By Hrach Melkumian
The Armenian authorities have committed a serious blunder by failing to convert most of their hard currency reserves, mainly kept in U.S. dollars, to euros over the past three years, former Prime Minister Hrant Bagratian said on Monday.
Bagratian claimed that the Armenian Central Bank’s continuing reliance on the greenback has cost the country dearly and called for an urgent switch to the European Union currency.
“We have foreign exchange reserves managed by the Central Bank that are worth about $500 million,” he told RFE/RL in an interview. “This money was worth 700 million euros when the single currency was introduced three years ago. Today it is worth 370 million euros. Will anybody be held accountable for the effective loss of 330 million euros?”
“I hope that the Central Bank will admit its mistakes and seriously think about diversifying its foreign reserves and other assets,” he said.
Dollars made up as much as 80 percent of Armenia’s hard currency reserves as of last February. The dollar’s depreciation against the euro and other major world currencies was already in full swing.
The Central Bank chairman, Tigran Sarkisian, said at the time that the authorities are diversifying Armenia’s external assets to minimize losses resulting from exchange rate fluctuations. Nonetheless, dollar deposits remain their main component. Ordinary Armenians also continue to use the U.S. currency as their principal form of savings.
Bagratian said that the authorities should not only have bought more euros but also promoted broader use of the euro by Armenian commercial banks and ordinary people alike. He argued that Armenia’s trade with EU countries by far exceeds that with the United States and that local exporters in particular should be encouraged to price their goods in euros.
“Instead, we have seen ludicrous claims by the Central Bank about the strength of our economy and about more cash flowing into the country,” Bagratian said, referring to official justifications of the year-long strengthening of the national currency, the dram.
The dram gained more than 15 percent in value against the dollar in the course of 2004. Its appreciation against the euro has been twice as slower. According to Bagratian, who headed the government from 1993-96, this only demonstrates how connected the Armenian economy is to the euro zone.
Official figures show that the EU is consolidating its status as Armenia’s number one trading partner, accounting for about 40 percent of its external commercial exchange.