Dram gets stronger, prices increase

Despite the fact that the dram has increasingly become stronger—more so than I have ever seen in the last six years—prices for goods and services are on the rise. The common exchange rate on the street as of today is around 423 dram to the dollar, which has fallen significantly as the euro now seemingly dominates western world markets. One dollar now equals about €0.78. The dram strengthened 22 dram only in the last 14 days or so. Strangely enough—and I do not understand why this is the case—one dollar equals 439 dram according to xe.com’s Universal Currency Converter as of May 31, 2006 at 06:09:53 UTC. So go figure.

As a result prices for foodstuffs are gradually increasing, albeit by 10 or 20 drams in some cases. But the price of gasoline has gone way up. I was paying about 350 dram for a liter of “premium” gasoline up until a month ago. Then the price went up 10 dram each week. As of last Sunday one liter costs 400 dram, and I daresay it will continue to rise at the rate the dram is gaining.

So what is going on here? After all, if the dram continues to be worth more, technically prices should drop for nearly all consumer goods and services. Not true in Armenian economics, which seems to contradict all rules of national economies throughout much of the world. Because big businessmen in Armenia (a.k.a., members of parliament, government ministers, or people closely connected to MPs or ministers) do not invest in the dram, the national currency does not circulate to the degree that it should, never mind the fact that most of these fat cats do not bother paying millions of dram in state taxes due to loopholes in the law. Since banks here offer the option of setting up a bank account in dollars or euros, customers take up the offer. And although this cannot be proven since these businessmen do not claim their actual earnings and no one knows how much they are actually worth—it is just speculated—their money is invested in foreign banks, probably in Dubai since Armenians like that city so much, in Switzerland, or in offshore banks by those who are more sophisticated. There is still the mindset that the dram will suddenly fall through the floor just as the Soviet ruble tanked not too long after the Berlin wall came crumbling. I don’t understand this fear, since the dram has been steadily increasing in value since late 2004, when the exchange rate was 500 dram to the dollar. The average dollar-dram exchange rate was hovering at about 460 dram during the last year. In comparison, during my stay in 2002, one dollar would buy about 580 dram. Yet people still don’t seem to trust the dram.

So now consumers are going to start feeling the effects soon enough. The price of electricity is already on the rise, and now the Public Service Regulatory Commission has approved a 40 percent hike in the price of a cubic meter of water, as proposed by a new French firm which has taken over Yerevan’s water network. I noticed that the price per kilo of Lori cheese has also gone up significantly, from 1,500 dram just a few months ago to now about 1,800 dram. That’s about a 70 cent increase. Bread seems to cost about the same, more or less 380 dram for a kilo of lavash for instance. But I don’t know how long that will continue, since bread is a main staple of Armenian diet. That and potatoes, which cost more now anyway since they are out of season.

I personally am feeling the effects since I as well as everyone else living here were going a long way with a dollar. But I am thankful for making a "high-end" Armenian salary here, half of which goes to my rent, and the other half to gasoline (I can only afford to drive once a week, twice at the most) and domestic costs, like utilities and food. But I am managing for now. Yet I don’t know how the majority of Armenians struggling to make ends meet are making out. I am guessing they are going to have to survive now without certain comforts even more so than before at the rate things are going, especially those that have young mouths to feed.

You can read more about the increase in the dram’s worth here.