Samvel Chzmachyan: Government and Central Bank of Armenia have chosen the lesser of two evils

ArmInfo. The financial authorities of Armenia and the Central Bank of Armenia have chosen the lesser of two evils, President of the Union of Banks of Armenia Samvel Chzmachyan said at today's meeting of the International Banking Council, when speaking of the Armenian Central Bank's policy about retention of stability of the national currency exchange rate.    

"Within the Eurasian Economic Union, everyone has come across such a deliberate artificial depreciation of the AMD exchange rate against USD and EUR, which was aimed at stimulating national exports. We refused to create favorable financial conditions for quite a small number of exporters, whose proceeds do not exceed $1.5 bln, given that the Armenian Government supports serious exporters by other stimulating tools," Chzmachyan said, noting that otherwise the Armenian economy would face high macroeconomic risks.

In this light, Chzmachyan said that in case of Armenian dram depreciation, the negative macroeconomic consequences will be visible in the long-term outlook as well. Among the key risks, he mentioned the growth of inflationary expectations, a new wave of distrust in the national currency, which will result in growth of dollarization in the Armenian economy. "As a result, this will affect the banks having USD assets, and the borrowers will face difficulties with loan repayment," he said, noting that the loan default in the Armenian banking system is already about 10% versus 6-7% a year before.

He added that the Union of Banks of Armenia supports the Central Bank's policy in regulating the currency risks.  

To note, representatives of the International Coordinating Council of Banking Association of CIS, Central and Eastern Europe took part in the meeting. 

To recall, in Jan-Dec 2015, AMD depreciated against USD by 4.2% amid 0.1% decline in consumer prices.  In December alone, AMD depreciated against USD by 0.6% amid 1.7% inflation. In Dec 2015, the average AMD/USD exchange rate was 482.9 AMD/$1 versus 463.5 AMD/$1 in Dec 2014, 405.3 AMD/$1 in Dec 2013 and 405.5 AMD/$1 in Dec 2012. In 2015, the foreign trade turnover dropped by 20.6%, with imports declining by 26.5%, and exports dropping by 3.9%. Transfers to Armenia fell by over 30%. Since early 2016, AMD started depreciating again on the retail foreign exchange market of Armenia however since March it strengthened and stood at 482 AMD/1USD by March 25. At the same time AMD depreciated against EUR to 538 AMD/1EUR and against RUR to 7.1AMD/1RUR. Later, AMD started revaluating again since mid-April. By April 29, AMD depreciated against USD to 479 AMD/$1 and this trend continued in May. By May 20, AMD appreciated against USD to 478 AMD/$1, and against EUR to 536 AMD/1EUR, at the same time depreciating against RUR to 7.3 AMD/1RUR.