Armenian Devaluation and Bailout News
Armenia Devalues Currency
By Karine Kalantarian and Ruben Meloyan
Armenia effectively devalued its national currency, the dram, by more
than 20 percent on Tuesday after the International Monetary Fund pledged
to provide it with $540 million in emergency loans designed to minimize
the impact of the global economic crisis.
The dram tumbled from 305.7 to 372.5 per U.S. dollar in trading at
Yerevan's NASDAQ OMX stock exchange immediately after the Central Bank
of Armenia (CBA) decided to limit its hard currency injections in the
local market.
The heavy intervention has prevented the Armenian currency from
depreciating against the dollar and other major currencies since the
onset of the global downturn last fall. Local opposition politicians and
economists have criticized this exchange rate policy as a needless waste
of the country's modest external reserves currently worth $1.2 billion,
down by about $400 million from the September 2008 level.
In a written statement, the CBA's governing board, which has until now
denied artificially bolstering the dram, said it has decided to `revert
to the policy of a floating exchange rate.' It said the move will boost
Armenia's `external competitiveness' and spur job creation. It forecast
that the dollar's average exchange rate will vary from 360 to 380 drams
this year.
Citing a likely rise in inflationary pressures resulting from the dram
depreciation, the CBA board also decided to raise its re-financing rate
by 100 basis points to 7.75 percent.
As the Central Bank announced the decisions, the IMF's managing
director, Dominique Strauss-Kahn, issued a statement saying that he has
asked the fund's Executive Board to approve $540 million in `stand-by'
loans for Armenia. He said the Armenian authorities will be able to draw
$239 million of the funds, repayable in 28 months, immediately after
board approval expected later this week.
Strauss-Kahn described as `strong and credible' the authorities'
strategy of coping with the fallout from the deepening global recession.
`The comprehensive policy package developed by the Armenian authorities
in consultation with IMF staff includes the return to a floating
exchange rate regime ¦ with supporting monetary, fiscal and financial
sector policies, and well-targeted structural reforms,' he said.
The announced change in the exchange rate policy was also welcomed by
the World Bank. `The return to a flexible exchange rate regime was
necessary given the difficult international environment that Armenia is
facing,' Aristomene Varoudakis, head of the bank's Yerevan office, told
RFE/RL.
`We believe that this will help Armenia strengthen its competitiveness,'
he said. `It will help domestic companies compete more effectively with
imports. It will help exporting companies to export at better prices and
compete in global markets.'
All that will give Armenia `a chance to grow faster,' added the World
Bank official. He predicted last week that the country will at best post
zero growth this year.
According to IMF projections, the Armenian economy will contract by 1.5
percent in 2008 after 14 consecutive years of robust growth. The latest
official statistics show Gross Domestic Product falling by 0.7 percent
in January 2009.
The dollar bought 360 drams and sold for 380 drams in currency exchange
shops across Yerevan on Tuesday evening. The wide buy-sell margin
reflected mounting uncertainty about the dram's future value and broader
market trends.
Petrol prices in the Armenian capital soared by approximately 20
percent, and the country's largest food retailer closed its supermarkets
for two hours in the afternoon, citing the sudden drop in the dram's
exchange rate. `We want to understand the situation reigning in the
market and hold urgent negotiations with suppliers and representatives
of state structures,' Vahan Kerobian, executive director of the Star
supermarket chain, said in a statement. `The measure is also aimed at
preventing panic and alarm.'
The CBA and the Western lenders were confident that the dram
depreciation will not destabilize Armenia's financial system. `Having
discussed the situation resulting from the global financial and economic
crisis, the Board concluded that Armenia's financial system is stable,
sufficiently capitalized, extremely liquid and ready to confront further
challenges,' Artur Javadian, the Central Bank governor, told
journalists.
`We don't have concerns, and the reason for that is that Armenia entered
this crisis with a very strong banking system,' agreed the World Bank's
Varoudakis. `Armenian banks are liquid and well capitalized.'
