By Atom Markarian in Yerevan, Harry Tamrazian in Prague
During the Russian financial crises of August 1998, Armenian government officials were quick to reassure the public that the fall of the Russian Ruble would not have an impact on the Armenian currency, Dram. However, the same officials in charge of finances admitted well after the end of the crises that the Armenian economy was also hit by the Russian financial collapse.
Independent experts are trying to assess the losses that Armenia sustained for not undertaking necessary measures to protect the Armenian currency and finances. According to Tigran Jrbashian, the director of a Yerevan consulting firm, following the Russian collapse, Armenia in three years had lost 5 to 6 percent of its annual economic growth, because of the government's failure to predict the possible consequences of the Russian financial collapse.
Armenia's Central Bank did not adopt any measures to counter the sharp decline of the Ruble's exchange rate. The Armenian currency, Dram, remained strong compared to all other currencies of its trading partners, except for European Union. The Dram was depreciating against European currencies. As a result, Armenian exports to Russia were declining and exports to the EU countries were increasing. But Europe could not become an alternative market for Armenian goods, because of tougher competition there. Armenia lost market share in Russia without adequate compensation in Europe, said Jrbashian.
Armenian experts are now concerned that the economy could face new challenges after the recent depreciation of the US Dollar, especially if this trend continues. What are the possible consequences of the Dollar's decline? First, the Armenia's hard currency reserves are 80 percent in US Dollars. Second, most internal transactions, exceeding $200 are done in US currency. According to some estimates, almost $2,5 billion is in circulation in Armenia. Also70 percent of all personal savings are kept in US Dollars and this, according to Armenian experts is dangerous for Armenia. There are countries that have dollarized their economies, but instead of being a solution, it deepened their economic problems.
In order to limit the negative impact of the Dollar depreciation, Armenia should diversify its hard currency reserves, increasing the share of Euro, and some Asian currencies. The immediate result of the Dollar depreciation on the average consumers would be a rise of prices of imported goods from Europe and Russia.