Interview of the Member of the Board of Armenian Central Bank Vache Gabrielian to Mediamax Agency and www.banks.am portal

- On February 4, the CB Board made a decision to increase the refinancing rate. What is this decision conditioned by?

- The decision is conditioned by the developments in the economy in the recent period. A considerable economic growth was registered in 2007 in Armenia – 13.7%, and simultaneously with this, considerably increased both the incomes of the population and its expenditures (financial incomes of the population increased for 25.7%, the real earnings of – for 19.2%). This means a considerable growth of demand, which has considerable inflationary potential. In 2008, as compared to 2007, the influence of the budget will be broader, in other words, the expenditures of the state will be stimulating the economy, and this also gives birth to certain inflationary pressures. It is natural that we should have reacted to these developments.

- The CB press service statement about increase of the rate puts an accent to the situation in the world markets.

- In the course of 2007, serious problems arose in the international financial markets, related to the crisis in the mortgage market of the USA and conditioned by the increase of liquidity. This was followed by the increase of prices for a number of products, in particular, oil and foodstuffs. From this point of view, of special interest were October and November of 2007, when the international prices for vegetable oil and butter, grain and other products increased simultaneously. This caused the growth of inflation of almost all the countries. Even in China, where there had been no inflation for a long period of time, in 2007 certain inflationary developments were registered. Inflation grew in Russia, in CIS states and in Europe. It is well known that the lowest level of inflation in the region was in Armenia – 6.6%, and in Georgia and Azerbaijan it made correspondingly 12% and 18%. Russia for many years tries to preserve the inflation percentage within 10%, but this year the inflation there considerably increased.

Besides, one should also take into consideration the fact that the mentioned problems, which arose in the international financial markets, lead to the fact that in the course of a very short period of time the U.S. Federal Reserve System considerably decreased the interest rates for stimulation of the economy. Together with the European Central Bank, the U.S. financial authorities by their deals attached additional liquidity to the markets, which also lead to the growth of inflationary pressure.

- Will the inflationary pressures in the international financial markets have continuation in 2008? What are the forecasts of the international experts?

- On the whole, the tendencies concerning 2008 are to be considered in the context of wider tendencies, according to which in the course of the nearest few years growth of prices for raw products will take place. In this connection, Alan Greenspan, for example, writes in his latest book, that we are entering a period, where we will yet for a long time be accompanied by inflationary pressures. Time will show what they are going to be like in a long-term prospect. In late 2007, many people assumed that the inflationary pressures in 2008 may become weaker, however today, in the light of the obvious recession of the U.S. economy and the aggressive actions of the U.S. Federal Reserve System, not many such hopes are left, and mostly the international experts agree that the inflationary pressures will continue in 2008.

- On February 2, the interview of the Leader of “Freedom” party, former Prime Minister of Armenia Hrant Bagratian, was published in “Aravot” newspaper, which included a number of accusations against the CB. How would you comment on this?

- That interview, most likely, should be considered through the prism of the election campaign, in which CB should not be involved. To be honest, I would not like CB comments to be attached political slant and I will only comment on the facts, which concern the Central Bank.

The interview of Mr. Bagratian contains open false information. It reads about the sale of three banks – “Ardshininvestbank”, “Agrobank” and the “Savingsbank”. In all three cases, obvious misinformation took place.

Firstly, CB had nothing to do with the privatization of the “Savingsbank” – it was realized by the owner of the bank – the Ministry of Finance and Economy.

Secondly, “Agrobank” was not bankrupt; “Agrobank” self-destructed, since the owner of the bank made a decision to sell it. The bank took the path of self-destruction and the CB never started a bankruptcy procedure against “Agrobank”.

Thirdly, the problematic “Ardshinbank” was sold by a method, proposed by international organizations. In the international practice this method is called purchase and assumption. The sale process was transparent, the Commission sent invitations to all the Armenian banks, as well as to all the interested investors. Within the composition of the Commission, besides the CB representatives, the Councilor of the U.S. Agency for International Development and the representative of the Ministry of Finance and Economy were also present. To the numerous discussions of the Commission also were invited MPs, representatives of commercial banks of Armenia, who presented applications to purchase the assets and the assumption of commitments of “Ardshinbank”. What concerns the system loan, provided by the CB, it was provided earlier, when the fraud was unveiled - a year prior to the start of discussion of the possibility of sale and it aimed at securing the stability of the banking system.

The problems of “Ardshinbank” arose as a result of this very fraud, and the search of other reasons is absurd. About 80% of the system loan is already repaid, and we are working on returning the remaining part.

- Isn’t CB going to initiate corresponding steps in connection with the voiced accusations?

- Since the mentioned interview contains open false and slanderous information, the CB lawyers are preparing a suit to turn to the court.