Central Bank Head Talks About Ties with Leadership

YEREVAN (Noyan Tapan)–The newly appointed President of the Armenian Central Bank–Tigran Sargssian said that the degree of political risk in the Republic’s banking system and economy has not increased due to the presidential elections and the appointment of a new Central Bank President.

"The most serious threat to the economy is the political instability. Because political processes progressed smoothly–they created favorable conditions for an assessment of the political risk and its regulation," Sargssian said.

Sargssian noted that structural changes pose a rather high degree of risk for Armenia’s banking system. He suggested that–in particular–the energy and infrastructure systems must be denationalized–while the financial system is under construction. He said it is necessary to set up financial institutes which allow for a market for "long money" such as insurance–pension and investment funds.

According to Sargssian–a matter of concern is the fact that the development of the real sector lags behind the banking system–and banks do not receive expected funds from the real sector.

Asked about possible changes within the Central Bank as a result of the new appointment of the Central Bank president–Sargssian said–"Of course–each leader has his own style of management–and from this point of view certain changes are possible in the management methods."

Sargssian was appointed Armenia’s Central Bank President in early March. His predecessor Bagrat Assatrian submitted his resignation a month before that–on the eve of President Levon Ter-Petrosyan’s resignation.

Sargssian noted that he considers as an important task of the Central Bank to ensure predictability of changes of macroeconomic parameters–in particular inflation.

According to Sargssian–the necessity of administrative changes in the Central Bank is conditioned by the fact that the banking system moved on to a new phase of development–which he called the phase of developing commercial banks and cooperating with them. This phase replaced the phase of regulation and control.

For the previous stage–a normative field meeting international standards had been established–which required control to bring banks up to those standards. "Now that the hard times have passed–only 30 of 86 banks are in operation. Their number is small but the banks are healthy commercial banks–and now the state should encourage their development–make them self-supportive," the Central Bank president said.

He added that Armenia’s banking system may be considered as meeting legal norms and international standards. The final step in this direction is that on January 1 the banks adopted international standards of accounting.

Sargssian ruled out the possibility of weaker control over the banking system. "The control cannot be strong or weak–it must always be the same," he said.

According to him–Central Bank-government relations will remain normal at the current stage. However the government and the Central Bank hold completely different viewpoints on economic development.

There were functioning institutes within the Central Bank and the government which carry out daily monitoring–as well as weekly and monthly prognoses.

Sargssian noted that all data connected with the budget must be maximally open and accessible for the society.

A decision had already been made that a bulletin on the inflation level and other issues of concern for society should be published every month. Additionally–every week a Central Bank official will summon a news conference.

Noting that high interest rates are also a serious obstacle for economic development–Sargssian stressed the necessity to achieve a real cost of money.

It often happens that economic growth–a stable dram rate–inflation or a low level of interest rates often contradict each other.

There are artificial obstacles which impede a full-scale development of crediting. Another obstacle is the absence of the secondary market in securities. It is necessary that the government undertake measures in that direction–said Sargssian.

According to Sargssian–enterprises of the real sector should also pass through a certain process of cleansing.

He believed that the process will allow to declare some unhealthy enterprises bankrupt. He opined that currently the majority of enterprises in the Republic’s real market are unhealthy.

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