By Albert Khachatryan

This January-November, the consumer price index reached 108.1%, one of the highest inflation rate in the Commonwealth of Independent States (CIS). A 9.6% rise in the prices for goods and services was registered this November as compared with last November.

It would be completely wrong to account for the price jump by one or even two factors, namely, unfavorable weather and world situation. Inflation, which is on the point of making a double-digit number, is the result of a combined effect of a number of factors.

Private money transfers, which have year in year out been received by more than 1/3 of the Armenian population, have formed a unique economic system. Armenian labor migrants are often “equaled” to export. However, besides the ethical aspect, this view is economically erroneous.

Among other things, export largely implies domestic consumption of exported products and services and employment of local resources and labor. Unfortunately, this is not the case with labor migrants. The solvent demand increasing due to money transfers is not accompanies by an adequate increase in production for domestic market, with other things being equal.

This January-October, noncommercial money transfers received by individuals in Armenia by means of Armenian commercial banks exceeded U.S. $1 billion or 382.4 billion AMD.

The currency policy of the Central Bank of Armenia (CBA) has for years been aimed at depreciating the U.S. dollar. Due to its policy, the CBA has consistently been reducing the AMD equivalent of the money received by Armenian housewives. But even after the U.S. dollar has “lost” 40% of its value in Armenia, money transfers are an essential support for family budgets.

The CBA-conducted surveys show that housewives spend 70% (265-270 billion AMD) on current needs, purchase of goods and services. By way of illustration: in current prices, the local output of food products, including beverages, as well as tobacco, totaled 215.5 billion AMD, that is, about 50 billion AMD less than the total amount of money transfers.

A number of factors have both positive and negative impacts on the afore-cited figures. It does not need to be proved that the amount received by Armenian households as money transfers exceeds the total amount of money transfers effected by means of commercial banks. Labor migrants have other means of supplying money to their families in the homeland.

The cost of products gets higher due to markups and gets lower depending on exports. To an extent, the figures counterbalance each other, as the ratio between external transfers and output of products remains in favor of the former.

Of course, clever Armenian “businessmen” promptly responded to the gap between the growing demand and meager supply and filled in soon. It is clear that importing products is much easier than “wasting” time on restoring or mastering home production.

A rather unfavorable foreign trade balance was the result of Armenian businessmen’s mercantile approach encouraged by the Government. Specifically, this January-October, imports, without humanitarian aid, exceeded exports by U.S. $12.7 billion.

For a number of reasons, after the USSR collapse and transition to market relations, the import substitution industries found themselves in an even worse situation. One of the examples is once powerful light industry, which is just a “symbolic figure” in the list of industries.

The home vodka industry must have shared the fate of the light industry. Russian vodka is pressing the relevant Armenian industry hard. As prices will be rising, the imports of many agricultural products are likely to increase. Even now the prices for crop production are close to European prices and, in some cases, have exceeded them.

Here are the prices (in USD terms) for some products. This November, in Yerevan, the retail price for kidney beans reached U.S. $3 per kilo, for beef exceeded U.S. $6 per kilo, for smoked sausage of prime quality U.S. $8.5, for walnuts U.S. $15.6 and so on. This fact may be attracting both local and foreign businessmen.

Tobacco products and beverages, which will soon be deprived of their competitive advantages in the form of “protection” excise taxes, will have to do unequal battle with their imported counterparts. It will be an unequal battle, as, because of quality, it is a losing battle. It is the comparatively low prices that have so far enabled Armenian products to endure competition with their imported counterparts. However, the members of the World Trade Organization (WTO) are obliged to observe free trade rules.