Armenian government to suggest legislative initiatives aimed at tackling inflation

PanARMENIAN.Net - FAO also reported that global food prices increased for the eighth consecutive month in February, with prices of all commodity groups monitored rising again, except for sugar.

FAO expects a tightening of the global cereal supply and demand balance in 2010/11. In the face of a growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains. International cereal prices have increased sharply with export prices of major grains up at least 70 percent from February last year. Unexpected oil price spikes could further exacerbate an already precarious situation in food markets, according to FAO.

Being concerned over the growing inflation rate, the Armenian government is going to suggest legislative initiatives aimed at tackling inflation and unjustified growth in prices. The powers of Armenia’ anti-monopoly body are planned to be widened, what will allow it more efficiently struggling against dishonest entrepreneurs, who try to unjustifiably increase prices, speculating on the current circumstances. Armenian government intends to introduce a new bill aimed at suppression of price upsurge for products included in social basket. If prices for an essential good increases by over 30%, the bill will allow the government to set a price for it during 90 days.

However, many members of the parliament have doubts with respect to these initiatives and think that the oligarchic structure of economy is Armenia’s biggest problem.

In its turn, during the March 4 sitting, the Board of the Central Bank of Armenia (CBA) increased the refinancing rate by 0.5% to bring it to 8.25%. The Board is concerned over the expansion of the inflation environment that is conditioned by the current developments at global food and raw materials markets, as well as maintained high prices as a result of reduction in supply of agricultural products in 2010. The Board believes that gradual toughening of the monetary policy and assistance of other state structures will allow bringing the inflation rate to the target corridor in the first half of 2011.

Since inflation expectations for the first half of 2011 are serious in Armenia, the monetary policy is being toughened. As a result, the decline in interest rates has stopped in the market. Some banks have started raising them. Taking into consideration the inflation forecasts, the toughened monetary policy and growth in banks’ interest rates, the pace of growth in lending are also expected to decline in the first half of 2011. Positive changes may be observed in inflation expectations in the second half of the year.

“The delayed demand for credit resources in the first half may be transferred to the second half of the year, as a result of which a sharp growth may be recorded,” Development Director of Ameriabank CJSC Tigran Jrbashyan said. He added that the growth in lending may be prevented by both external (the situation in the Arab states, increase in prices for oil, decline in the economy of the U.S.) and internal factors, including the natural and climatic conditions. At the same time, Jrbashyan noted that the levers of the Central Bank of Armenia are not efficient enough, as they do not have a direct impact on Armenia’s financial market due to its insufficient development in contrast to other countries, where they have a direct impact.

Thus, currently the government basically carries the load with respect to improvement of investment and business environment, formation of competitive field, business protection, as well as improvement of tax and customs legislation.

Development and promotion of local production should serve as a basic means in tackling social problems, as it will lead to increase in budgetary revenues.

To assist local producers, the government may allocate lax loans, introduce temporary taxation and import regimes, as well as continue its efforts to improve customs regimes with other countries, what will facilitate Armenian goods’ entrance to foreign markets. Armenian Minister of Economy Tigran Davtyan said it is necessary to increase the quality of goods imported to Armenia to support local producers, instead of introducing protectionist customs tariffs.

The authorities state that the problem of poverty reduction in Armenia is in the focus of the Armenian government.

The government will introduce a Program of Sustainable Economic Development soon, which includes also poverty reduction. The Minister of Economy added that considerable budgetary funds at the amount of AMD 44bln are envisaged to be allocated to tackle poverty in 2011.