The Politics of the Dram

The appreciation of the Dram continues to draw attention. Often this is peppered with accusations by critics of deliberate policy by the government to enrich importers. The fact is that there is little at this stage that the government, or the Central Bank (CBA) more correctly, is able to do to reverse this appreciation.

The central bank has been accumulating foreign exchange reserves, in part as a consequence of "de-dollarization" and in part by intervening (small scale) in the market and acquiring foreign currency (increasing the supply of Drams). Indeed, reserves increased by some USD 200 million in November alone. But at the same time, CBA raised interest rates to curb inflationary pressures a move that may have potentially offset the foreign exchange intervention.

International Reserves, in USD millions
Source: Central Bank

Currency appreciation may benefit consumers, but at the same time it may hurt exporters and endanger the country's competitiveness. Given that little can be done to tackle the currency appreciation, unless we stop the flow of foreign exchange to the country or undermine the confidence in the Dram, does not necessarily mean that we are helpless. Improvements in productivity is one way to tackle this, but this will not happen overnight. On the other hand, the government can improve matters by reforming the Customs agency and improving its governance. Certainly, this may go a long way in reducing the cost of trade. Also tackling market concentration and imperfections may enhance the benefits of a strong Dram to consumers. So why are government critics focusing on the Dram, where the government has little control, and not continuously hammering the regime on the other issues?

One would hope that the media will do a better job in covering matters related to finance and economics. On the other hand, the bloggers have been a major disappointment.

[Statistics on the Dram may be obtained from cba. am, edrc. am, and aea. am]

Real estate prices in 2007 through Q3

Real estate developments and the pace of construction through 2006 reviewed in previous posts were the top content of interest to visitors to this blog in November. In response to this growing interest, along with that of a media outlet, I have updated the information on real estate prices, as reported through the third quarter of this year.

While prices are likely to continue rising for the rest of the year, the pace observed from transactions over the first nine months of this year again point to rapid appreciation that matches the gains experienced last year. In Yerevan, the price of a squared meter increased by 27 percent, to a weighted average of 249,700 Drams; close to 50 percent when stated in USD (to about $706). However, the appreciation experienced by the various districts is in many ways unlike that of last year. The largest appreciation is now observed in Erebouni which grew near 50 percent, where the price increased from 155,800 to 219,800 Drams per sq. meter. In contrast, prices in Kentron, the city center, grew by only 17 percent, from 377,600 to 440,700, compared to near 30 percent last year. Below is a summary of the prices in Yerevan districts observed over recent years, both in Drams and USD. While not reported here, prices also grew in all regions. But more on this in a future article and after I update the info on aea .am.

What do these numbers mean? Well if you wanted to buy an apartment of 100 sqm (about 1000 sqf), it would have costed you about 44 million Drams, or about USD 124,500 (143,000 at today's exchange rate) in Kentron. You are looking at close to half that in Malatia - Sebastia.

Average price per sq. meter, in Drams

Yerevan Districts.. 2002.. 2003.. 2004.. 2005.. 2006 2007Q1-Q3
Kentron.......... 187772 222765 246500 288900 377600 440700
Arabkir.......... 114670 161300 193900 235300 298200 354500
Kanaker-Zeitoun... 68802. 98158 119200 143700 186100 258200
Nor - Nork........ 57335. 78538 101700 135100 171100 222300
Avan.............. 61635. 76396. 97000 122800 156200 210700
Erebouni.......... 55902. 83920. 96500 118800 155800 219800
Shengavit......... 61635. 83052 110600 143900 182700 235000
Davidashen........ 63069. 97116 120900 147100 189400 241700
Ajapniak.......... 57335. 84557 109500 138400 171800 226900
Malatia-Sebastia.. 55902. 81779 108600 134500 166800 214400
Nubarashen........ 28668. 36693. 43000. 69600 108000 122300
Yerevan*................ 100415 122500 152500 196700 249700

Stated in USD
Yerevan Districts.. 2002 2003 2004 2005 2006 2007Q1-Q3
Kentron............. 328. 385. 462. 631. 908 1245
Arabkir............. 200. 279. 363. 514. 717 1002
Kanaker-Zeitoun..... 120. 170. 223. 314. 447. 730
Nor - Nork.......... 100. 136. 191. 295. 411. 628
Avan................ 108. 132. 182. 268. 375. 595
Erebouni............. 98. 145. 181. 260. 374. 621
Shengavit........... 108. 144. 207. 314. 439. 664
Davidashen.......... 110. 168. 227. 321. 455. 683
Ajapniak............ 100. 146. 205. 302. 413. 641
Malatia-Sebastia..... 98. 141. 204. 294. 401. 606
Nubarashen........... 50.. 63.. 81. 152. 260. 346
Yerevan*................. 174. 230. 333. 473. 706
* without New Marash

Drams per USD....... 573. 579. 533. 458. 416. 354

Source: Cadastre Commission with some adjustments as reported on aea and my own.

One final word. I am very impressed by the timeliness and quantity of information (prices and number of transactions) reported by the Cadastre Commission on its updated website. It is worth a visit -- you need Armenian fonts (with few exceptions). As in my previous postings, it would be good to see more research in this area.