By Atom Markarian
Armenia’s Central Bank (CBA) said Wednesday the success of its efforts to curb higher-than-expected inflation largely depends on whether or not there will be further increases in the price of imported wheat this year.
According to government data, the inflation rate stood at 8.6 percent last year — well above the 3 percent target set by the CBA. Government and bank officials say the consumer price index was mainly pushed up by a 30 percent jump in bread prices between last June and December.
The CBA hopes to keep the inflation within the 3 percent limit in 2004. But as its chairman, Tigran Sarkisian, admitted, the authorities are not quite confident about meeting the target. “It is extremely difficult to make such forecasts,” he told a news conference. “If bread prices continue to grow we will definitely have a higher price index.”
The higher cost of bread, a basic staple in Armenia, has hit hard scores of low-income families that make up a considerable proportion of the country’s population. It also fueled public anger with the government which was used by its political opponents. They blamed the price hike on a handful of government-connected wealthy businessmen who enjoy a de facto monopoly on lucrative imports of wheat.
The authorities denied the charges, citing external factors such as a rise in wheat prices in the international markets as the root cause of the problem. Armenia imports wheat to meet most of its bread demand, with Russia remaining one of its main suppliers.
The Russian government decided last month to suspend its wheat exports, citing the need to prevent a similar rise in its domestic bread prices. The move could therefore spell more trouble lying ahead for the Armenian consumers. Analysts say a lot will depend on this year’s global grain harvest.
Sarkisian spoke to reporters as he unveiled the Central Bank’s annual plan of monetary policy that will be submitted to parliament this week. The document projects an economic growth of at least 7 percent in 2004. The forecast figure is rather modest compared to the 13.9 percent growth registered by the Armenian government last year.
Officials admit that the multimillion-dollar assistance provided to Armenia by the Lincy Foundation of U.S. billionaire Kirk Kerkorian added several percentage points to the record-high GDP increase. More Lincy aid, mainly used for road construction and other infrastructure projects, is not expected this year.
“We base our monetary projections on a 7 percent growth of the Gross Domestic Product and take into account the fact that no more Lincy Foundation funding and structural adjustment loans from the World Bank are planned for this year,” Sarkisian said.
Sarkisian added that another key objective of CBA policy is to promote long-term lending and borrowing, which remains very uncommon in Armenia despite the relative macroeconomic stability of the past eight years. He said the CBA envisages “radical reforms in the financial sphere” that will encourage local commercial banks to introduce new Western-style services such as housing mortgage.
Some banks already make mortgage loans. However, those are repayable in less than six years, making the service unaffordable for many middle class families.