Armenian media proudly reports that large financial institutions are calling on other countries to follow Armenia’s bright example and adopt the policy of floating rates.
In particular Commerzbank AG and UBS AG are calling on Russia, Ukraine and Kazakhstan to stop controlling the national currency exchange rate and for the purpose of protecting their economic systems from the international crisis adopt a policy of floating rates. This announcement was broadcast by the Bloomberg, which is world famous TV company broadcasting financial news. “Due to straight movement to the policy of floating rate Armenia had a better achievement than the others. It gives flexibility to adopt with the new economic scenario,” said Michael Ganske, expert of Commerzbank. The latter says that it is very hard to keep a high level of the national currency rate in the current global environment. Only the authors of such announcements know what was the benefit of Armenia and citizens of Armenia from such rapid change in the monetary policy. However it is not so important and the most important thing is that the government’s policy has been appreciated and the citizens of Armenia should know this. In the same manner all TV companies read the same texts of the International Monetary Fund and World Bank, which welcomed Armenia’s decision to adopt a policy of floating rates and agreed to provide huge borrowings to Armenia. Two days ago Fitch rating organization published a press release and TV reporters read this announcement with serious faces trying to show that they really understand the meaning of the mentioned press release: “Currently the sovereign rating in foreign and national currencies is BB positive forecast. The highest rating is BB+, and the lowest one is B.” The same press release of the Fitch writes that the CEO of the IMF calls on the IMF board to approve the decision to provide a standby borrowing amounting to 540 million USD to Armenia on March 6. The period of coverage is 28 months.
Generally it seems that the announcements of the financial institutions are the same and are copied. All they assure that Armenia is resisting the crisis well and the revision of exchange rates will support the economy and export. In fact the IMF is trying to justify the policy of the Central Bank, which has strayed from the policy of floating rates. “In 2008 the Central Bank spent around 360 million to keep the exchange rate of US dollar at 305 dram to keep the credibility to the partially dollarized system.” In fact, if we accept all the mentioned information, the picture will be the following: during many years the Central bank implemented a policy of increasing the national currency and undermined the export. The IMF has always encouraged and welcomed the reasonable and positive activities of the Central Bank and impressive growth of the GDP, without thinking of the exporters at all. And now the IMF unexpectedly starts to be interested in export. They care even more than we do. The IMF is interested in supporting the export of our country so much that is ready to provide a borrowing amounting to half billion dollar. Isn’t the strange interest of the IMF to the export of Armenia surprising? The problem is not whether the policy of the CB is good or no, but the justification of its policy to change the exchange rates so much and rapidly. How does it come that during many years the CB did not agree with the fact that the super-growth of the national currency impacted the export and now, in one day, they understood that they should leave the exchange rates float for the sake of export and the economy? A film hero once said, “It’s not my fault, I was convinced.” It is not so easy to convince our CB in something. Why did the CB do this? The Bloomberg gave the answer in the same broadcast where the Commerzbank expert praised the CB’s policy. Even the topic of the broadcast is enough to understand this (Armenia Devalues Dram to Clinch $540 Million IMF Loan). US Stratfor, a US strategic research center, informs that Yerevan did not have any other choice (the floating rate policy) because the country’s economy is in a very hard situation. “It is clear that the small reserves of foreign currency were up to finishing soon. This reality made the government to give up on the policy of currency interventions in the market for the purpose of getting financial support from outside. As a result, the national currency rapidly devaluated within one day”. By the way, the Stratfor publication authors say that in the future Armenia may stop the national currency inflation. “In such case Yerevan will have to adopt another currency to keep the impression of economic stability. In consideration of strong dependence from Moscow, such alternative currency can be the Russian ruble.”
In a word, the world-famous research institutions are openly announcing that the decision of adopting the policy of floating rates has only one purpose – to recruit financial resources. The speeches and other beautiful words about domestic production and export are just words. The most important thing is to find money, after which they can figure out what to do.