Exclusive interview of Bagrat Asatryan, former chairman of the Central Bank of Armenia, with ARKA News Agency
ARKA – How effective is the central bank’s inflation-curbing policy? Is it possible to have the projected 4±1.5% inflation rate this year?
Asatryan – The Central Bank of Armenia is doing whatever necessary, but effectiveness of its policy is extremely low, and last year and today’s results show this. It has been announced that the aim of this policy is to lower inflation to 4.5% rate, but in fact, this is the third consecutive year inflation twice exceeds the projected rate. There is also one circumstance that arouses concern – interventions have become the main inflation-taming instrument. This gives grounds for saying that the regulator fulfils its main function improperly.
I find it impossible to drive inflation to the projected rate, especially taking into account the recent five months’ figures. Beside, there are certain risks connected with things in the global economy and world markets, which may drive inflation to seven-to-nine-percent rate.
However, outside factors don’t play the key role – we have inflation-prone economy that is always pushing prices up. We have had hundreds of chances to see that. For example, prices in pre-Christmas period go down in all civilized countries, while here in Armenia we see polar-opposite situation. As a rule, when world prices rise, Armenia’s prices go up as well, but when prices fall at world markets, our prices continue their upward motion because of the oligarchic mechanism formed in our republic.
ARKA – How the benchmark refinancing rate impacts economic development and what rate do you find optimal for Armenia now?
Asatryan – Interest rate is not an effective instrument in economies like Armenian. We see that market players in the United States or Europe keep a close watch on changes in interest rates, and the market immediately reacts to them. Armenia’s market doesn’t react to the regulator-set benchmark rate at all.
Actually, the central bank takes right steps, but they are ineffective and this mechanism doesn’t work.
ARKA – What do you think about banks’ financial mediation level, taking into account that it rose to 50% now from 28% in 2008 and 13-14 in 1990s?
Asatryan – Don’t be too hopeful. This growth is mainly due to dramatic economic decline accompanied by constant growth of banks, though this growth was slower amid the crisis than before it. Growth in the banking system slowed down in 2009 and 2010, but now banks are regaining momentum after flagging.
Figures are not bad, but their quality is extremely low. In emerging economies of small countries with scarce resources, like Armenia, banks should play more important part. However, nothing like that is seen in Armenia. Banks play insignificant part in public, political and economic life – they merely serve the economy. This is another fault of the key political-administrative and economic mechanism.
ARKA – According to the central bank’s report “Probable Developments in Armenian Banking System in 2011 to 20133”, commercial banks project growth in all main banking indicators in 2013. How realistic is this forecast? If yes, what will propel this growth?
Asatryan – Growth in the banking system can and should continue. On one hand, Armenia’s banking system is the most developed segment of Armenia’s economy, considering legal, organizational and professional aspects, and most attractive for investors, including foreign investors. On the other hand, the self-sufficient development that singles out our banking system from other segments is still limited. Banks’ further development is due to institutional progress. Besides, increasing indicators not always mean development.
ARKA – What do you think about Armenia’s capital market? What hobbles its effective development and what should be done for spurring progress?
Asatryan – I can say for sure that we have no capital market, and goals and prospects here give grounds for thinking that we are unlikely to have it in the near future, though attempts have been made repeatedly. There are either objective or subjective causes. Objective factors lie in the current oligarchic and monopolistic economic system.
Oligarchs’ businesses are self-sufficient – they have own financial flows and need no outside financial resources, and this strikes hard at capital market. Corruption affects development as well – businesses are trying to get cheap financial resources mainly from the government budget amid interpenetration of crime and officialdom.
Among subjective factors, I can single out improper protection of property, low confidence in financial markets and instruments and our traditional mindset.
Market can’t develop without institutional changes and qualitative breakthrough not only in the economy, but also in the society.–0–
