Two days ago the media of Armenia published two piece of news, which at first glance were not connected. Specifically, the media published information that free Wi-Fi connection would be available in public transport. Also, one of the newspapers wrote that an old woman had bought rice for 50 drams (less than 15 cents) from a seller in Goum market. This is hardly enough for one person to eat for one time.
When one imagines the situation of poverty and that old lady, the information about free Wi-Fi is hardly interesting. It is interesting to know why they need Wi-Fi in public transport. It is not a bad thing, even more, it is a good PR action on part of that mobile operator. The amazing thing is that this information was published by national media outlets with such joy that it seemed there were no people in Armenia that would buy rice for 15 cents. Unfortunately the prices are growing so fast and salaries are so low that it is not excluded that soon there will be people who will be rice with spoons.
The Constitution does not write that there must be free Wi-Fi in public transport, but instead of that the Constitution stipulates that there must not be people fighting with poverty in the country as Armenia is declared as a social state in that document. In order not to violate this provision, the government must approach to this issue from two sides: the government should pay sufficient salaries and pensions, and must not let the prices grow so high.
The government does not have sufficient resources and in the near future the old will not be able to support themselves normally. In addition, theoretically it is possible to control the prices because the government does not need a lot of financial resources for that. According to the Constitution, it is the responsibility of the Central Bank to keep the prices stabile (fight inflation). Even the official statistics shows that the CB fails to fight inflation effectively.
The parliament approved the draft budget 2012, which writes that the inflation rate for 12 months should not exceed the level of 5.5%. However in the beginning of the year the prices started growing and in the end of the first quarter reached 10%. Serzh Sargsyan organized a discussion at the president’s administration office and instructed to cut down the level of inflation twice. All state institutions in charge started to work in that direction. For example, the national statistics service did some tricks in the formula of calculation of consumer indices to reduce it by one percent. The committee on economic competition instituted proceedings and implied penalties in markets. In addition, the central bank periodically restricted the monetary policy to increase the refining rate.
After all these measures it turned out that the inflation official rate was 9%. In addition, the prices of consumer products had grown by 16.2%. June is approaching to the end soon and it is evident that the will be no reduction of prices.
However the authorities still continue making efforts. On June 14 the CB president Artur Javadyan met with journalists and assured that in the end of the year the level of inflation will be in the planned ratio of 5-6%. Even more, inflation may be less than 5,5%. “We have announced that in the first quarter of this year there would be high level of inflation at 9%, but in summer the level of inflation would be lower at 5-6% and we would close the year at the range of 5-6%. However there are risks connected with weather conditions and international growth of consumer products,” said A. Javadyan.
On the one hand, the CB president secured himself by referring to risks such as the weather conditions and other factors. It means that if the weather keeps being unpredictable, in the end of the year they may say that it was the reason of high level of inflation. However, let’s imagine that everything goes well and the inflation rate is within the range of 5.5%. Does this mean that everything is fine and the government can be sufficed with the work? Formally yes because according to our legislation the level of inflation is planned for 12 months and if it is in the planned limits in the end of the year, that’s OK. If in the end of the year the CB reports 5,5% growth of inflation rate during the twelve months, the president will not criticize them.
Notwithstanding the measures taken it is evident that all measures are taken not for the purpose of improving the situation but reporting a better situation, and it doesn’t matter if the situation changes as a result of that or stays the same. It’s not fair.
This is not a new problems and ARF representative MOP Artsvik Minasyan told us that they had spoken about this issue in their recommendation to the draft budget 2011. “The accepted rate is the rate for 12 months so that they compare the rate in the end of the year, and it is not good because it is misleading and it does not reflect the real situation with the purchasing power. As a result of that the society receives wrong information,” mentioned the authors of the recommendation and recommended to take the average inflation rate and if the rate crosses the planned limit, it should be sign for the Central Bank to take measures and intervene.
As it was expected, the government refused to accept this recommendation because as a result of that it would turn out that the Central Bank is not able to fulfill its responsibilities. The government has also explained the refusal in written form: “The reason of targeting 12-months inflation rate policy is the following: first, the monetary policy does not influence the price formation process immediately. It means that after the actions taken by the Central Bank some time is needed, during which the monetary policy first of all influences on the market interest rates, the economic activity, and after these circles on the prices as well. Besides that, the 12-months inflation target is floating, which means that the policy of the Central bank is targeted at reducing the gap between the planned level of inflation and targeted level during the entire year. In this situation in fact the 12-months inflation rate targeting policy is identified with average inflation rate targeting policy. Thus, there is no need to have a separate policy of targeting average inflation rate.”
In a word, the government calls on people not to worry because as the current process of inflation goes on, they take necessary actions to control it in the current process and they need time to observe the results. As the 12-months rate is calculated, during the process the government works for the purpose of controlling inflation in the entire period to have the planned results. Theoretically it is correct. However, the problem is that while they are fighting that gap, people lose their money.
By the way, the ARF proposed another very interesting recommendation to establish administrative responsibilities or accountability for the CB or other state institutions in case of more than 50% stray of the planned level of inflation. In other words, they recommended a mechanism, which would not allow them sit with naïve faces and say that they were not able to do anything. “Generally there is no country in the world where the central bank may be punished,” said the expert of the finance ministry and compared his idea with transparency, tools and process influencing on inflation and other ideas taken from books.
In a word, our people should be sufficed with the fact that the government takes cares of them, even though there is no positive result. Those who do not believe that the government and CB are working to improve the situation can search the Internet and read the bunch of information about their efforts. It doesn’t matter if the old that are thinking of finding some money to buy at least a little bit of rice have heard about notebook or iPad on TV. The most important thing for them is to have free Wi-Fi Internet connection.