International prices are now most favorable for Armenia. The prices for raw materials produced for export are high. As regards the key imported products, international prices are either falling or stabilizing.

The price for one ton of copper remains stable, over U.S. $6,000. In mid-may it decreased below U.S. $7,000. The molybdenum price has risen ten times over the past few months – it even reached the pre-crisis level. It is common knowledge that the aforementioned raw materials play a crucial role in Armenia’s foreign trade balance, ensuring about 40% of the country’s exports.

On the other hand, the international prices for a number of essential food products are falling. The wheat price has reached the lowest level since 2006 – U.S. $4-5 for bushel. The rice, maize and soya prices have shown a considerable decrease. The sugar prices have reached the record low level. An almost 50% decrease has been registered since last December. The decrease will enable large importers to save about U.S. $100m. Consumers, however, can hardly benefit from it: this fall in international prices does not have any impact on the prices in Armenia. The wheat price is hardly decreasing, and the 8% decrease in the sugar price is far from being adequate to what is going on in the international market.

However, even against a favorable background, Armenia’s foreign trade balance is getting worse. This January-March, exports increased by U.S. $144m, and imports by U.S. $320m. Armenia’s unfavorable foreign trade balance is over 40% - the country may lay claims to the Guinness Book of Records.

Theoretically, such an unfavorable foreign trade balance was to affect the Armenian dram and cause its devaluation for the domestic market to create protection mechanisms. However, it is revaluating and, but for the Central Bank’s efforts, the USD exchange rate would be lower than 350 AMD/U.S.$1. The CBA, however, began to buy up the excess from the market thereby fixing the exchange rate at 369 AMD/U.S. $1.

The question is: why do not the developments in the Armenian market follow the logic in the economics manuals? There are numerous reasons. We should also consider a high market management level. The banking system has a huge U.S. dollar surplus formed last year, when the CBA brought about 600m U.S, dollars to the market. At present, this huge amount of currency is pressing the country’s narrow financial market, which is incapable of utilizing it. So banks’ current policy is now influencing the exchange rate more than changes in the balance of payment. However, exactly the opposite is supposed to take place. Any essential improvement in the economic situation can hardly be expected as long as such anomalies occur.

By Samvel Avagyan