Central Bank Joins Positive Economic Review

YEREVAN (RFE/RL)–A senior official in the Armenian Central Bank says coordinated and prudent monetary-fiscal policies have helped the economy take "one step forward" in the first half of the year.

Nerses Yeritsian–a member of the Central Bank’s governing board–told reporters on Tuesday that macroeconomic stability–involving a low inflation austere budget and a reasonable reduction of interest rates–has led to a higher-than-expected 6.7 percent growth compared with the same period last year.

He said the unusually low 0.9 percent inflation in the first six months of 1998 largely resulted from declining prices of imported goods and local agricultural products.

He said the exclusion from the consumer basket of fruits and vegetables– the price of which undergoes substantial seasonable fluctuations in Armenia–would raise the inflation rate to 1.7 percent. In Yeritsian’s words–inflation is likely to increase in the third and fourth quarters but will not exceed the annual 10 percent target.

In an effort to dispel government concerns over the continuing deflationary trend–Yeritsian argued that it is having a "positive shock" on the economic growth.

He said Central Bank’s efforts to boost the money flow into the economy have not caused higher inflation as they were accompanied by other austerity measures.

"We didn’t want to impede economic activity," he said. Last week the Bank further reduced its re-financing rate to 33 percent–down from more than 50 percent in the beginning of the year.

According to Yeritsian the growth has been deflationary due to a positive shift on the supply side of the economy.

Equally important–he went on–is the 50 percent rise in the government’s budget revenues and fall in budget deficit. The deficit was equal to 3.5 percent of GDP in the first half–with doubled tax revenues and zero government borrowing from the Central Bank.

Yeritsian said lower gross demand for imports has also meant more bank deposits and–ultimately–investment in the economy.

He said the resulting 30 percent increase in exports in turn boosted by one third–to $260 million–the Central Bank’s foreign currency reserves.

He predicted that the improved trade balance will reduce the current account deficit to 21 percent against the planned 24 percent by the end of 1998.

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