YEREVAN (Reuters)–Armenia has been hit hard by Russia’s economic crisis–but there is no danger of a run on the national currency or of major instability–the chairman of the central bank said on Tuesday.
"We’ve been able to guarantee financial stability. There is practically no inflation and the dram is floating in an acceptable range," Tigran Sargsyan told Reuters in an interview.
Sargsyan said Russia’s troubles had resulted in a sharp drop in traditional exports such as brandies from the Caucasus country of 3.8 million to its giant northern partner.
He said an equally negative effect had been a steep fall in transfers of hard currency from ethnic Armenia’s working in Russia to family members in Armenia–worth an estimated $200 million a year before the crisis began.
"The transfers which we had been getting had helped to cover our current account deficit," Sargsyan said. "The sharp drop in the value of the ruble to the dollar resulted in a fall in transfers."
The dram currency has slid slightly since the onset of the Russian crisis last August–to around 535 drams to the dollar from about 505 drams.
Sargsyan said the central bank was essentially letting the dram float. "We are intervening only to control liquidity–also to stabilize the seasonal fluctuations in the dram–but in no case are we doing this in such a way that reserves will be reduced," he said.
Current central bank hard currency reserves are $313 million–down only slightly from a peak of $335 million last year and still $6 million more than projected at the start of the year–he said.
Sargsyan declined to predict at what exchange rate the dram would trade at the end of 1999. Inflation is forecast at about 10 percent for 1999–after a 1.3 percent fall in prices in 1998.
Sargsyan said one major unanswered question was whether the country could meet tax collection and structural reform goals as agreed with the International Monetary Fund.
He said it was imperative to find a way to integrate the "black" or shadow economy with the legally functioning sector–as much capital was located outside the banking system.
"The shadow sector does not allow the banking system to attract the necessary capital. This in turn does not allow proper financing of enterprises," he said.
Armenia was once known as the "Silicon Valley" of the Soviet Union for its relatively high-tech industries. But most were vertically integrated component suppliers for other Soviet factories–few producing final products.
Sargsyan said Armenia’s industrial decline had meant that agriculture–which accounted for just 12 percent of economic output in Soviet years–had risen to 35 percent of the total.