Monday, December 8 2014

Mariam Mkrtchyan

Financial Times: Georgian and Armenian currencies collapse

Georgia's currency has collapsed to
its lowest level versus the dollar in more than a decade and the Armenian dram
to its lowest since 2006 as the Russian rouble quake sends tremors across the
former Soviet Union, Financial Times reports.


The Georgian lari slumped 4.4 per cent against the
dollar, extending its rout since the beginning of November to Dec 5 to 14.4 per
cent.  The Armenian dram has fallen 1.4
per cent versus the dollar, taking its decline over the same period to almost
10 per cent.


"Russia's neighbours are closely tied to their
former master's economy through trade ties and remittances. When the rouble
plunges it piles pressure onto their currencies. Kazakhstan was forced to
devalue the tenge earlier this year when the rouble first began to slump, but
now the heat is on Armenia and especially Georgia", FT says.


Georgian president Georgi Margvelashvili told
reporters in Warsaw that the agreements "threaten and undermine the
territorial integrity and sovereignty of Georgia", reports Henry Foy. "We
want to trade with Russia, we want to be good neighbours with Russia. And the
only condition of that is that Russia accepts the territorial integrity of
Georgia", he says.


Timothy Ash of Standard Bank wrote: "Armenia and
Georgia have similar macro stories, small economies, with managed float FX
regimes. Both have relatively strong/robust public finance profiles, i.e. low
budget deficits/public debt ratios, and have been growing at decent rates, of
3-4%. However, their weaknesses are both on the external financing side, i.e.
persistent current account deficits, and limited FX reserve cover. Russia is an
important trading partner for both, as they have both benefitted from worker
remittances, which are likely stalling now with weak growth in Russia, and
lower oil prices.  Exports to Russia
have also been quite significant for both - Georgia has tried to refocus on
Russian markets as relations warmed a bit following the departure of President
Saakashvilli. Russian tourism has been a new "boon" for Georgia in
recent years - a rediscovery for many Russians from the Soviet era. These are
obviously lagging now.  Both also have
significant agro exports to Russia, and had hoped to benefit from Russian
sanctions on the West - but massive Russian devaluation is clearly threatening
this trade. So these managed currency weakenings are only to be expected -
inflation is low single digits, so inflation pass thru should be relatively


To note, on December 8 in the retail market of
Armenia, the AMD/USD exchange rate exceeded 454 AMD/1USD with a 12% devaluation
for the last 2.5 months.  As of 2:00 pm
on December 8, the exchange rates at swap bodies were as follows: 450/458 AMD/1
USD, 554/574 AMD/1 EUR, 8.4/9 AMD/1 RUR. The optimal rates at the banks of
Armenia were as follows: USD was purchased for 450 AMD (ceiling), EUR - 556
AMD, RUR - 8 AMD. The lowest rates of sale were as follows: 453 AMD/1 USD, 567
AMD/1 EUR, 9.55 AMD/1 RUR. At NASDAQ OMX Armenia, from June up to 5 December,
foreign exchange operations amounted to $396.5 million drams with the exchange
rating growing from 407.14 - 438.63 AMD/1 USD. The transactions in November
alone totaled nearly $117 million drams. Last week (1-5 Dec), interbank market
of foreign exchange operations recoded a record-breaking indicator - $59.3
million, which resulted in 442.42AMD/1 USD exchanger rate. In this light, the
stock exchange started the week with transactions in the amount of $3.5 million
(1 Dec) with no deals for the following 4 days. It is disputable whether this
is the lowest level since 2006, because January 2006 saw 455.5 AMD/1 USD
exchange rate in the retail currency market of Armenia, and in January 2005 the
exchange rate made up even 500 AMD/ 1USD.

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