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The Armenian national currency has shown a tendency towards depreciation in recent days against the backdrop of what some local observers argue is an increased rate of capital outflow based on negative market expectations.

The United States dollar traded at around 417 drams at most exchange offices in Yerevan on Monday, which is a slight drop from the psychologically significant barrier of nearly 420 drams per dollar that the American currency reached at one point last week.

Economist Ara Galoyan assumes that some businesspeople have started to take their assets out of Armenia, which apparently has put some additional strain on the banking system, resulting in the shortage of foreign exchange and hence devaluation of the national currency.

Galoyan and other economists arrive at such a conclusion after examining the preconditions that exist for a currency rate behavior like the one presently observed on the market. They say other explanations simply go against the logic of the economy.

Thus, Galoyan excludes any abnormal surplus of the drams on the currency market caused by injections connected with election spending by political parties. Some local observers insist that less cash was distributed in electoral bribes in the February presidential election than during the parliamentary polls last May.

In another proof of the absence of prerequisites for a sharp appreciation of the foreign currency economists often cite the amounts of remittances wired to Armenians by their relatives working abroad that have not shown any signs decreasing, which suggests there would still be a sufficient amount of foreign currency on the market to keep it value down. Official statistics also shows Armenian exports growing to provide an additional source for currency inflows.

Galoyan argues that the current situation is influenced by decisions of some entrepreneurs and business owners to take their assets and capitals out of Armenia because they now have less trust in the local banking system.

“The government is very alarmed by the fact that some Armenian entrepreneurs sell their working businesses or incomplete constructions to banks and export hard currency,” says the economist. “I think that, indeed, at this stage of the crisis there are businessmen in Armenia who are trying to save their property or part of their property as they no longer trust the local banks.”

The downward trend for the dram is observed for the first time in months. Until recently the Armenian currency hovered around 405-410 drams for quite a durable period of time.

In an apparent attempt to balance the currency rate the Central Bank has been pumping more foreign exchange into the market of late. Only during last week it put more than $13 million into the financial market to this effect.

Armenia - A street market in Yerevan.

Armenia - A street market in Yerevan.

But many economists doubt such a policy could prove efficient considering the experience of recent past when months of similar stimulation failed to stop the dram from an abrupt depreciation in early 2009 when the effects of the previous year’s global storm had just begun to be felt in Armenia.

Meanwhile, a weaker dram will inevitably spur inflation whose year-on-year rate was officially put at 3 percent in February.

Armen Poghosian, who heads a local consumer association, argues, however, that the real inflation rate could be higher as price increases already become appreciable for most consumers.

Poghosian fears that such a trend bodes ill for the country where up to 40 percent of the population officially lives below the poverty line.

At a press conference last week President Serzh Sarkisian unveiled government plans to raise average salaries of public sector employees as well as state pensions in July. He also said the government was on track to secure a 7-percent GDP growth in 2013 which would help raise living standards of the population.

But economist Galoyan cautions that unless checked, inflation will devour even this planned rise and living standards in Armenia may fall even further.

Pensioners appear most concerned in such a situation. “An additional 1,000-2,000 drams ($2.5-5) will give nothing to pensioners as prices for everything are going up,” complained one elderly man in the street.
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