Most of you (92) agreed that the Dram devaluation which took place on March 3 is generally a good thing for Armenia’s economy.
Thirty one of you disagreed. We imagine part of the No vote was because of the way it was done, and not specifically opposition to the devaluation. It is true that the sudden announcement by the IMF, that Armenia had agreed to a more flexible currency exchange policy, after weeks of denial that such a move is either necessary or imminent, caused panic and cynicism among a population already suffering from the economic downturn.

Worse, it resulted in loss of confidence at a time when the Armenian economy requires both public confidence, and a currency that is exchanged at its real market rate.

Therefore, even if the way in which it was done was not ideal, the fact that the Dram was indeed allowed to float was the right move, and one we’ve advocated for a long time. And the positive impact of the move will be more obvious than the negative, which of course exists.

As a result of sharp depreciation the banking system has felt a serious blow. Dram depreciation results inevitably in inflation. Armenia is an importing market, and even local producers import certain ingredients of their production. The inflation, as a result affects those who have only Dram income, the most vulnerable strata of society.

On the other hand now is the best time to prevent excessive inflation since the economy is in decline, commodity prices are low and demand generally is low.

If the Central Bank had spent hundreds of millions to maintain the Dram at the artificial rate, it will not need to do continue to intervene by selling US dollars and depleting further the national reserves.

Although a depreciated Dram means higher prices for imports, it also means lower prices for exports. That will be a huge boost to Armenia’s economy.

A lower Dram will encourage tourism. Finally, all categories of foreign funds – from investments, to assistance, to remittances – will go further, thus having a greater impact on the economy.

A lot, of course depends on how stable Dram will be in the future. This depends on the actions of the government which has to make the budget more realistic as soon as possible. If the right steps are taken, sharp fluctuations and further shocks can be avoided.