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Armenia In Favorable State For Conformity to Maastricht Criteria

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  • Armenia In Favorable State For Conformity to Maastricht Criteria


    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.