Rush in the foreign currency exchange market of Armenia caused by a sharp and quite mysterious devaluation (by over 20%) of the national currency - dram - as against major world currencies - euro and dollar - is over. The panic in the market has subsided. The dram has recovered as quickly as devaluated – within a few days – and has stabilized at around 460 drams per dollar and 550 drams per euro.
The Central Bank of Armenia (CBA) explained everything with panic that was caused by what they call external impulses and shocks (instability in the CIS and the U.S. policy towards reduction of dollar emission) as well as by speculators; this is how the financial regulator qualified “all the citizens and economic entities in panic.” As Economy Minister of Armenia Karen Chshmarityan says, there were no economic preconditions for the mysterious depreciation of the Armenian national currency to nearly 600 drams per dollar. Armenia’s Central Bank, in turn, insists that the U.S. dollar is “overvalued.”
Nevertheless, how could Armenia’s tiny market suddenly feel such severe “dollar hunger?” How could it happen that after 10 days of turbulent chaos in the foreign exchange market and sharp food inflation, sufficient amount of dollars and euros were found to enable to national currency “regain” its positions?
One thing is for sure: in the period from December 6 to 15, despite the Central Bank’s assurances that the foreign exchange market of the country experienced no dollar deficit and banks had sufficient amount of foreign currency, the banks sold only limited amounts of dollars (300-500 USD per person) and later even stopped converting the national currency into dollars or euros.
In fact, panic in the exchange market began when bank exchange offices started limiting sale of foreign currency and the exchange rate of dollar and euro began to climb rapidly. In this light, external impulses or shocks were used to veil the real state of affairs. The financial panic subsided after a meeting with bankers at the CBA, a closed meeting of “businessperson-parliamentarians” in the Parliament, and a press conference by Arthur Javadyan, Head of the Central Bank, who assured everyone that the market turbulence would end soon. Afterwards, banks resumed normal foreign exchange operations.
It is not a secret that the Central Bank’s positions are strong enough in Armenia. Bankers and specialists admit that there is a “very severe regulatory body” in Armenia. As question arises: how could the banks refuse to sell foreign currency even to their customers, when the Central Bank announced that the market suffered no foreign currency deficit? Why did the banks resume foreign exchange sale immediately after “the Last Supper” of the bankers in the Central Bank?
Was that a strange coincidence or purposeful actions? Anyway, all this suggests that ‘the rush was either a deliberate provocation or exaggeration.’ “It was a heavy speculation, and the market tycoons gained from it, not the ordinary citizens,” says Vardan Bostanjyan, PhD in Economics.
Bagrat Asatryan, former head of the Central Bank of Armenia, told EAD the CBA made a professional decision to increase the obligatory reserve rate for foreign currency from 12% to 24%. As a result, he said, banks put into circulation over $200 million, something that could not but stop the panic.
It turns out that there was no deficit of foreign currency. So why did they artificially created foreign currency deficit?
Tatul Manaseryan, head of the “Alternative” Center, PhD in Economics, says the rush in the financial market was a deliberate provocation. “Everyone inherently knew what was going on and who is behind that rush in the financial market, but everyone was silent. I reason in this way on the matter, as there were no economic reasons for plummeting of the exchange rate. I said this in the very beginning. Simply, some people were fishing in troubled waters,” he says. Manaseryan believes that the ordinary citizens did not benefit from that panic. Many even lost their money, while big actors got extra profits.
According to Manaseryan, Armenia is a not large market where it is very easy to cause rush and then stabilize the situation with equal ease. And they did it. “I cannot say who exactly is in behind that rush, but I think the banks that refused to sell foreign currency to the people ought to give explanations now,” he says. Manaseryan is sure that there was a large-scale speculation with participation of the market tycoons.
Well, who are the big actors in the foreign exchange market? Experts say these are the government, commercial banks and big importer companies who received tangible benefits from the price hikes.
In Armenia, where economy depends on imports (imports exceeds exports threefold), all the “plum” import quotas are monopolized and the business and government are fused, prices and currency rate are coordinated successfully. The cohort of top officials, who are businesspersons in the power system, can use monetary instruments and their official and oligarchic ties to multiple their profits from imports in prejudice of the people. Armenia’s exports average $1.2 billion annually, while imports are thrice as high – nearly $4 billion.
Since Armenia depends, too, on private transfers that make up nearly $3 billion annually and go directly to the pockets of the citizens, the import-export misbalance is regulated through injections of private funds into the consumer market.
It is evident that plummeting of the foreign exchange rates in Armenia sparked price hikes in the food market, which is in favor of big importers. This is what happened in the period of the sharp depreciation of the Armenian dram. Prices of meat products grew abruptly (by about 30%), like the sugar price (by 25%), flour price (15%-20%) and bread price (30%-40%). As panic grew in the financial market those days, chaotic shopping started at supermarkets and stores in Yerevan, the capital city.
For fear of further depreciation of the dram and price hikes, people were buying more products than usually to hedge themselves. Meanwhile, importers received extra profits, as they bought dollars beforehand and for a lower price, and sold their products at the maximum highest prices. Afterwards, dollar and euro slumped, and now importers can successfully sum up their profits in dollars. In other words, as the national currency fluctuations were provoked in the country, importers got triple profits: large-scale sales on soared prices and cheap foreign exchange for new procurements. Such inhumane practices for the pre-New Year period have become a tradition in Armenia.