– Mr. Bagratyan, let’s talk about the topic of the currency exchange rate changes, which is definitely the topic most talked about now. Some people explain the situation with market factors only, economic growth, growth of transfer flows from abroad and think that the results of that change are not catastrophic. What do you think about that issue? What is happening now and what are the consequences?
– I think that this is a serious issue. I don’t agree with the factors you mentioned, I mean the economic growth, etc. Economic growth doesn’t play a role here. To say that this process is a result of economical changes is the same as to say that the processes going on in the world are a result of economic processes as well. That way, they can even say that the reasons for terrorist acts in the world are due to the economy because they sell weapons, etc. It is not right to give such general answers and explanations. Of course, the reasons are economic factors, but which ones? This is the problem.
– What are those factors?
– What is happening in Armenia now? I have discussed this issue in my articles. In a word, AMD growth is due to two groups of factors. The first reason is the fact that AMD is falling in its price in the whole world, but I think this answer explains only 25% of the problem. This issue has its reasons too. There is another currency, I mean EURO, which is used in some countries where the GDP is not less than that of the U.S., thus they don’t need to use USD any more. Besides that, there are other strong economies such as China and India, which currencies strong enough even though they can’t be changed. If we have the factor of purchasing capacity serve as a basis, we will see that China’s economy covers 7% of the American economy already. We should add the Brazilian economy, the strong economies of Russia and Arabic countries that produce energetic resources, where currencies are stable and are in high demand while doing international trade.
We could partially overcome the influence of this group of factors on the Armenian economy. Several years ago I said that taking into account the abovementioned tendencies in the world market, the CB should diversify its foreign funds. Notwithstanding, most of those funds were kept in USD, furthermore, it was selling its gold while buying. He had to work with economies to support them to make their contracts in Euro, Yen and Russian ruble. It would enable to avoid the influence of USD price changes on exporters. Anyway, as I said, this explains only ¼ part of the problem.
Most part of the problem, I may say 75% of the problem strictly has to do with Armenia. If during the recent ten years Armenians have sent $50 million per year (not the Diasporan Armenians, but those that have left for abroad to work there), this year according to the information of the CB it covers $1.3-1.5 billion. This sum is more by 8-10 times than what we receive from investments. Please note that the mentioned sum is 15 times more than the sum that we receive from Diaspora Armenians. Even if we take into account the money that Kirk Kirkoryan has granted, which is in fact American aid in the form of transfers (I mean the tax responsibilities connected with it), we will see that the transfer inflow capacity is 10-15 times more than the mentioned sum. It is more by over one hundred times than the sum that the “Armenia” foundation collects. People are providing financial aid to keep the country. It is amazing, but a negative factor such as migration has become a source of keeping the country on its feet. Whereas ten years ago the foreign transfer capacities covered 3.5% of the GDP, now it covers 35-40% of the GDP.
In a word, now we have a country where the sum of GDP + foreign transfers covers $5.5-6 billion. If we take into account the power of purchase as well, it covers $10-12 billion. If we take into account the export and import factors of goods and services, where the deficit covers $1 billion, we will see that our country has a positive balance equal to minimum $500 million. This $500 million is nothing else but Armenian capital. This money enters Armenia and meets the national currency, which capacities the CB is trying to cut down. Inj this situation, accordingly, the prices for dram are growing. In other words, this process cannot be explained with the economic growth. Please believe me that the mentioned process will continue if we have a rapid growth or do not have it at all. It is worth mentioning that this process will continue and the problem will get deeper. First, most of that money comes from the U.S. and Russia, where the economies are in better conditions and Armenians are able to make money and save. Second, Armenia does not expect a rapid improvement of the political and economical situation so that it can say that the mentioned money inflows are not important for the survival of the country.
– Do you mean that the explanations that the growth of inflows is connected with the growth of the economy are not true? Do you mean that in case of good economic growth the capacities of foreign transfers would be cut down?
– If they are saying that the growth of transfer capacities is connected with economic growth, logically it means that this money is invested in Armenia, but that money is money transfer that citizens are getting from their relatives. This money is spent first of all in the consumer’s market. Furthermore, in the recent years the statistic services of Armenia don’t speak about any growth of investment capacities in Armenia. It is vice versa; sometimes they say that the capacities have been cut down. If our economy is developing faster than the economy of the countries where we are getting money from, it would be the vice versa, I mean that instead of receiving money we would send it out.
– Mr. Bagratyan, if those millions are Armenian capital, it would support the economic growth, but not to be an obstacle for some processes.
