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CENTRAL BANK HOLDS FIRM ON FISCAL POLICY
Haroutiun Khachatrian
EurasiaNet, NY
Aug. 31, 2006
Armenia's Central Bank is holding firm on its fiscal policy in the
face of criticism about the strength of the country's currency, which
has gained about 40 percent in value against the US dollar in recent
years. In defending itself against its critics, Central Bank officials
are pointing to recently released data concerning the impact of cash
remittances on the country's economy.
It had long been believed that money sent home by Armenians abroad
plays an important role in the Armenian economy, but the survey,
prepared by the Armenian Central Bank with support from the World Bank,
contained some surprising results. The total amount of remittances
in 2005 was pegged at $940 million, a figure that exceeded earlier
estimates, and which was higher than the state budget of $912 million.
The other surprise is that the bulk of remittances goes to middle-class
families in Armenia, contradicting the widely held perception that
money from abroad went mainly to the poor and played a vital role in
keeping poverty in check. Overall, only 37 percent of Armenian families
benefited from remittances, according to the data, which was compiled
between February and April of this year. Central Bank officials have
relied on these findings to fend off calls for devaluation, insisting
that the poor have not been severely impacted by the strong dram. They
add that taking action to reverse the dram's rise could spur inflation,
which would hurt all Armenians.
The dram's value has been a hot topic in August. It was trading at
around 396 to the US dollar on August 31. In late 2003, the dram
traded at about 570 to the dollar. Opposition politicians have long
suspected authorities of keeping the dram artificially strong in order
to divert dollars into pet projects that primarily benefit members of
the governing elite. [For background see the Eurasia Insight archive].
"A group of people gains millions of dollars when ordinary citizens
incur serious financial losses," the Noyan Tapan quoted opposition
politician Artur Baghdasarian as saying August 12. Baghdasarian,
who formerly served as parliament speaker, split with President
Robert Kocharian's administration earlier this year and is now seen
as a potential challenger to the incumbent in the next presidential
election. [For background see the Eurasia Insight archive].
Meanwhile, some economists, including Eduard Agajanov, say the strong
dram is damaging Armenia's export capabilities. According to the
Regnum news agency, Armenia's deficit during the first six months of
2006 approached a half-billion US dollars.
The average per capita income in households receiving remittances
is $78 per month, well above the poverty line, which officially is
at $42.3 a month. However, an August 11 commentary in the Iravunk
newspaper suggested that the Central Bank's characterization of such
households as middle-class might be misleading, given that without the
remittances a large share of the beneficiaries might tumble into the
"poor" category.
Almost three-quarters of the remittances were sent from Russia. The
United States was also an important source of funds, accounting for
14.3 percent of remittances. Germany, Greece and Ukraine rounded
out the top five source countries, collectively accounting for 5.2
percent of remittances.
Out of the total of all cash remittances, roughly 76 percent was spent
on daily necessities, including food and clothing, according to the
Central Bank's data. Another 6.1 percent was earmarked for education
expenses. The remainder was allocated in a variety of ways, including
1.2 percent spent on real estate investments, 2.0 on investments in
small businesses, and 1.1 percent held in savings.
The Central Bank intends to carry out additional research on remittance
patterns, according to Karin Karapetian, a representative of the
Central Bank Statistical Department. The new survey will be conducted
from September-November and will focus on remittances designed to
pay for luxury goods, or to fund investments in real estate and/or
businesses.
The August 9 data indicates that remittances will continue to be
a significant factor in the Armenian economy for the foreseeable
future. Almost 85 percent of respondents expressed the belief that
they will continue to receive remittances in the coming year. Less
that 10 percent said they expected to receive no money down the road.
The situation was the same on the sending end well, with 91 percent
of Moscow respondents saying that they intended to keep sending money
home. The Central Bank projected the overall total of remittances
for this year would be about 17 percent higher than the 2005 figure.
Editor's Note: Haroutiun Khachatrian is a Yerevan-based writer
specializing in economic and political affairs.
