Notes From Hairenik

I have noticed in my travels during the last 36 hours or so after returning to Yerevan that prices for goods have not really increased. They have remained constant since over two months ago, when the dollar bought about 420 dram, more or less, depending on the day of the week. Now the dollar-dram exchange rate is 380. That’s a considerable inflation in such a short amount of time. As the laws of economics dictate, prices should fall when the economy is essentially on the rise and the monetary value is stronger than ever. But that’s not the case here.

To make my point, a minibus ride costs 100 dram, which was previously equivalent to around 23 cents. Now it costs just about $0.26. This holds true for almost everything. A kilo of lavash bread selling for 400 dram cost about a buck, give or take a few cents. Now it fetches at least $1.05, although the price is technically the same.

Okay, a few cents here and a nickel there does not seem to be much. But when you are dependent on $100 a month in remittances, the pennies add up very quickly. You now have 38,000 dram to live on rather than 42,000 a couple of months ago. When prices effectively stay the same for essentials like foodstuffs, you are hit pretty hard.

The boys running the Central Bank of Yerevan do not seem to understand this. They continue to inflate the dram despite the fact that ordinary Armenian citizens are hurting, and despite threats from big businessmen to close their production facilities and move them to Russia or Georgia, as the head of Grand Tobacco did a few months back. Once again, the government is dependent on short-term solutions by boosting the economy artificially and impressing the Council of Europe as well as the World Bank. But why those two organizations fail to grasp what is really going on is beyond me—perhaps they just don’t care.

When the money dries up for buying real estate when all the new apartments are sold or potential customers lose interest in investing, and spending begins to slow down considerably, what will the government and the people do then? It’s difficult to fathom. We can only hope that along with the continued appreciation—there doesn’t seem to be a cessation in sight—pensions will increase considerably to meet the demands of inflation. But given the way things are progressing, with the government’s lackadaisical stance regarding the plight of the poor and underprivileged in this country, we shouldn’t expect much. And until the public starts demanding better representation and policy making, change won’t come anytime soon. Let’s hope a new administration will make a difference, assuming the people will be able to fairly elect the presidential candidate they prefer.


Blogger nazarian said...
The exchange rate for dram follows the classic pattern of the Dutch disease. But in this case, the currency is strengthened not by exporting natural resources but the foreign currency flow of Armenian labor abroad. As such, the inflow of the money is harder to keep under control. But it's not impossible.

Given the fact that the Central Bank sold its gold reserves and bought dollars at the exact point when the gold prices started going up and the value of the dollar started going down globally, you can judgeabout the competency of the Central Bankers of the country.

But maybe they know something that we don't?

Anonymous Anonymous said...
The strong dram is bad for exporters but good for importers.

A more powerful dram means importers can buy their stuff more cheaply. In a perfect world, these savings would be passed to the consumer. Are we seeing a drop in the dram-denominated prices of imported goods? I don't think so. Conclusion: the importers are pocketing the extra profits.

Are importers politically powerful here? You tell me.

Doug M.