– Sure, if we have a certain economic policy. The mentioned capacity of transfers covers 40% of the GDP. Please note that if we calculate this inflow in money, we will see that it is equal to the money that Azerbaijan gets from selling oil. Even Israel did not have such capacities 15 years since its foundation in 1961. In a word, there is money, we just have to use it wisely.
– How can we use that money wisely so that it could support the economy as any other capital?
– There are several solutions. If we don’t want that process to continue, we can just increase the capacities of dram in circulation. In that case the proportion of AMD and USD in the market will be balanced, the domestic production will not suffer, nor with the exports.
– Nevertheless, the CB isn’t doing that and says that it may bring to inflation.
– Yes, it would lead to inflation, but please note that there is inflation now too. If someone gets a 13.000 dram salary, it is equal to $40, since several years ago it was equal to $26. Nothing has changed; the prices in dram have grown, and the prices in dollar have grown almost by 1.8 times during the past four years. Anyway, inflation exists, it’s just that it looks different. I don’t advocate the method of artificial emission of dram.
– What are the other solutions that you have?
– The state may use that money to pay back its foreign debts fast. The government can collect that money and issue obligations instead of cutting down the capacities of money circulation in foreign currency. They can even found investing companies. For instance, Russia has founded a stabilization foundation. We receive more money transfers per citizen than the mentioned foundation in Russia. We should use that money to develop Armenia; build atomic stations, roads, new electric stations, tunnels, strengthen the security capacity, etc. They can invest that money in private social security funds, which is, by the way, one of the spheres that the CB is dealing with. I would like to propose foundation of investment foundations for the purpose of improving the quality of education in our country. As you see, there are many places where that money can be used effectively, but it should be done in the framework of a governmental program with certain priorities.
– According to the solution you are proposing, people should buy the obligations you mentioned issued by the state. Do you think that people trust the state and will agree to invest their money in governmental obligations even if the interests rates offered are high?
– Sure. People have started trusting more since they see that dram can work well. This is not like the situation in 1993-94, when people were suspicious about whether Armenia would become a normal state or not. We are in another phase of development now. People are thinking more about the future of their children and want to see it in Armenia. I don’t say that there is only one solution, maybe it is better to combine several solutions together. However, this means that it will be a new policy.
I am not saying new things. I am saying things that are happening around the world. I am saying things that were written in a document on long-term economical policy that was proposed by the president back in 1992. It stated that in the phase of investment development, which we could reach thanks to God, the CB should turn from regulatory monetary tools (stocks, obligations, etc.) to market regulation tools (regulation of inflation and structure reformation). Besides that, our team defined laws and functions in the CB activities and other relevant fields, which are not common and important that much now.
– Why don’t the current authorities try to find other solutions?
– This should be done by the Central Bank. I think there is a problem connected with management quality. Furthermore, the CB is not a neutral managing body. The bank is not adapted to this situation with its structures. On the one hand, the CB has targeted on the inflation problems and is ignoring the other problems; it has targeted on inflation but can’t keep it from growing. On the other hand, this institution does not want to be responsible for the development of this country. It is natural; these results were expected. From the point of rights, the CB does more than the government to secure them, but nothing when it comes to responsibilities. The banking system of Armenia needs to be reformed; I mean both the institutional structure and the staff.
– Do you mean that we are solving only daily problems at the moment and don’t have a specific long-term policy for development and a program according to which Armenia should be in 15 years?
– Yes, we are just letting dollar come and pressure the dram. I do not mean that this laziness is done on purpose, but we cannot work it out. Notwithstanding, we are speaking about economic rapid growth, I do not only mean the CB. Please note that the speeches of the recent representatives of the International Monetary Fund (James Macque) were just amazing because they didn’t take into account the specific factors of the Armenian monetary policy. I hope the new representative will understand it. Anyway, let’s leave the foreign specialists that are working in Armenia to do some positive things and realize that we are the ones that bear fully responsibility for the development of our state.
I’d like to draw on one thing too. We are not only affecting the pockets of those citizens that receive money from abroad, but are forcing those who send to go bankrupt. In other words, we are taking the money of citizens of other countries too.
– What do you think will happen if there aren’t any changes in the policy that is being implemented?
– We should know first of all what kind of economic tendencies Russia and the U.S. have.
– Do you mean that our economy is turning into the economy of a Russian region?
– It turns out that yes; if those states develop, we will receive more money and the national currency will grow in its price and the economy will not develop. Furthermore, export capacities will be cut down not by 10, but 20-30%. Who cares about producing and exporting products if they can receive money from the U.S. and Russia?
To be continued