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By Hovannes Shoghikian
Armenia’s Central Bank (CBA) insisted on Tuesday that it is doing its best to slow down the renewed appreciation of the national currency, the dram, against the U.S. dollar which is prompting growing concern from local manufacturers.

The dram has gained a further 5 percent in value against the dollar since the beginning of this month, continuing its dramatic appreciation that began four years ago. It is currently trading at 304 per dollar, sharply up from the December 2003 level of 566 per dollar. One dollar was worth as little as 280 drams in currency exchange shops across Yerevan at the weekend.

According to David Sargsian, head of the CBA’s Department on Financial System Policy and Analysis, the bank bought a record-high $25 million in cash on Monday to stabilize the exchange rate at the existing level.

“We are acquiring hard currency in the market to prevent drastic exchange fluctuations,” Sarkisian told RFE/RL. He reiterated the CBA’s position that the dram’s strengthening is the result of the U.S. currency’s worldwide weakening as well as soaring cash remittances from Armenians working abroad.

However, local economists critical of the government remain unconvinced, arguing that the dram is also strengthening against the euro. Some of them also renewed speculation that the Armenian authorities themselves have been engineering the exchange rate fluctuations to benefit government-connected importers of basic commodities and to siphon off a large part of the multimillion-dollar remittances.

“The reasons for the dram’s appreciation are more artificial than natural,” claimed Tatul Manaserian, a former opposition parliamentarian.

Another prominent government critic, former Prime Minister Hrant Bagratian, said in a newspaper interview published on Tuesday that the CBA directly contributed to the dram’s latest surge by raising from 8 percent to 12 percent the proportion of hard currency reserves which Armenian commercial banks must deposit with the CBA. He said the move only encouraged them to convert their dollar assets into drams.

But Sargsian insisted that the measure’s impact on the exchange rates has been minimal. He also said that the CBA’s decision was aimed at curbing inflation which has also been on the rise of late.

The CBA’s explanation for the exchange rate fluctuations has been repeatedly endorsed by the International Monetary Fund and the World Bank. The IMF underscored on Monday its continuing support for the CBA and the Armenian government, disbursing a new $5.2 million installment of its Poverty Reduction and Growth Facility, a three-year lending program aimed at strengthening macroeconomic stability in the country.

“The Central Bank of Armenia is committed to tightening monetary policy to keep inflation low, while maintaining a flexible exchange rate regime,” Takatoshi Kato, the IMF’s deputy managing director, said in a statement.
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