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Armenia lets currency float, seeks IMF bailout


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#1 Azat

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Posted 03 March 2009 - 02:57 PM

http://www.businessw...s/D96MPA700.htm

YEREVAN, Armenia

Armenians rushed to buy bread, butter and other staples Tuesday and stores shut down in panic after the government announced it would let the national currency fall and was seeking a bailout from the IMF.

Banking authorities said the national currency -- the dram -- could sink up to 24 percent with the decision. The devaluation was sure to hurt ordinary Armenians, with prices for imported goods expected to rise sharply.

The Armenian Central Bank decided to limit currency interventions and return to free float policy "due to the financial and economic crisis, worsening terms of trade and slowing capital inflows," bank chairman Artur Dzhavadian told reporters Tuesday.

Armen Gevorkian, a 33-year-old engineer, was stocking up on food in downtown Yerevan, where staples typically include bread, butter, sugar, salt and vegetable oil.

"I'm buying food with all the drams I have because the dollar is going to rise and then the situation will be very difficult," he said.

Prices at some grocery stores shot up 20 to 30 percent on Tuesday. One of Yerevan's largest grocery chains, Star, closed all of its stores shortly after the Central Bank's announcement.

Until now, the small South Caucasus country had pursued a managed float policy for the dram, having the central bank spend reserves to maintain the currency's value.

With Tuesday's move, Armenia's banking authorities said they expect the dram to fall to between 360 to 380 to the U.S. dollar, compared a level of 306 before the free float policy was announced.

Many foreign exchange booths had stopped selling foreign currency, but Georg Melkonian, a businessman, said he bought dollars without any problems at one bank.

Several hours after Armenia's Central Bank announced the move, IMF Managing Director Dominique Strauss-Kahn recommended that its executive board to approve the country's request for a $540 million loan.

The IMF had demanded that Armenia let its currency float before it could get a loan. This would allow "the exchange rate to move in line with market fundamentals, so as to cushion the economy from the external shocks and safeguard foreign exchange reserves," Strauss-Kahn said in a statement.

The IMF will discuss the allocation of the loan Friday. Armenia will be able to draw about $239 million immediately if the request receives approval.

The World Bank also supported Armenia's move, saying it was necessary "to strengthen Armenia's competitiveness and mitigate the impact of the global financial crisis." The bank lauded Armenia's leadership for "prudent macroeconomic management, a low level of public debt, and a sound banking system."

The Armenian economy has been growing steadily in the past four years and has not been hit as hard as Russia or neighboring Georgia by the global financial crisis.

Armenia's GDP rose by 14 percent in 2007 and added 8 percent in 2008. This year, the economy is expected to slip into recession and contract by 1.5 percent.


#2 MosJan

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Posted 04 March 2009 - 01:15 PM

USD cost 372.49 at close of business on Armenian Stock Exchange 03.03.2009 20:10 GMT+04:00 /PanARMENIAN.Net/ Purchase and sale volume at NASDAQ OMX totaled USD 3,420,000 (AMD 372.11 per 1 USD). 1 US dollar price at the close of business on the Armenian Stock Exchange amounted AMD 372.49, CBA official web site reported.

Yesterday the dram-to-dollar exchange rate was fixed at AMD 305-310 to1USD and AMD 387 to 1 EURO.


The upsurge followed CB President Arthur Javadian’s statement on cessation of control over the foreign currency market and return to floating rate policy.

According to the Central Bank, the dollar exchange rate will fluctuate from AMD 360 to 380 in 2009.



#3 MosJan

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Posted 04 March 2009 - 01:16 PM

asum en qaghaqum dzerqi vra minchev 475 en tsaxum mi $

es lav ban cheghav

#4 MosJan

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Posted 04 March 2009 - 01:17 PM

CB: rapid transition from fixed exchange rate to floating more effective 04.03.2009 20:09 GMT+04:00 /PanARMENIAN.Net/ The RA Central Bank has made a decision to limit its intervention in the foreign exchange market and return to the policy of the floating rate in order to eliminate the dram devaluation expectations, said Vache Gabrielyan , the Deputy Chairman of RA Central Bank at the press conference.

He emphasized that the gradual transition from the fixed rate to the floating rate would have been “less effective and cost more. Such is Russia’s experience where despite huge expenditures, the inflation expectations do not change. The experince of countries like Georgia, Kazakhstan, Russia, Belarus where this transition was taking place gradually proves that devaluation and inflation expectations are not eliminated. Whereas in countries where such transitions take place more abruptly, the currency devaluation expectations are eliminated considerably faster,” he added.

“Overall, said Gabrielyan, the Central Bank, in fact, has not changed its policy in long-term period and from the point of view of macroeconomics has never made any claims about the transition to the fixed rate. A considerable pressure on the currency rate of Armenia became obvious still in autumn when the country could not import sufficient goods because of the military actions in the neighbouring Georgia. If the Central Bank had allowed sharp fluctuations of the currency rate, it would have caused considerable problems from the point of view of financial stability, so rate was temporarily fixed. The return to the policy of floating rate in Armenia was necessary to immediately eliminate the national currency devaluation expectations”, said Gabrielyan adding that the stability and liquidity of the bank system based on February monitoring results also contributed to it.

The day before, only within several hours, the dollar rate in Armenia rose dramatically to 360dram per $1, the euro rate reached 440drams. The dollar rate at exchange offices had been 305-310 per $1, the euro rate-387 accordingly. The basic reason for such sudden surge of foreign currencies against the dollar was the statement made by the head of RA Central Bank, Arthur Javadyan, according to which the Central Bank of Armenia has made a decision to limit its interference in the foreign exchange market and to go back to the policy of the floating exchange rate.



