How Armenians cope with ever-falling dollar exchange rate
How the dollar devaluation affects Armenia
The devaluation of the dollar had a different effect on different areas of the Armenian economy. Some have benefited from it- for example, importing companies. Difficulties arose among exporters, those who work for foreign companies and receive salaries in foreign currency, as well as families living off dollar transfers from abroad.
The fall of the dollar in Armenia began in May. Compared to April, the dollar in Armenian banks fell by 16%.
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Those who receive salaries in foreign currency lose money
Arsen Kirakosyan is an IT specialist who has been working for an American company for the last two years and receives a salary in dollars. He says that due to the devaluation of the dollar he lost a large amount of money and even began to look for another job:
“When I concluded an agreement with this company, the dollar exchange rate was 488 drams, then it depreciated by about 10-15%. I spoke openly with the management of the company, explained the situation, and the employer reviewed my salary. In fact, a few hundred dollars may not be a big problem for foreign companies. They would rather raise salaries than lose a trusted employee and waste resources looking for a new one”.
Arsen says that some of his friends still continue to work for foreign companies, despite the losses, they hope that the dollar will stabilize after all:
“In fact, finding a new job can take months, sometimes even a year. And the situation in the Armenian market is uncertain, because local companies mainly export technological products, and contracts are mostly in dollars”.
According to Arsen, if the devaluation of the dollar continues, many qualified specialists may leave the country, migrate to the European or American market:
“There is also a devaluation of the dollar and the euro, but it is still tolerable. But the rise in prices in Armenia has already become an insoluble problem.”
Additional factors for the fall of the dollar in Armenia
Experts talk about an excessive increase in the flow of currency into the country for such a small economy and name several reasons at once that have an additional impact on the depreciation.
- Government officials responsible for the economy consider the fall in the dollar exchange rate to be natural, they announced that there are no speculations here. But the country residents, fearing that the dollar will continue to fall, are exchanging the currency they have on hand, which, in turn, contributes to the depreciation.
- Because of the war in Ukraine, many Russians moved to Armenia. For some of them, Armenia became a transit country, but some ended up settling there. Many of them work for foreign companies and continue to receive salaries in Armenia in dollars.
- Because of the sanctions against Russia, entire companies have also moved here, which also receive income in dollars.
- In addition, the financial capital, the savings transferred by Russian citizens to Armenia, has also become a significant factor.
- According to Rosstat, in the first three months of 2022 alone, 134,000 people arrived in Armenia from Russia. Even if half of the arrivals left for other countries, 70,000 remained. According to the most modest estimates, including rent for housing, each of them sells about 500-600 dollars a month in Armenia. In other words, $35 million more is being spent than in previous years, which is a significant amount for a small country.
- At the same time, the flow of tourists from other countries increased. According to the latest figures from the Statistical Committee of Armenia, approximately 250,000 tourists arrived in the country in the first quarter of 2022. And this is 2.9 times more than in the same period last year.
- In April 2022, individuals transferred a record $358 million from abroad to Armenia. The data of the Central Bank indicate that for the last at least 20 years such a sum of transfers per month has not been received by Armenia.
The number of dollars has increased not only in Armenia, but throughout the world, as the US Federal Reserve increased the dollar turnover base by about 40% during the coronavirus epidemic. And the dollar is the main settlement and payment currency for many countries.
Exporters suffer the most
The devaluation of the dollar has complicated the financial situation of exporters. They sell their goods abroad in dollars, which depreciate before being put back into production.
Companies engaged in the production and export of alcoholic beverages, in recent years, for various reasons, often talk about a significant reduction in their income and call on the state to somehow intervene in the process. This refers to the intervention of the Central Bank, which by its actions can create an artificial demand for the dollar.
Recently, the head of the Central Bank assured journalists that the situation is under control, so they are not going to take such steps yet.
Large exporters cannot but export their products, as they have long-term contracts with buyers, where the volumes and terms of deliveries are fixed. By violating any clause, they can not only lose a partner, but also face legal problems.
Some Armenian businessmen manage to negotiate a reduction in exports, but they still suffer losses due to the devaluation of the dollar.
It is difficult for them to pay employees’ salaries, fulfill loan obligations, purchase raw materials, etc.
But it is even more difficult for small and new companies. At least the big manufacturers have more experience with dealing with such crises, and they can find ways to reduce losses.
The Suren-Ani company specializes in the production of dried fruits, produces electric dryers in the form of racks. It exports both dryers and dried fruits and dried vegetables of its own production. The main market is Russia, although recently the geography of exports has been expanding.
Suren Galstyan, director of the company, says that he managed to agree with partners on settlements in rubles:
“It is important for us not to lose the export market. The Russians started trading with us mainly in rubles, because they have problems with the dollar. Previously, we signed contracts in dollars, but after the Ukrainian war there was a sharp transition to the ruble.”
According to him, those producers who export to European countries, neighboring Georgia, Belarus, and the USA have more problems. They have been in uncertainty for two months already, because there are several factors influencing the fall of the dollar in Armenia – and they do not depend on each other.
“The main hope of exporting manufacturers is that the dollar exchange rate is artificially raised. But, as I understand it, the state does not want to take such a step. Although the dollar has stabilized a little in the last week. It seems to me that with a decrease in the tourist flow, the situation will change,” says Suren Galstyan.
Melante, a well-known textile company in Armenia, works for the foreign market on orders. Market Development Manager Astghik Hakobyan says that they export piece products, not a brand, they do not have contracts for retail and merchandising, that is, the promotion of their products in foreign markets:
“In this situation, we are more protected, contracts are not long-term, and we will not suffer as much from a depreciation of currencies as exporters who have quarterly or annual contracts.”
According to her, like many exporters, they are now deliberately passive in transactions with the external market until the dollar exchange rate stabilizes at some level.
All exporters claim that due to the devaluation of the dollar they have to raise prices for their goods, which reduces the competitiveness of their products abroad.
Importers win, but prices for goods do not decrease
The devaluation of the dollar has improved the position of importers. They buy goods on the foreign market in dollars, spending less in drams. However, it is difficult to find imported goods at lower prices in the local market.
Central Bank Chairman Martyn Galstyan stated that the prices of imported goods are not decreasing because international prices have risen sharply. For example, the price of wheat due to the Russian-Ukrainian war has reached a historic high.
According to him, another reason is transportation. Costs have risen, cargo is delayed for a long time on the only land road through Upper Lars, connecting Armenia with Russia.
And importing companies avoided a direct answer to JAMnews’ questions. In response, we received short remarks, such as: “Let something be beneficial to us at least once.”
The Commission for the Protection of Competition provided, perhaps, the only example of a reduction in prices for imported goods. Amid the dynamics of the dollar exchange rate, the price of butter decreased by about 5-7 percent.
As for the stabilization of the dollar, experts do not undertake to make any forecasts before the resolution of the Russian-Ukrainian conflict.
How the dollar devaluation affects Armenia
