CASH CHAOS: IN GOD WE TRUST (ALL OTHERS MUST PAY IN DRAMS)
- When Inga Asatryan’s sister sent money from the United States the first time four years ago, the $500 remittance was a windfall for Inga’s family. It was enough to pay for a winter’s worth of heating, stock the holiday table, and buy warm clothes for the family. In 2003, the $500 amounted to 280,000 Armenian drams (AMD). Inga was happy to get it, and her sister was happy she could, like thousands abroad, support the family back home.
Three factors – all out of either Inga’s or her sister’s control – have dramatically changed the dynamic of giving and receiving in Armenia, where an estimated 50 percent of the population receive help from family members abroad. First, the dollar has nose-dived globally. Second the dram has appreciated, so that (combined with the first factor) that $500 is now worth only 150,000 AMD – nearly half. Third, the costs of basic goods, clothes and services have nearly doubled. The math says that Inga would need $1,000 to match what $500 once provided, plus additional money to adjust to inflation. But she is too modest to tell her sister that the amount she sends is no longer enough.
“The last time my sister called and asked whether the amount she sent is enough, but I could not say that it is not,” says Inga, who makes 100,000 AMD per month (about $330) as a retail clerk. “My sister and her husband are students and it is hard for them to cut money from their budget, which in fact comes from her husband’s parents who run a small gas station.
“I told her it is better to save up dollars and, instead, send some clothes for my son, until we see what will happen next.”
What will happen next? After “Why is this happening?”, it is the question on many Armenians’ minds following a week during which the dollar wobbled like a drunk on a bicycle, bouncing from 315 to as low as 270, before stabilizing at around 300. For now.
The answer to “what’s next”, most agree is: Whatever the authorities – and neither the world dollar market nor the true value of the dram – dictate.
In a culture in which even the price of eggs is determined according to the whim of a few oligarchs who are often also lawmakers, most here believe that the dollar rate is determined as much by gambling debts or campaign expenses as by international business.
The Central Bank of Armenia explains the appreciation of the national currency against the dollar and major international currencies by the continuing double-digit economic growth in the country, an increasing amount of currency pumped into Armenia’s economy in the form of private investments and remittances (Armenians living or working abroad wiring money to their families and relatives in Armenia.
Some data suggest that money transferred to Armenia in private remittances will have stood at $1.2 billion by the end of this year, showing at least a threefold increase on the level of “private aid” some four or five years ago.
The Central Bank argues that its “floating rate” policy is the best mechanism applicable in Armenia today that also helps keep inflation in check. Specialists say it will react immediately to any significant reduction of currency influx into the economy or slowing down of growth rates, which will reflect on the dram. Chairman of the Central Bank of Armenia Tigran Sargsyan has repeatedly tried to dissuade skepticism.
This week Sargsyan called for residents to remain calm and to avoid the trap of “opportunists” who arbitrarily set their own exchange rates, exploiting the public fear that things are only going to get worse, so dollars should be cashed in before matters deteriorate further.
Yerevan resident Shushanik Harutyunyan, 86, wishes she’d heard the warning earlier. Over the past three years, Shushanik had saved $2,000, from money sent by her son who works in Moscow. She put it away to cover costs of her own funeral. Having heard the rate would go down to 250 drams after the weekend drop, she exchanged half the money.
After watching the dram drop from 315 to 285, she exchanged half her funeral money, getting 285,000 drams. By Wednesday, however the dollar was back to as much as 303, meaning that the pensioner’s panic cost her about $60 – more than a month’s pension.
An 86 year old granny hardly has a cash cushion to soften the fall of her hasty reaction to a currency in decline.
It isn’t, though, only pensioners and their socks of cash that feel the drain.
Throughout the capital this week, the sound of dollar-based international aid agencies was the clickety clack of anxious fingers ciphering calculators for answers to how their organizations could complete missions based on a dollar rate that has drop, drop, dropped in ways unexpected when grants and letters of agreement were signed a fiscal year or more ago.
One consulting firm says it will leave Armenia several months ahead of schedule, due to the dollar fall off. A benevolent fund says it has cancelled construction projects because its budgets are no longer relevant to today’s rate reality.