#5 MosJan

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Posted 04 March 2009 - 01:18 PM

Ungrounded 50% rise in prices expected in Armenia 04.03.2009 15:27 GMT+04:00 /PanARMENIAN.Net/ Ungrounded 50% rise in prices for consumer goods is expected in Armenia.

“The dram-to-dollar rate will soon be fixed at ADM400/$1 mark,” Gevorg Baghdasaryan, member of the Armenian Association of Consumers, told a PanARMENIAN.Net reporter.

He said that the goods were imported at a fixed price and the current rise in prices is ungrounded.

As to petrol price, he said, “The prices for petrol are dropping throughout the global. But they are going up in Armenia.”

For her part, Association chairperson Melita Hakobyan stated that the national currency downfall is the result of CB wrong policy.



#6 MosJan

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Posted 04 March 2009 - 01:19 PM

ANC explains “who could benefit by dram downfall” 04.03.2009 14:40 GMT+04:00 /PanARMENIAN.Net/ Armenian National congress commented upon the situation in Armenia after national currency downfall.

The dram-to-dollar exchange rate has gone up yesterday to AMD 360/$1 against 305 -310 index and
Dram/euro exchange rate reached AMD 440 (against 387).
The upsurge followed CB President Arthur Javadian’s statement on cessation of control over the foreign currency market and return to floating rate policy.


“The Armenian authorities decision confirmed the forecast of ANK and its economic commission, specifically the first president Levon Ter-Petrosyan, about the fact that the authorities won’t be able to keep up fixed exchange rate policy and will have to make decisions, which would ensue in national currency downfall,” ANK reported.

“The CBA decision is a result of authorities’ ignoring the intensity of world crisis, short sighted and criminal policy of serving the interests of importer oligarchs.”

ANK announcements kept warning about the necessity to apply floating rate policy and stop squandering external supplies. The thick skin policy of authorities is not a result of inability to acknowledge the reality but a deliberate act of plundering.

Only within recent 4-5 months more than USD 800 million, which fully accumulated in the pockets of a few oligarchs and officials, were brought to the country’s internal market from outer reserves under the guise of artificial maintenance of exchange rate. If the floating rate policy had been applied in November, the consequences of world financial crises including price growth, high inflation index, , low taxation level (40%-50%) were likely to be mitigated . All of this can result in social disasters, SME business bankruptcies, deterioration of commercial banks financial situation, continued enrichment of importer oligarchs and high ranked officials. As a result, the mistrust of the society and businessmen to the authorities’ policy keeps growing, stirring up a panic.

ANK suggests returning to floating rate policy, preclude CBA administrative interference, stop squandering external assets and restore the optimal level. Its also necessary to provide the transparency of essential goods price formation to prevent creation of super profits. According to ANK, gas and electricity prices should be lowered, 2009 budget reviewed, and governmental expenditures reduced. “To overcome the crisis we have to suspend customs administration reforms, specifically reduce taxation basis for SME business, cease the obligatory use of cash terminals, set aside the demands to taxi drivers.”

To prevent the outflow of bank deposits we have to raise deposit return guarantees to AMD 5 million (against the fixed AMD 2 million), inform the population about the measures implemented and provide truthful data.

ANK added that the program could only be implemented by legal authority enjoying the trust of population.



#7 ED

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Posted 04 March 2009 - 10:38 PM

QUOTE (MosJan @ Mar 4 2009, 11:16 AM)
asum en qaghaqum dzerqi vra minchev 475 en tsaxum mi $

es lav ban cheghav



der avelin a barsranalu....es joxorti vijake inch a linelu chgitem.....bayts te vax te ush sa spasvumer, parzapes zarmanumeyi te inchpes er 305 esqan yerkar
veri post@ shat lav batstrume te ovqer shahetsin, pxtor jrerits laav dzuk brnecin

#8 ED

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Posted 04 March 2009 - 10:50 PM

YEREVAN (Yerkir, Yerkir Media)--The devaluation of the Armenian currency should have happened earlier and gradually, said Armenian Revolutionary Federation parliamentary bloc member and economist Ara Nranyan.

He said at this juncture the Central Bank had no other choice by to devalue the dram.

“Wouldn't it have made more sense that we took this step a while ago gradually?” asked Nranyan adding that the current sudden devaluation will create obstacles for businesses.

At a press briefing Tuesday, Nranyan discussed Tuesday's decision to devalue the dram and other issues related to the effects of the global economic crisis on Armenia. He expressed opposition to the proposed tax increases on imported raw materials for domestic production and output, which he said would slow production and would impact prices for locally produced goods.

Nranyan said local production and exports should be encouraged and the government should provide incentives for local production of goods in order to balance prices in these economic conditions.

Nranyan noted that the ARF had recently met with Prime Minister Tigran Sargsyan and representatives of his economic team to discuss his party's proposal for the economy, adding that the ARF has always advocated support for local production and encouraged exports of locally-produced goods and services.

“If these steps were undertaken three to four years ago, then the impact of the economic crisis would have been less,” said Nranyan who acknowledged that certain steps to correct the situation are being undertaken but it may be too late.

Nranyan said that the artificial inflation of the dram has primarily hurt local production and only importers have benefited from it.

The ARF parliament member also touched on a recent report by the World Bank, which predicted zero economic growth in Armenia for 2009 and government estimates that place growth at three to four percent.

He said the current economic crisis has demonstrated that the government's continued touting of a double-digit economic growth was baseless, at best, adding that even if there is slight growth it would be better if it is stable rather than “registering self-serving economic growth.”




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