The Armenian dram collapses

As if two closed borders and an economy based on the oligarchal control of imports of goods mainly paid for by remittances from abroad wasn't enough, the Central Bank of Armenia (CBA) yesterday devalued the national currency, the Armenian dram, as the global economic crisis finally hit the country. During Sunday's opposition rally to mark the first anniversary of the 1 March post-election clashes, the first and former president, Levon Ter-Petrossian, warned of an imminent economic crisis. 

“I am deeply convinced that the country is simply descending into an abyss,” he said, predicting an impending collapse of the Armenian dram, skyrocketing unemployment, price hikes, massive cuts in government spending and other catastrophic socioeconomic consequences. 

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“The current crisis will most probably be more severe and more difficult to overcome than even the crisis of the early 1990s, which occurred in a healthy global economic environment,” he added, referring to the first years of his presidency that saw Armenia’s Gross Domestic Product shrink by more than half amid the bloody wars in Nagorno-Karabakh and elsewhere in the region. link

Prior to the move by the CBA, mobs of people could be seen waiting outside banks last week to exchange their drams into dollars before shops shut temporarily as owners reevaluated their pricing policy and calculated future losses.  Panic then set in with the population stockpiling essential items imported from abroad before prices rose as the local currency collapsed.

Armenians rushed to buy bread, butter and other staples on Tuesday and stores shut down in panic after the government announced it would let the currency fall and was seeking a bailout from the International Monetary Fund. Banking authorities said the national currency, the dram, could lose a quarter of its value, and prices for imported goods were expected to rise sharply. link

But if the government and the World Bank says there is nothing to worry about,  the average citizen doesn't seem to be convinced. Indeed, many suggest the worst is yet to come. Time will tell who is right, but for now there are concerns. While such a situation might benefit exporters, there is little by way of a local manufacturing base in Armenia and transport routes are limited.