The dram's nominal value against the U.S. dollar nearly doubled between
2003 and 2008 on the back of soaring remittances from hundreds of
thousands of Armenians working abroad and Russia in particular. The
large-scale cash inflows, which enable Armenia to finance massive trade
and current account deficits, are expected to fall significantly this
year.
By Hovannes Shoghikian and Ruzanna Stepanian
The prices of several key food products and fuel have risen
significantly in Armenia following the sharp depreciation of the
national currency, the dram.
The dram lost over 20 percent of its nominal value against the U.S.
dollar and other major currencies on Tuesday within hours after the
Central Bank of Armenia (CBA) limited heavy dollar injections in the
local currency market. Its exchange rate remained virtually unchanged at
372 drams per dollar in Wednesday's trading at Yerevan's stock
exchange.
The dram's sudden drop immediately pushed up the retail prices of petrol
and mainly imported foodstuffs such as cooking oil, sugar, butter and
rice. In some grocery stores in Yerevan food prices were up by over 20
percent.
Shopkeepers blamed the price hikes on wholesale suppliers. `When we
ordered fresh supplies today they said that the prices have gone up by
20 percent,' one of them told RFE/RL. `Everyone says the same thing.'
`There was a lot of panic yesterday, but things have calmed down today,'
he said, referring to Tuesday's buying spree sparked by the dram
depreciation.
`We won't raise prices until getting new products,' said the manager of
another food store in downtown Yerevan. `But we already have problems
with suppliers. They can't decide at what prices to supply goods to
us.'
The exchange rate fluctuation also affected the prices of cigarettes and
medicines. `I just bought a pack of cigarettes for 400 drams. It cost
350 drams yesterday,' complained one man. `They said that prices won't
go up but everything has become more expensive.'
Some drug stores in Yerevan remain closed on Wednesday while others
opened with new price tags. `Some drug firms won't take supply orders
because of price changes,' one sales assistant told RFE/RL.
The price rises were downplayed by Armenia's State Commission on
Protection of Economic Competition (SCPEC). Its chairman, Ashot
Shahnazarian, said the regulatory body has inspected shops in central
Yerevan and found that the cost of some food products rose by up to 12
percent. `Only about 10 percent of shops have raised prices,' he
claimed.
Shahnazarian dismissed rumors that bread will also become more expensive
this week and urged Armenians not to stock up on foodstuffs, saying that
consumer price inflation is under control.
CBA officials insisted on Tuesday that the inflation rate will not
exceed 9 percent this year despite the dram's weakening.
armradio.am
03.03.2009 15:08
The World Bank issued the following statement on the exchange rate
policy in Armenia today:
"The World Bank fully supports the return to a flexible exchange rate
regime announced by the Central Bank of Armenia and the accompanying
policy measures to support this transition. The adjustment of
the exchange rate is necessary in order to strengthen Armenia's
competitiveness and mitigate the impact of the negative external
shocks that the economy is facing in a difficult international
economic environment.
A flexible exchange rate regime is a key building block of the
comprehensive economic policy program put in place by the Armenian
authorities to cope with the impact of the global economic crisis. The
adjustment of the exchange rate will help Armenian companies to
compete more successfully in global and domestic markets and will
pave the way for high and sustained growth.
Armenia is facing the global economic crisis with strong defense
lines, thanks to prudent macroeconomic management, a low level
of public debt, and a sound banking system. The World Bank Group
will continue supporting Armenia through the 2009-12 partnership
strategy, with a scaled up lending program of US$ 525 million from
the International Development Association (IDA) and the International
Bank for Reconstruction and Development (IBRD).
The International Finance =0 D Corporation (IFC) stands ready
to significantly increase its commitments to Armenian banks and
businesses.
The Armenian authorities' commitment to maintaining a sound
macroeconomic framework and an open market regime have brought
impressive economic results in the past and we look forward to
supporting Armenia's reform efforts in the future."
ARKA
March 3, 2009
YEREVAN
The International Monetary Fund (IMF) plans to earmark $540mln to help
Armenia stabilize its payment balance, IMF Permanent Representative
in Armenia Ninke Oomes reported.