Haroutiun Khachatrian
EurasiaNet, NY
Aug. 31, 2006
Armenia's Central Bank is holding firm on its fiscal policy in the
face of criticism about the strength of the country's currency, which
has gained about 40 percent in value against the US dollar in recent
years. In defending itself against its critics, Central Bank officials
are pointing to recently released data concerning the impact of cash
remittances on the country's economy.
It had long been believed that money sent home by Armenians abroad
plays an important role in the Armenian economy, but the survey,
prepared by the Armenian Central Bank with support from the World Bank,
contained some surprising results. The total amount of remittances
in 2005 was pegged at $940 million, a figure that exceeded earlier
estimates, and which was higher than the state budget of $912 million.
The other surprise is that the bulk of remittances goes to middle-class
families in Armenia, contradicting the widely held perception that
money from abroad went mainly to the poor and played a vital role in
keeping poverty in check. Overall, only 37 percent of Armenian families
benefited from remittances, according to the data, which was compiled
between February and April of this year. Central Bank officials have
relied on these findings to fend off calls for devaluation, insisting
that the poor have not been severely impacted by the strong dram. They
add that taking action to reverse the dram's rise could spur inflation,
which would hurt all Armenians.
The dram's value has been a hot topic in August. It was trading at
around 396 to the US dollar on August 31. In late 2003, the dram
traded at about 570 to the dollar. Opposition politicians have long
suspected authorities of keeping the dram artificially strong in order
to divert dollars into pet projects that primarily benefit members of
the governing elite. [For background see the Eurasia Insight archive].
"A group of people gains millions of dollars when ordinary citizens
incur serious financial losses," the Noyan Tapan quoted opposition
politician Artur Baghdasarian as saying August 12. Baghdasarian,
who formerly served as parliament speaker, split with President
Robert Kocharian's administration earlier this year and is now seen
as a potential challenger to the incumbent in the next presidential
election. [For background see the Eurasia Insight archive].
Meanwhile, some economists, including Eduard Agajanov, say the strong
dram is damaging Armenia's export capabilities. According to the
Regnum news agency, Armenia's deficit during the first six months of
2006 approached a half-billion US dollars.
The average per capita income in households receiving remittances
is $78 per month, well above the poverty line, which officially is
at $42.3 a month. However, an August 11 commentary in the Iravunk
newspaper suggested that the Central Bank's characterization of such
households as middle-class might be misleading, given that without the
remittances a large share of the beneficiaries might tumble into the
"poor" category.
Almost three-quarters of the remittances were sent from Russia. The
United States was also an important source of funds, accounting for
14.3 percent of remittances. Germany, Greece and Ukraine rounded
out the top five source countries, collectively accounting for 5.2
percent of remittances.
Out of the total of all cash remittances, roughly 76 percent was spent
on daily necessities, including food and clothing, according to the
Central Bank's data. Another 6.1 percent was earmarked for education
expenses. The remainder was allocated in a variety of ways, including
1.2 percent spent on real estate investments, 2.0 on investments in
small businesses, and 1.1 percent held in savings.
The Central Bank intends to carry out additional research on remittance
patterns, according to Karin Karapetian, a representative of the
Central Bank Statistical Department. The new survey will be conducted
from September-November and will focus on remittances designed to
pay for luxury goods, or to fund investments in real estate and/or
businesses.
The August 9 data indicates that remittances will continue to be
a significant factor in the Armenian economy for the foreseeable
future. Almost 85 percent of respondents expressed the belief that
they will continue to receive remittances in the coming year. Less
that 10 percent said they expected to receive no money down the road.
The situation was the same on the sending end well, with 91 percent
of Moscow respondents saying that they intended to keep sending money
home. The Central Bank projected the overall total of remittances
for this year would be about 17 percent higher than the 2005 figure.
Editor's Note: Haroutiun Khachatrian is a Yerevan-based writer
specializing in economic and political affairs.