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WHILE THE EU PONDERS ITS FATE, ARMENIA CONTINUES ON THE ROAD TO RECOVERY
PanARMENIAN.Net
May 25, 2012
Armenia has managed to reduce poverty, slash inflation, stabilize
its currency, and privatize many business enterprises.
Financial markets are keenly focused on the continuing travails in
Europe, but peripheral countries near to the Eurozone cannot wait
for their lead. Armenia, for one, has suffered through a debilitating
recession, but, through the efforts of its domestic institutions and
businesses, it has carved out a respectable recovery track record,
sporting GDP growth in excess of 4% a year after the fall in 2009.
PanARMENIAN.Net - The Central Bank of Armenia also deserves a share of
the credit for this economic turnaround. Central banks are typically
the "fulcrum" that stands between a local economy and the economic
events on the international stage, absorbing both good and bad "shocks"
before they can wreak havoc on a much smaller financial market. In
today's modern era of globalization where our economies are totally
interconnected and interdependent, it is much more difficult to
shield local activity from the harsh realities across our national
borders. This task, however, falls directly on the central bank.
The Central Bank of Armenia was formed in 1993, following the
accepted global design for an independent group managed by a board
of financial professionals. Aside from tending to the distribution of
local currency, the primary responsibilities of the bank is to bring
stability to local prices, manage the national currency's position in
the international marketplace, oversee the nation's foreign exchange
reserves and gold, and generally promote growth and employment through
its monetary policies and actions.
Before the recent "Great Recession", Armenia had benefited from years
of double-digit growth, but 2009 brought a severe cutback of 14.2%
in domestic business activity. A gradual return to growth, some 2%
in GDP, took place in 2010, followed by 4.6% in 2011. Inflation peaked
at 7.6%, but higher discount rates from the central bank has brought
consumer prices back in line. Current price indexes are well below 4%,
the designated target for 2012, while GDP is expected to come in at
4.2% for the year.
The primary balancing act for a small country is to encourage foreign
investment for the development of domestic business opportunities,
promising the necessary legal infrastructure to protect those
investments and local price stability to allow for reasonable
projections for future profitability. The other variable in the mix is
the country's foreign exchange rate. Since imports currently exceed
exports for Armenia, one would expect the Armenian Dram ("AMD") to
devalue with respect to other major currencies. This result has been
the case over the past five years. The U.S. Dollar can now purchase
400 Drams, as opposed to roughly 300 in 2009. This depreciation is
not that great in the scheme of things.
Foreign exchange reserves, however, facilitate international trade,
establishing a basis for credit in exchanges with other governments.
The central bank literally settles daily with other central banks
around the world, either by accepting or paying foreign exchange
deposits or securities to finance the daily capital flows. Armenia
has nearly $2 billion in foreign exchange reserves, easily enough to
cover seven months worth of imports. Many other peripheral countries
to the EU have far less.
Deficits are also an issue, but far less of one that can be found
with weaker member states of the EU. Funding has come from Russia,
the IMF, and other international financial institutions. Over time,
Armenia has managed to reduce poverty, slash inflation, stabilize
its currency, and privatize many business enterprises, but economic
reforms are still on the table. The country is also leaning towards
becoming a member of the EU in future, but for now, economic prospects
remain bright while the EU continues to flounder.
From: Emil Lazarian | Ararat NewsPress
PanARMENIAN.Net
May 25, 2012
Armenia has managed to reduce poverty, slash inflation, stabilize
its currency, and privatize many business enterprises.
Financial markets are keenly focused on the continuing travails in
Europe, but peripheral countries near to the Eurozone cannot wait
for their lead. Armenia, for one, has suffered through a debilitating
recession, but, through the efforts of its domestic institutions and
businesses, it has carved out a respectable recovery track record,
sporting GDP growth in excess of 4% a year after the fall in 2009.
PanARMENIAN.Net - The Central Bank of Armenia also deserves a share of
the credit for this economic turnaround. Central banks are typically
the "fulcrum" that stands between a local economy and the economic
events on the international stage, absorbing both good and bad "shocks"
before they can wreak havoc on a much smaller financial market. In
today's modern era of globalization where our economies are totally
interconnected and interdependent, it is much more difficult to
shield local activity from the harsh realities across our national
borders. This task, however, falls directly on the central bank.
The Central Bank of Armenia was formed in 1993, following the
accepted global design for an independent group managed by a board
of financial professionals. Aside from tending to the distribution of
local currency, the primary responsibilities of the bank is to bring
stability to local prices, manage the national currency's position in
the international marketplace, oversee the nation's foreign exchange
reserves and gold, and generally promote growth and employment through
its monetary policies and actions.
Before the recent "Great Recession", Armenia had benefited from years
of double-digit growth, but 2009 brought a severe cutback of 14.2%
in domestic business activity. A gradual return to growth, some 2%
in GDP, took place in 2010, followed by 4.6% in 2011. Inflation peaked
at 7.6%, but higher discount rates from the central bank has brought
consumer prices back in line. Current price indexes are well below 4%,
the designated target for 2012, while GDP is expected to come in at
4.2% for the year.
The primary balancing act for a small country is to encourage foreign
investment for the development of domestic business opportunities,
promising the necessary legal infrastructure to protect those
investments and local price stability to allow for reasonable
projections for future profitability. The other variable in the mix is
the country's foreign exchange rate. Since imports currently exceed
exports for Armenia, one would expect the Armenian Dram ("AMD") to
devalue with respect to other major currencies. This result has been
the case over the past five years. The U.S. Dollar can now purchase
400 Drams, as opposed to roughly 300 in 2009. This depreciation is
not that great in the scheme of things.
Foreign exchange reserves, however, facilitate international trade,
establishing a basis for credit in exchanges with other governments.
The central bank literally settles daily with other central banks
around the world, either by accepting or paying foreign exchange
deposits or securities to finance the daily capital flows. Armenia
has nearly $2 billion in foreign exchange reserves, easily enough to
cover seven months worth of imports. Many other peripheral countries
to the EU have far less.
Deficits are also an issue, but far less of one that can be found
with weaker member states of the EU. Funding has come from Russia,
the IMF, and other international financial institutions. Over time,
Armenia has managed to reduce poverty, slash inflation, stabilize
its currency, and privatize many business enterprises, but economic
reforms are still on the table. The country is also leaning towards
becoming a member of the EU in future, but for now, economic prospects
remain bright while the EU continues to flounder.
From: Emil Lazarian | Ararat NewsPress