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AUTHORITIES DEFEND MONETARY POLICY AMID RENEWED DRAM RISE
By Hovannes Shoghikian
Radio LIberty, Czech Rep.
Nov 27 2007
Armenia's Central Bank (CBA) insisted on Tuesday that it is doing its
best to slow down the renewed appreciation of the national currency,
the dram, against the U.S. dollar which is prompting growing concern
from local manufacturers.
The dram has gained a further 5 percent in value against the dollar
since the beginning of this month, continuing its dramatic appreciation
that began four years ago. It is currently trading at 304 per dollar,
sharply up from the December 2003 level of 566 per dollar. One dollar
was worth as little as 280 drams in currency exchange shops across
Yerevan at the weekend.
According to David Sargsian, head of the CBA's Department on Financial
System Policy and Analysis, the bank bought a record-high $25 million
in cash on Monday to stabilize the exchange rate at the existing level.
"We are acquiring hard currency in the market to prevent drastic
exchange fluctuations," Sarkisian told RFE/RL. He reiterated the
CBA's position that the dram's strengthening is the result of the
U.S. currency's worldwide weakening as well as soaring cash remittances
from Armenians working abroad.
However, local economists critical of the government remain
unconvinced, arguing that the dram is also strengthening against
the euro. Some of them also renewed speculation that the Armenian
authorities themselves have been engineering the exchange rate
fluctuations to benefit government-connected importers of basic
commodities and to siphon off a large part of the multimillion-dollar
remittances.
"The reasons for the dram's appreciation are more artificial
than natural," claimed Tatul Manaserian, a former opposition
parliamentarian.
Another prominent government critic, former Prime Minister Hrant
Bagratian, said in a newspaper interview published on Tuesday that the
CBA directly contributed to the dram's latest surge by raising from 8
percent to 12 percent the proportion of hard currency reserves which
Armenian commercial banks must deposit with the CBA. He said the move
only encouraged them to convert their dollar assets into drams.
But Sargsian insisted that the measure's impact on the exchange rates
has been minimal. He also said that the CBA's decision was aimed at
curbing inflation which has also been on the rise of late.
The CBA's explanation for the exchange rate fluctuations has been
repeatedly endorsed by the International Monetary Fund and the World
Bank. The IMF underscored on Monday its continuing support for the CBA
and the Armenian government, disbursing a new $5.2 million installment
of its Poverty Reduction and Growth Facility, a three-year lending
program aimed at strengthening macroeconomic stability in the country.
"The Central Bank of Armenia is committed to tightening monetary
policy to keep inflation low, while maintaining a flexible exchange
rate regime," Takatoshi Kato, the IMF's deputy managing director,
said in a statement.
By Hovannes Shoghikian
Radio LIberty, Czech Rep.
Nov 27 2007
Armenia's Central Bank (CBA) insisted on Tuesday that it is doing its
best to slow down the renewed appreciation of the national currency,
the dram, against the U.S. dollar which is prompting growing concern
from local manufacturers.
The dram has gained a further 5 percent in value against the dollar
since the beginning of this month, continuing its dramatic appreciation
that began four years ago. It is currently trading at 304 per dollar,
sharply up from the December 2003 level of 566 per dollar. One dollar
was worth as little as 280 drams in currency exchange shops across
Yerevan at the weekend.
According to David Sargsian, head of the CBA's Department on Financial
System Policy and Analysis, the bank bought a record-high $25 million
in cash on Monday to stabilize the exchange rate at the existing level.
"We are acquiring hard currency in the market to prevent drastic
exchange fluctuations," Sarkisian told RFE/RL. He reiterated the
CBA's position that the dram's strengthening is the result of the
U.S. currency's worldwide weakening as well as soaring cash remittances
from Armenians working abroad.
However, local economists critical of the government remain
unconvinced, arguing that the dram is also strengthening against
the euro. Some of them also renewed speculation that the Armenian
authorities themselves have been engineering the exchange rate
fluctuations to benefit government-connected importers of basic
commodities and to siphon off a large part of the multimillion-dollar
remittances.
"The reasons for the dram's appreciation are more artificial
than natural," claimed Tatul Manaserian, a former opposition
parliamentarian.
Another prominent government critic, former Prime Minister Hrant
Bagratian, said in a newspaper interview published on Tuesday that the
CBA directly contributed to the dram's latest surge by raising from 8
percent to 12 percent the proportion of hard currency reserves which
Armenian commercial banks must deposit with the CBA. He said the move
only encouraged them to convert their dollar assets into drams.
But Sargsian insisted that the measure's impact on the exchange rates
has been minimal. He also said that the CBA's decision was aimed at
curbing inflation which has also been on the rise of late.
The CBA's explanation for the exchange rate fluctuations has been
repeatedly endorsed by the International Monetary Fund and the World
Bank. The IMF underscored on Monday its continuing support for the CBA
and the Armenian government, disbursing a new $5.2 million installment
of its Poverty Reduction and Growth Facility, a three-year lending
program aimed at strengthening macroeconomic stability in the country.
"The Central Bank of Armenia is committed to tightening monetary
policy to keep inflation low, while maintaining a flexible exchange
rate regime," Takatoshi Kato, the IMF's deputy managing director,
said in a statement.