No currency crisis in Armenia similar to Georgia’s, Azerbaijan’s – economist

In an interview with Tert.am, economist Ashot Khurshudyan explained why Armenia is the only regional country without a currency crisis.

Mr Khurshudyan, the national currencies of Azerbaijan and Georgia are rapidly depreciating. Specifically, the Georgian lari has depreciated by around 60-65 percent, whereas we do not see a similar situation in Armenia.

Let us begin with the manat. Azerbaijan attempted to reserve for about three months, but failed. In Azerbaijan’s case, the reason is oil export and the aftermath of, so to say, a wrong oil policy. As a result, Azerbaijan has been swept into a vortex. And I do not think they will be able to get out of this situation. Bankrupt banks cannot pay deposits back. And the situation is obviously grave there. Georgia has been able to attract foreign funds and reduce consumption. And Georgia’s imports remained high, about US $6bn, (while Armenia’s imports have halved due to the population’s austerity), and lack of USD incomes will one day cause an outburst. Georgia tried to conceal the fact by implementing a Property against Debt program worth around US $1bn, while Armenia was once criticized over a similar program. That is, economic entities could not repay their loans. And they are now trying to improve the situation with Europe’s’ help, but they have not yet been able to. I can tell you one of the most important indicators: Georgia’s government reserve – foreign reserves/imports ratio – is for three months. In our case, it is a little more than five months because we have reduced consumption. And, to an extent, we have adjusted our imports to our incomes, which is the reason we are not faced with a currency crisis. But Georgia has two solutions: either people radically reduce their consumption, which is extremely difficult in terms of behavior - and radical measures should have been taken in proper time – or Georgia should allow further lari depreciation. But, as far as I know, Georgia has opted for a third way: borrowing huge funds from Europe, which is kind of blackmail in the context of their Deep and Comprehensive Free Trade Area (DCFTA) agreement with Europe. As if they were saying to Europe: “Give us several billion for us to get out of this disgraceful situation.”

I cannot say which way Georgia will favor, but at least two of them are not good options because the first will cause an economic shock, while the second will cause problems in the future. We are not following the exchange rate and we see a critical situation.

But we, in Armenia, have seen AMD depreciation against the US dollar as well, which made forecasts of a few months come true.

Yes, economy needs it. Yes, let it depreciate. Before 2003, one US dollar cost more than 500 AMD. That is, we have much room to return to the previous level. In the other countries appreciation was not so radical, but in Armenia it was abnormally radical. In Armenia’s case it is economically beneficial. The formula is as follows: if people save their money in terms of Armenian drams, their incomes will be higher than if they saved their money in foreign currency terms to wait for further appreciation of foreign exchange.

And the chairman of the Standing Committee on Economic Affairs, Parliament of Armenia, stated that the Armenian dram is the most stable currency in the region. Do you share his opinion?

Yes, I do. And thanks to our people, who have reduced their consumption this year. And we should be grateful for that. That is, a most interesting policy has been implemented, but our citizens have changed their behavior because if you do not buy your well-being goes down, which is more realistic. We did not deceive ourselves. Without incomes we could not afford luxuries. Has our life been worse? Yes, it has. But was it good living on borrowed money without being able to pay off? And it is a chance we should make a proper use of.