Taguhi Jahukyan, Public Relations Coordinator at the US Embassy in Yerevan says USAID (United States Agency for International Development) programs for 2008-9 have not yet been approved, so the impact of the dollar is unknown. She adds, though, that with the decline of the dollar, money approved in March 2006 to implement the Millennium Challenge has effectively been reduced from $235 million to $178 million.
Robert Evans is Chief of Party of the International Research and Exchanges Board (IREX) in Armenia and implements his Washington-based company’s USAID grant. On Wednesday of last week Evans was in charge of a budget of $7.5 million (at 2004 rates). Doing nothing outside his routine administration, by Friday that budget had been reduced by half merely by the replacement of digits on an exchange board. How does a program manager implement his contracted objectives while hanging on to a roller-coaster of currency change?
“I don’t know how we will run a five-year project designed to assist the Armenian people, with half the money”, Evans says. “While we understand that the dollar is down, we don’t understand the basis for the Armenian dram doubling that problem.”
Many US-government based projects have “currency adjustment” policies that protect its employees from personal loss. Many charity-based projects are not so fortunate.
Margarit Hovhannisyan, director of the Tufenkian Foundation says she has been forced to cut jobs while also cutting back programs, including one that provided meals to needy families.
The Children of Armenia Fund (COAF) focuses on building infrastructure in Armenia’s rural towns and villages. Arsen Harutyunyan, accountant, says the fund has lost 10-15 percent of its operational budget “because the market is unpredictable”. It is money, he says, that “could have been used to remodel a room or to buy equipment for a clinic.” All Armenian Fund executive director Vahe Aghabegians reflects a popular attitude, whether the dollar is at 500 or 200: the wish for stability. Last week the Fund raised $15 million in pledges. If some predictions hold, that $15 million could be worth no more than $10 million by this time next year (as many here fear the dollar will trade as low as 200).
“We watch both the current, and the upcoming programs with attention. We try to minimize the unavoidable financial losses by adopting flexible attitude and policy, something we have partially succeeded in,” Aghabegians says. “It is hard to estimate the real size of the foreign currency fluctuation, unless there is a relative stability.”
While professional businessmen with international experience and seasoned charity fund managers might be equipped for adapting to such extreme change, housewives and dependent elderly find the shifts more chaotic and unsettling.
In Gyumri, Magda Manukyan’s family struggles to repay a loan they took about a year ago. The money was for her husband who left to find a job in Russia.
“The dollar rate at that time was 400 drams and now we have to cover the amount with the new exchange rate and that is devastating for us,” says Magda. From 400, to 300, the rise of the dram and drop of the dollar means that Magda’s family must repay 25 percent more than it borrowed.
She says she does not know how to manage the amount she gets now from her husband, either to cover the debt or to provide nutrition for her two children.
“Only from our unit men from six families out of eight earn money abroad as migrant workers but I don’t see any reason why the family should be forced to live apart when there is little advantage in it.”
In Stepanakert, Nagorno Karabakh, Nelli Grigoryan’s family feels the dollar decline at the dinner table, where meat is now an uncommon presence.
Nelli’s brother sends $150 monthly (dollars are still the preferred currency of transfer, as it used to be much more valuable than the ruble) from his job in Stavropol, Russia. Nelli makes 25,000 drams a month (about $75) as a kindergarten nurse and adds it to her parents’ pension of $116. Without her brother’s remittance, the income for three adults is about $190 per month.
“Thanks to my brother who each month sends us $150 we could make ends meet. But that amount is not as significant as it was several years ago and now it is hardly enough for the drugs for my mother who suffers hypertension,” Nelli says.
“I do not understand what goes on,” says Nelli’s mother Manya. “My son sends the same amount but if before we could buy meat each week now we can afford meat only once a month.”
Authorities say, partly, that the dollar-dram rate reflects the dollar’s decline against nearly all international currencies.
Does it? ArmeniaNow’s simple research of dollar performance compared to currencies in the region shows the following:
• Against the dram, the dollar has depreciated by 19-22 percent (from 364-367 in January of this year, to as low as 280-295 by late November).