The annual interest rate of the five-year loan is 1.54%. The credit
funds will be sent to the Central Bank of Armenia (CBA) and will help
replenish the country's foreign-currency reserves, Oomes said.
IMF Managing Director Dominique Strauss-Kahn today urged the fund's
Executive Board to approve a 28-month $540mln stand-by arrangement
for Armenia.
According to Oomes, the application will probably be approved on
March 6 and the fund will start earmarking the funds. The first
$240mln will be paid flat next week.
The funds are enough to boost Armenia's payment balance, Oomes said,
citing IMF experts' forecasts.
With $525mln worth WB assistance and $500mln Russian loan, Armenia
will get a strong financial support, the IMF permanent representative
concluded.
Noyan Tapan
Feb 27, 2009
YEREVAN, FEBRUARY 27, NOYAN TAPAN. The World Bank announced that
the first assistance by a simplified system will be provided to
Armenia and Congo to help these countries overcome the consequences
of the global financial crisis. According to Radio Liberty, the WB
International Development Association (IDA) has allocated a loan of
35 million USD to Armenia and a loan of 100 million USD to Congo.
The World Bank has recently approved a package of 4 loans of a total
of 85 million USD for Armenia, as well as the Global Ecological Fund's
1.5 million dollar grant to be provided to the country.
The Armenian prime minister Tigran Sargsyan told Radio Liberty that the
Armenian government and the World Bank had reached an agreement on 525
million USD. "These programs will be aimed at forming infrastructures
and making reforms in the educational system, that is, our programs
with the World Bank are related to all sectors. I think that rapid and
efficient implementation of these programs will reduce the negative
impact of the global economic crisis on us," the prime minister said.
Prime-Tass English-language Business Newswire
March 2, 2009 Monday 2:42 PM EET
Russia
The Russian government will provide a U.S. $500 million stabilization
loan to Armenia at an annual interest rate of 3% over Libor, Armenia's
Prime Minister Tigran Sargsyan told reporters Monday.
The loan will be provided for 14 years and will have a 4-year grace
period, Sargsyan said.
Funding for the loan has been allocated in the amendments to Russia's
2009 federal budget that are expected to be approved soon by the State
Duma, the Russian parliament's lower house, Russian Prime Minister
Vladimir Putin said, ITAR-TASS reported.
Armenia plans to use the funds to cope with the financial crisis,
including to fund programs aimed at the creation of new jobs,
Sargsyan said.
ARKA
March 2, 2009
YEREVAN, March 2. /ARKA/. The planned funding under the program of
the Millennium Challenges Corporation in Armenia is $70mln.
Ara Hovsepyan, Director General of the Millennium Challenge
Account-Armenia, reported that the funds will be provided in quarterly
portions. A total of $$6.8mln are to be received in January-March. "On
March 13, we plan to apply for $12mln funding for April-June,"
Hovsepyan said.
He said that construction work is to get under way under all the
programs to be implemented in Armenia. Hovsepyan pointed out that
the construction has been started under the irrigation program. As
regards the road construction program, the construction got under
way last year and is to be resumed on March 15.
Hovsepyan also reported that the road construction program provides
for the renovation of 273 km of roads. He pointed out that 26.5km of
roads have been renovated.
Under a compact signed on March 27, 2006, the US Millennium Challenges
Corporation is to allocate $235.65mln to Armenia for irrigation and
rural road renovation programs.
Last year Armenia actually received a total of $28mln from the
Corporation.
IMF FORECASTS GDP REDUCTION IN ARMENIA IN 2009
ARKA
March 3, 2009
YEREVAN
IMF forecasts a GDP deficit in Armenia this year, said IMF Permanent
Representative in Armenia Ninke Oomes.
According to IMF projections, red ink of Armenia's GDP will reach 1.5%
this year. The country posted 7% GDP growth last year, compared to 14%
in 2007.
IMF forecasts 8% inflation in Armenia by end-2009, Oomes said
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