President Discusses Inflation and Decline of Dollar Exchange Rate

President Vahagn Khachaturyan has given an interview on the occasion of his 100 days in office, addressing the economic situation in Armenia, inflation, the decline of the dollar exchange rate, and other issues. Below is the question-and-answer exchange related to the topic.

In response to the presenter’s remark that there are interesting movements in the economy with impressive figures, but poverty remains a concerning issue, the journalist posed the question: Are you aware of what is happening with the exchange rates? How would you comment on this?

Inflation is very high. President Vahagn Khachaturyan replied, “Let’s start from the end, because what concerns us all is inflation, which indeed has a significant impact on our living standards. I cannot ignore economics, as it is part of my daily interests both professionally and personally, and in my communications with the government or the central bank. The explanation for inflation is related to external factors, and this inflation is not new; it began around this time last year, primarily due to COVID-19. It has become a global issue. This is not an excuse, just objective evaluations. The policy that the central bank is pursuing to manage the economy is regrettably no longer effective, not just for our central bank but globally and for all central banks in every country.”

“This mechanism mainly involved affecting monetary policy to lower or raise the exchange rate and increase or decrease the money supply. These simply do not work anymore, because COVID made serious changes to our lives globally; all logistic connections were disrupted. Look at the USA; they distributed about $5 trillion directly to citizens, and the EU distributed about €3 trillion, and these should have had an impact on inflation and prices. This is classical economics. Not taking these circumstances into account and simply ignoring them led to unprecedented price increases in both the USA and the EU.”

“Just yesterday, I was talking with friends who work in transportation; they noted that European transport costs have increased fourfold, while American costs have increased five to six times. All this could not fail to affect inflation. We need to try to address this not only in Armenia but also globally, and the World Bank...”

In response to the journalist’s question, “Mr. Khachaturyan, you mentioned classical economics; we have a phenomenon where on one hand classical economics works while on the other hand, it seems that under no government the situation changes… the exchange rate rises, fuel prices immediately rise, and they say why? They respond that it is classical economics, as fuel prices must increase due to the rising exchange rate. The rate drops, the dollar becomes cheaper, and the price of fuel even rises; we ask where has that classical economics gone, not just for fuel but for many other products as well?”

“You are very correct; we all benefit and see it,” the president replied. “Your observation is very relevant because right now exporters are suffering because the dram has appreciated, whereas importers benefit. Given that more of our consumer goods are imported, prices should have decreased. There are two issues here: either competitive conditions are not being ensured, meaning there are anti-competitive agreements, which they are simply doing, where the relevant commission has its work cut out for it, and I am confident that it will perform its main duties. The second is that we are again guided by fears; let’s do this because the situation may change tomorrow, and prices may rise again, and the exchange rate... not to appreciate the dram, but to depreciate it.”

“In this situation, if I have an explanation for that, it is understandable; in other situations, I completely agree with you that we have a problem that our entrepreneurs and public authorities responsible for market regulation have,” the president concluded. “To solve this issue, we need to take measures; either the economic operators should be subject to additional taxation in such cases, or they should demonstrate their state power, meaning utilizing the functions of the competition commission against them.”