"CURRENCY DOMINO"

Will the dollar cost 500 drams in Armenia? Many people in Yerevan have been putting this question to themselves in the run-up to the New Year. There have been quite a few causes for concern. A gradual decline in the rate of Armenia's national currency began back in October. Then came the collapse: in late November and early December, the rate of the national currency fell 10 per cent. The dollar, which had cost 400 drams, was now bought for 450 plus, although many banks and bureaux de change were only buying. The website Kavpolit observed that the "situation in Yerevan was reminiscent of the situation in Russia: people were buying up foreign currency, some banks stopped selling it".

On 9 December, the Central Bank of Armenia announced the start of currency interventions to contain the fall of the national currency. "The dram has come down to interventions," Kavpolit said ironically. Moreover, already in late November, the prices of essential goods started to go up, including the prices of bread and bakery products, meat, sunflower oil...

Armenian President Serzh Sargsyan had to comment on the situation. Speaking at a congress of the Union of Industrialists and Businessmen of Armenia, he denied the idea that the fall of the dram was the result of the country's accession to the Eurasian Union. "Why is the Georgian lari devaluating then? Georgia signed a free trade zone agreement. Why are the national currencies in other countries  devaluating?" the president said. Albeit, he had to acknowledge this: "This year, we saw a deterioration in the economic situation of our largest trading partner (Russia), which manifested itself through an up to 8.8-per-cent price rise, a capital outflow of about 90bn dollars and a more than 40-per-cent fall in the rate of the Russian rouble against the US dollar."

Strictly speaking, there seems to be no "direct" interconnection between Armenia's accession to the EAEU, on one side, and the fall of the dram on the other. Moreover, Armenia will only become a member of the EAEU after 1 January 2015. However, there is no doubt that the Armenian national currency was "brought down" by the falling Russian rouble.

Experts warned back in early November that the fall of the rouble will produce a "domino effect" for the national currencies in the former Soviet Union.

In particular, Marc Jones said on Reuters' website that the accelerating rate of the fall of the rouble is likely to lead to a decline according to "domino effect" in the "rouble zone" of post-soviet republics. The expert paid special attention to Armenia. "For example, a fifth of Armenia's exports goes to Russia. This revenue is crucial for its balance of payments deficit, which reaches a huge 10 per cent of GDP. Another kind of support it has are remittances - the money that workers send back home, 80 per cent of which comes from Russia," he said.

The talk about private remittances is no coincidence. Private remittances from abroad from "labour migrants" play a much more important role in Armenia's economy than it may seem at first glance. According to calculations by specialists, given a stagnant local economy, growing poverty, unemployment and a catastrophically big migration, at least a third of families in present-day Armenia survive owing to remittances from relatives. In addition, they constitute a significant source of currency that the Armenian economy receives. According to information available to the Central Bank, the inflow of remittances to Armenia in 2013 totalled 1.87bn dollars, or about 17.3 per cent of the country's GDP. For comparison: the revenues of Armenia's budget for 2015 are planned to be 2.9bn dollars.

Now that the Russian economy is experiencing a "double impact" - from both the Western sanctions and the fall in oil prices - the brook of remittances coming from Russia to Armenia is getting shallow. Back in early October, the Central Bank of Armenia said that private remittances that came from Russia to Armenia in August 2014 decreased by 7.7 per cent compared to August 2013. According to estimates by the former chief of the Central Bank of Armenia, Bagrat Asatryan, the reason is the fall of the Russian currency. Asatryan argues that average economic growth in Armenia, which he believes is about 6-7 per cent, requires an annual increase in remittances and investments by 10 to 15 per cent on average.

Experts, however, warn that the fall of the dram is perhaps the most striking and obvious but absolutely not the only sign of the negative impact on Armenia's economy of the sanctions imposed on Russia.

On the days when the Central Bank promised "currency interventions", in order to maintain the dram, and the Armenian national currency continued to "sink", the Armenian prime minister received a delegation from the Nairit chemical plant, who were holding a protest outside the government building. Hovik Abrahamyan assured them that workers' salaries would be paid and stressed that the Armenian government was prepared to take any opportunity and do all that is necessary to put the Nairit chemical plant into operation. Abrahamyan said that international experts from the World Bank will conduct research at the factory in order to assess the possibility of operating the plant. However, it is no secret that it was mainly Rosneft that Yerevan hoped would help bring the Nairit factory back to life. Rosneft promised to invest 400m dollars in the new factory. However, Rosneft has no time to invest in Armenia at all now, and experts realize this.

Yevgeniy Vinokurov, the director of the Centre for Integration Studies at the Eurasian Development Bank, has also made a noteworthy statement. He said that prospects for Armenia's economic development, which were reinforced by positive forecasts in connection with the development of integration processes in Eurasia, turned out to be distorted to some extent due to political factors. Those factors are the West's anti-Russia sanctions, retaliatory measures, pressure on the Russian rouble, etc. Vinokurov acknowledged that this all indirectly affects Armenia and its dealings with the member countries of the Eurasian integration project. However, he immediately cooled the ardour of Yerevan-based opponents of accession to the EAEU: "How can this not affect? Russia makes up 87 per cent of the Eurasian trio, and with Armenia and Kyrgyzstan involved, it makes up 84 per cent. Certainly, when we are talking about a fifth-sixth of the integration union, this cannot but have consequences. But is integration to blame for this? Talking about the same Armenia - even before becoming a member of the block, this country has received gas prices and zero tariffs for rough diamonds. In other words, Armenia has not yet joined it, but hey, there are the sweets, on the table," he recalled. However, it is an open question whether these kinds of statements will help beat down the wave of anti-Russian sentiment in Armenia.