, Tigran Sargsyan said.

As regards the monetary policy of Georgia, T. Sargsyan thinks that one
can expect serious problems with inflation and the macroeconomic
situation, on the whole, within the coming years. The National Bank of
Georgia may face such problems for lack of relevant instruments of
effective monetary policy. In addition, state budget deficit
management remains a real problem as in 2005 the Georgian Government
resolved to stop budget deficit financing at the expense of the
internal debt and had to curtail the market of government treasury
bonds. It may aggravate the monetary policy problems in
future. "Monetary authorities can not manage the instruments
effectively without the secondary market," T. Sargsyan said.

Regarding Azerbaijan, due to the high level of dollarization and the
existing monetary policy, it will evidently occur in the most
vulnerable position within the coming 5 years, T. Sargsyan
said. "Curbing of the US dollar will inevitably result in an inflation
pressure on economy and, in fact, on a long-term interest rate. The
Azerbaijani Government prefers fighting inflation by administrative
measures that lead to accumulation of inflationary potential and to
future marcoeconomic problems," Tigran Sargsyan said.

In his words, only Armenia could successfully establish an effective
market of long-term internal acknowledgement of debt. Now, Armenia is
the only country in the South Caucasus to place long-term bonds for 15
years and at an interest below 10 percent. "Our neighbors will fail to
do the same as they operate in quite a different direction curtailing
the activity in the sphere only because of ineffective previous
years," he said.

Development of financial sector and increase in the financial
mediation remains one of the major problems of the South Caucasian
states. These indicators are rather low in all the three states,
Tigran Sargsyan said. Thus, bank assets-GDP ratio in all these states
are below 20%, which hampers the effective monetary policy and has
quite an unfavorable impact on the long-term interest rate. All the
three states lack institutions regulating collective investment
schemes i.e. they lack corporation securities market. Insurance
markets are in embryo. The pension reform to enhance accumulation of
financial resources is underway only in Armenia, and the
implementation rates are not satisfactory, he said.

Nevertheless, given the investment attraction policy of the three
states, the harmony of their indicators with Maastricht Criteria
within the coming years will much depend on their macroeconomic and
monetary policy in conditions of an intensive influx of capital.