• Against the Euro, the dollar has depreciated by 12-13 percent (from 0.77 in January of this year to 0.68 now).
• Against the Russian Ruble, the dollar has depreciated by 7-8 percent (from 26.25 to 24.30).
• Against the Georgian Lari, the dollar has depreciated by about 6 percent (from 1.72 to 1.62).
Against the Azerbaijani manat, the dollar has depreciated by about 2.5 percent (from 0.87 to 0.84).Like Manya, plenty don’t understand.
People such as Inga Asatryan and Shushanik Harutyunyan suffer when the dollar-dram relation is so drastically altered. Who profits?
“It would be advantageous for exporters if the situation were similar to what occurred in the United States when the dollar's value dropped but so did prices. Goods became relatively more competitive. This works to the advantage of the government, exporters and consumers” says economist Tatoul Manasseryan. “When a government doesn't take an interest in the matter it implies that the representatives of many government circles are engaged in the import business, a sphere that is growing at a faster clip than exports.
“Imports become even more profitable when the currency has been artificially appreciated. That's why imports in Armenia, in comparison to overseas, not only increase in general volume but according to growth rates as well. That's to say imports have exponential growth rates. In essence, we are strangling what is produced domestically.”
Manasseryan, who holds a Ph.D in economics and is a former Member of Parliament, points to the zero growth last year in such a vital Armenian industry as agriculture, as an indication that the current dram rate is artificially determined.
Similarly, economist Eduard Aghajanov doubts if the current dollar-dram relation is grounded in scientific reason. “The dollar is depreciating on the international market. As the weak dollar and strong euro hit the economy and interests of the European Union, the EU Central Bank suspended dollar auctions so that speculation should not be continued,” he observes. “China’s economy is a thousand times more integrated into the world economy than Armenia’s, but China does not allow its national currency to grow stronger against the dollar.
“Russia’s ruble is getting stronger, but only by kopecks. It wants to restrain the appreciation of its national currency at any cost. If our authorities thought only a little about the interests of local producers, they would at all cost restrain the rise of the exchange of the dram against the dollar.”
Explanations of academics make good classroom debate. Closer to the living room of common Armenians, pensioner Gayane Gasparyan, 76, a state-honored teacher who is now a cleaning lady explains how the prolonged decline of the dollar has added unwanted angst to what should have been her retirement years.
She gets 15,000 drams (about $45) monthly pension. Like other elderly, she has been promised a 60-65 percent increase on her basic pension beginning next year. That increase was promised in September. Since then, four months before increase in basic pension, prices of butter, cooking oil, pasta rose by as much as 30 percent.
Gayane is office cleaner for a dollar-based NGO and is concerned with the depreciation of the dollar and the simultaneous increase in prices.
“I am grateful my state gives me a pension, but why does it plan to increase the pensions beginning January 1st, then raises prices four months before? I used to buy a loaf of bread for 110 drams, now I pay 130. One kilo of butter used to cost 1,400 drams, now it is 2,100. A bottle of vegetable oil has grown from 530 to 930 drams,” says Gayane. She is sure prices for many goods will grow ahead of the New Year. “The price for a kilogram of beef has gone up from 1,500 to 1,800 drams. Other things will also become more expensive; re-sellers in the markets take advantage of the situation and increase the prices on everything.”
Information was contributed by ArmeniaNow reporters Suren Musayelyan, Sarah Khojoyan, Ani Hakobyan (Gyumri) and Naira Hayrumyan (Karabakh).
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- 1808 The seige of Yerevan is lifted.
- 1815 Birth of public figure Serviche (Serovbe Vichenyan) in Constantinople. He died in 1887.
- 1859 Death of Nikoghayos Zoranyan (economist). He was born in 1821.
- 1920 The Sovietized Government of Azerbaijan recognizes Artsakh as a part of Armenia. It reversed this decision several days later.
- 1933 The "Dzor" power station's brought on line to maximum output.
- 1960 The State Museum of the Revolution opens in Yerevan.
- 1965 Opening of the ten-day Armenian Culture Festival in Sofia (Bulgaria).
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