Our remittances declined by around 45 per cent in 2014 and 2015 together, the Armenian Government anticipating it to decline by a further 11 per cent for 2016, Armenian Finance Minister Vardan Aramyan said in an interview with editor-in-chief of emerging-europe.com, Andrew Wrobel.

According to him, in nominal terms, that is more than $900 million loss just declining from $2 billion.

“Of course, we need to compensate this somehow. There are two major microeconomic tools that can be used to absorb the external shocks and stabilise markets: through fiscal policy or monetary policy, or the right balance of both.

There were two brilliant economists — Calvo and Reinhart, who wrote articles and research papers about the fear of floating, and why dollarised economies are afraid of allowing the exchange rate to float freely, in the developing world. The economists argue that managed exchange rate regime is justified in some instances and anchoring negative expectations in foreign exchange markets that are a result of information asymmetry is the right thing to do. We have done this and now we see that it was a success,” the minister said.

Aramyan also stressed that they have tightened the country’s monetary policy and tried to anchor the negative expectation towards the unjustified depreciation.” From the other hand, to compensate for the contractionary impact of monetary tightening, we have eased fiscal conditions and allowed higher deficit for two consecutive years.

In December 2014, monetary bodies dramatically increased the reserve requirement from 12 per cent to 24 per cent, and the repo rate — from 8.5 per cent to 10.5 per cent by February 2015. This action diminished the appetite of financial market players for borrowing in local currency and buying dollars as local currency became too expensive for playing such a game.

We did understand that each action was going to have its costs, but it’s always the case that you need to sacrifice something to gain something else. We sacrificed low interest rates for local currency borrowings and, as a consequence, growth of credits to economy, but we gained market stability and avoided an overshoot of exchange rate. We did not suffer from turmoil in our forex markets, unlike other countries such as Azerbaijan, Kazakhstan, or Belorussia, Russia. Instead, as I said, we kept our fiscal policy quite flexible.”