Armenian dram must be depreciated at any cost for economic collapse  to be prevented - Vahram Mirakyan

ArmInfo. Armenia is showing the initial signs of Dutch disease, says Vahram Mirakyan, Chairman of the Mantashyants entrepreneurs union.

The term Dutch disease was coined after the discovery of gas fields  in the Netherlands in 1959. 

"Exporting much appears great. But that caused appreciation of the  Dutch national currency (a process similar to that in Armenia now).  Along with appreciation of the national currency, Dutch goods were  becoming less competitive on the international market gradually  losing their positions on the export markets, with gas being the only  exception. 

"At first, it was all right. Economy was growing with everybody  satisfied except for the exporters of other goods. However, in the  course of time, numerous enterprises closed down and export  industries stopped operating. As a result, the Netherlands turned  into an importer country, which caused higher unemployment and other  adverse consequences," Mr Mirakyan wrote on Facebook 

Although Armenia has no gas, the expert believes the country is  facing a similar situation now: great foreign currency supplies have  caused appreciation of the Armenian dram, which resulted in Dutch  disease - exporter companies are sustaining losses, small and weaker  companies are closing down, etc..

"The upper circles are now saying: never mind, the farmers will stop  growing grapes, but will go to work at restaurants or banks because  the Armenian wines are not competitive on the international markets.  So we do not need stored grapes. 

"The Central Bank and the Ministry of Finance are saying: never mind,  let our national currency be strong, low inflation is the most  important for no mass protests against the authorities to take place.  The Central Bank is saying: never mind, let small exporter and  software companies close down. Growing economy is the most important. 

"But USD depreciation and AMD appreciation will cause an economic  collapse in the future. This process is already under way, and many  IT companies have suspended their software development projects,  exporter companies have stopped exporting their goods and many  investment projects have been suspended because of higher costs,  etc.. 

"The way out? Depreciating the Armenian dram at any cost," Mr  Mirakyan writes. 

This January-September saw a 14.1% economic growth as compared with  the corresponding period last year, with a high increase in exports  and imports. The share of the services sector in the economic growth  was 27.1%, followed by the energy sector (16.9%), trade sector  (14.5%), construction (14.3%) and industry (10%), with a 0.7% decline  in the agricultural sector. 

This January-September saw 8.6% inflation against the corresponding  period last year, with 9.9% inflation recorded this September against  last September. To curb inflation, the Central Bank of Armenia (CBA)  raised the refinancing rate for the fourth time this September, from  7.75% up to 10%. 

Moreover, more bank transfers ($2.910bln transferred for individuals  by means of Armenian banks this January-August - a 117.1% or  $1,569.9mln increase as compared with 2021 and a 167.5% or $1.822bln  increase as compared with 2020) caused an AMD appreciation of around  20% against the USD (AMD 480- 485/$1 this January to AMD 395/$1).  Thus, Armenia is leader in the post-Soviet space. 

According to the IMF, the highest USD exchange has been recorded  since October 11, 2022, during the period from 2000 onward.