Prices in Armenia Settle After Spike, Panic Shopping

YEREVAN (Reuters)–Armenia’said prices were stabilizing on Wednesday after an initial spike on news the country would float its dram currency, and the authorities promised to fine shop owners trying to charge excessively.

Shops saw panic buying after Tuesday’s move by the central bank, which preceded an announcement by the IMF that it would lend the former Soviet state $540 million dollars to soften the impact of the global financial crisis.

The dram tumbled 18 percent from 305.75 to 372.11 against the dollar and prices of oil, butter, sugar and petrol shot up as ordinary Armenia’s rushed to buy goods in fear of the value of their money falling further.

But on Wednesday, the currency was just slightly further down at 372.95 against the dollar and officials said they would act against businesses who tried to exploit consumers.

"Right now, prices are stabilizing," Ashot Shahnazaryan, the chairman of Armenia’s trade regulator, told a news briefing. "Traders should provide explanations for increasing prices. If they are unreasonable, these traders will be fined."

Analysts say the opposition, smarting over elections it says were rigged last year and a subsequent crackdown on protests, will likely seek to use the crisis to exert more pressure on the government.

After a period of strong economic performance, the landlocked country of 3.2 million people has been hit hard by the global crisis and Russia’s slide into a first recession in 10 years.

Russian firms control a significant chunk of the Armenian economy, and support a considerable number of Armenia’s working in Russia and sending money home to their families.

"In two to three hours yesterday we sold what we would usually sell in two to three days," said Vahan Kerobyan, executive director of the popular Star supermarket chain, which briefly shut its doors on Tuesday to consult with distributors.

Kerobyan said Star would raise prices by 15-20 percent, but that he expected prices at other shops to increase even more.

The International Monetary Fund — which will likely approve the 28-month standby loan on Friday — cited falling exports, a slowdown in remittances, and the decreasing price of copper — one of Armenia’s main exports — on world markets.

It said the dram might depreciate as much as 30 percent.

Such a scenario could have been avoided had the decision to devalue the Armenian currency had happened earlier and gradually, a member of the Armenian Revolutionary Federation’s parliamentary bloc said Tuesday.

“If these steps were undertaken three to four years ago, then the impact of the economic crisis would have been less,” said economist Ara Nranyan at a press briefing where he discussed the decision to devalue the dram and other issues related to the effects of the global economic crisis on Armenia.

He acknowledged that certain steps to correct the situation are being undertaken but it may be too late. “Wouldn’t it have made more sense that we took this step a while ago gradually?” asked Nranyan adding that the current sudden devaluation will create obstacles for businesses.

Despite that, the World Bank welcomed the decision to float the dram, and urged efforts to strengthen competition in domestic and import markets "in order to prevent unjustified increases in prices, due to exchange rate adjustmen’s, and tame inflation pressures."

The World Bank group has a scaled, 3-year lending program in place worth $525 million. Russia also offered Armenia — its closest ally in the South Caucasus — a $500 million stabilization loan in February.

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