Perhaps the “168 Hours” newspaper is the only newspaper that talks about the currency exchange rate most frequently. That’s the reason why I’m writing this article. It’s extremely rejoicing to know that the macro-economic policy in general and the credit policy in particular have become topics for active public discussions. It’s too bad that we are realizing this activity now, when we have such a revaluation of AMD. However, it’s good to know that this issue has become a popular public topic now in a time of economic growth, which will enable us to make constructive changes parallel to economic growth.
In order to make this debate even more interesting I’d like to offer a series of issues, which unfortunately are almost ignored by the media. The discussions of macroeconomic policies, in fact cannot exclude the oligarchs, the monopolies, not fully structured markets and other issues.
The Central Bank has numerously repeated that the rapid economic growth originates changes, which are often painful and in order to release that pain we should always pay the piper. The price is to choose among phenomena, which often exclude each other but are preferable. Or in other words, there is no free dinner, as many economists prefer to say.
The rapid economic growth, due to money transfers (the idea that revaluation is a result of transfers and not economic growth is methodologically wrong as the transfers cause economic growth) brings alternatives for the state – either the inflation or the currency rate. Both the black economy and monopolies affect the inflation and the monetary rate and their reduction will definitely moderate the inflation and the rate, however will not eliminate the alternatives existing between the two. This is when it comes to the strategy of economic development, which is challenging for not only the government but the whole society (researchers, NGOs, media) to be informed of. Of course, one can always take it easy, saying that the government (because it’s the government’s role, or perhaps the CB, doesn’t matter) should think about those issues – if I like it it’s OK, if not then I can always morally criticize. I personally think this option could be one of the alternatives, however in my opinion-not the fair one.
We have spoken several times about the credit policies in Armenia – floating currency rate and inflow of transfers. We have pointed out openly or sometimes perhaps covertly that the regulation of this issue doesn’t really depend on CB president Tigran Sargsyan. He’s not the one to individually raise or lower the rate. The solution is to come up with relevant policies to respond under such circumstances.
The alternative of inflation-rate means choice not only between the ones, who receive transfers and the investors but also, re-distribution of a broader public income through taxes. Unfortunately, the economic theory has not offered any solutions so far to guarantee equal distribution of economic growth to all branches and strata.
Both theoretically and practically, there are many issues for the fortification of foreign currency in the RA. A more fluent fortification of the monetary unit supposes payment of price in the form of a higher inflation or a slower economic growth, which has its influence on poverty reduction.
In Armenia the regime of a floating currency rate has served the country for over 10 years to provide a stable economic growth and refrain from turbulence. For years, the devaluating monetary unit at the expense of cheap manpower allowed forming a comparably competitive exporting segment. The growth of construction at the expense of foreign transfers creates a situation, when the economy based on cheap manpower doesn’t have its best days. This creates many challenges for the exporters. There is no future for this kind of industry in Armenia, although it does integrate with the Chinese and Indian markets. Let me bring just one example. In Armenia the salary balance doesn’t go beyond 40% of GDP. However, in many countries this index could be doubled. In the event of integrating with international markets, when there is economic growth, this index is clarified by all means.
In the event of low inflation the two-digit economic growth also supposes significant growth of incomes. The construction field provides the most equal distribution of incomes, when the salaries of workers make more than 85% of the construction branch.
So is our economy able to be re-built quickly? In the conditions when the exporters and importers as a rule are very hard to be differentiated, when the black economy becomes the core of most of the transactions, when in our foreign markets the monetary rate also revalues, it’s interesting to know, how we lose our competitiveness. Won’t the artificial lingering of our monetary unit revaluation prolong the dissolution of a few enterprises? This will only enable them to re-qualify themselves.
Although I think that the favorable conditions of people, who work in foreign countries as well as their return to Armenia is an important issue, however I didn’t talk about this issue on purpose. The reason is that there are always ineffective debates between statesmen, who earn their salaries in AMD and the journalists who earn their salaries in USD in Armenia.