Tuesday, March 03, 2009

Armenian Currency Collapse

The collapse today of Armenia's dram may prove a blessing in disguise:
"In the space of a few hours on March 3, the dram went from 305 to the dollar to as low as 400 to the dollar, a loss of up to 30 percent of the currency's value...

"The Central Bank, which for years has relied upon remittances to fund its policy of supporting the dram against the dollar, decided it could no longer sustain that burden...

"Analysts say that the national currency has long been overvalued, drawing criticism from the IMF, among others, because it weakened prospects for developing a stronger export sector.

"Giragosian says the pressure for a strong dram came mostly from Armenia's powerful business cartels, which dominate the import of everything from gasoline via Georgia and natural gas via Russia, as well as many foods and all luxury goods...

"With the free float of the currency, Armenia now enters a period of economic change which, in the long-run, could help create a more balanced and productive economy."

In the short term, however, there could be limited internal unrest due to the sudden shock of the economic crisis, as well as more Russian leverage over the country's economy. The best economic news Armenians could get right now is a rapprochement with Turkey, and the government may take advantage of the crisis to move decisively in that direction.



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