YEREVAN (Combined Sources)–Armenia’said prices were stabilizing on Wednesday after an initial spike on news the country would float its dram currency.
Shops saw panic buying after Tuesday’s move by the central bank, which preceded an announcement by the IMF that it would lend the former Soviet state $540 million dollars to soften the impact of the global financial crisis.
The dram tumbled 18 percent from 305.75 to 372.11 against the dollar and prices of oil, butter, sugar and petrol shot up as ordinary Armenia’s rushed to buy goods in fear of the value of their money falling further.
But on Wednesday, the currency was just slightly further down at 372.95 against the dollar and officials said they would act against businesses who tried to exploit consumers.
The price rises were downplayed by Armenia’s State Commission on Protection of Economic Competition (SCPEC). Its chairman, Ashot Shahnazarian dismissed rumors that bread will also become more expensive this week and urged Armenia’s not to stock up on foodstuffs, saying that consumer price inflation is under control.
"Right now, prices are stabilizing," Ashot Shahnazaryan told a news briefing. "Traders should provide explanations for increasing prices. If they are unreasonable, these traders will be fined."
CBA officials insisted on Tuesday that the inflation rate will not exceed 9 percent this year despite the dram’s weakening.
Such a scenario could have been avoided had the decision to devalue the Armenian currency had happened earlier and gradually, a member of the Armenian Revolutionary Federation’s parliamentary bloc said Tuesday, commenting on the CBA decision.
“If these steps were undertaken three to four years ago, then the impact of the economic crisis would have been less,” explained economist Ara Nranyan, adding that the current sudden devaluation will create obstacles for businesses.
Shopkeepers blamed the price hikes on wholesale suppliers. “When we ordered fresh supplies today they said that the prices have gone up by 20 percent,” one of them told RFE/RL. “Everyone says the same thing.”
“There was a lot of panic yesterday, but things have calmed down today,” he said, referring to Tuesday’s buying spree sparked by the dram depreciation.
“We won’t raise prices until getting new products,” said the manager of another food store in downtown Yerevan. “But we already have problems with suppliers. They can’t decide at what prices to supply goods to us.”
"In two to three hours yesterday we sold what we would usually sell in two to three days," said Vahan Kerobyan, executive director of the popular Star supermarket chain, which briefly shut its doors on Tuesday to consult with distributors.
Kerobyan said Star would raise prices by 15-20 percent, but that he expected prices at other shops to increase even more.
The exchange rate fluctuation also affected the prices of cigarettes and medicines. “I just bought a pack of cigarettes for 400 drams. It cost 350 drams yesterday,” complained one man. “They said that prices won’t go up but everything has become more expensive.”
Some drug stores in Yerevan remained closed on Wednesday while others opened with new price tags. “Some drug firms won’t take supply orders because of price changes,” one sales assistant told RFE/RL.
After a period of strong economic performance, the landlocked country of 3.2 million people has been hit hard by the global crisis and Russia’s slide into a first recession in 10 years.
Russian firms control a significant chunk of the Armenian economy, and support a considerable number of Armenia’s working in Russia and sending money home to their families.
The International Monetary Fund — which will likely approve the 28-month standby loan on Friday — cited falling exports, a slowdown in remittances, and the decreasing price of copper — one of Armenia’s main exports — on world markets.
It said the dram might depreciate as much as 30 percent.
Despite that, the World Bank welcomed the decision to float the dram, and urged efforts to strengthen competition in domestic and import markets "in order to prevent unjustified increases in prices, due to exchange rate adjustmen’s, and tame inflation pressures."
The World Bank group has a scaled, 3-year lending program in place worth $525 million. Russia also offered Armenia — its closest ally in the South Caucasus — a $500 million stabilization loan in February.