Armenia: Opposition Candidates Charge That Political Factors are Behind Rising Food Prices

Rising food prices and a falling dollar have become crucial points of contention among Armenia's opposition presidential candidates and the government. Opposition contenders argue that pro-government entrepreneurs are gouging consumers on food costs, and are kicking back some of their profits to help fund the governing party's election campaign. Prime Minister Serzh Sarkisian, who also happens to be the governing party's presidential candidate, dismisses the opposition complaints.

A sharp price increase in food and other consumer goods began after the May 2007 parliamentary elections, with some prices -- particularly for butter, vegetable oil and flour -- rising by as much as 40 to 60 percent, according to the Consumers Union of Armenia.

The State Commission for the Protection of Economic Competition points to price increases in the European market to explain the jump in Armenia. The increases, though, outstrip the rate of inflation, which stood at 6.6 percent in December 2007. Overall, the economy posted a 13.8 percent growth rate for the year, according to the National Statistical Service. Over the same period, though, the cost of many food items, including vegetables, bread, sugar, butter and oil rose between 15 percent and 28 percent.

Meanwhile, the Armenian dram's growing strength against the dollar is placing additional pressure on many consumers. The dollar has depreciated 48 percent since 2003 against the dram, decreasing the purchasing power of the up to $1.5 billion received in annual remittances from abroad.

The problem has gone from being a purely economic question to becoming a source of political tension -- candidates charge that government-friendly food importers are charging artificially high prices to accrue additional cash, which is then being funneled to Sarkisian's campaign. The prime minister has characterized the opposition allegation as running contrary to political logic.

"Governments anywhere would benefit from a drop in prices, not inflation," he said at a televised October 2007 government meeting. "It's much easier to gain votes that way than by increasing prices, earn an assumed sum and give it to get votes."

The Central Bank of Armenia attributes the dram's appreciation mainly to the excessive growth (up 20 percent in 2007) in the amount of remittances from abroad and the recent multi-million-dollar foreign investments made in the economy's construction sector.

"Inflation is a natural process. Stable economic growth is accompanied by a certain minor inflation," the Central Bank's November 2007 report states. "Unsubstantiated discussion about the connection between the latest inflation figures and the election process has no economic basis and is mere speculation."

Economist Zoya Tadevosian at the Armenian Center for Strategic and International Studies, however, counters that no economic theory can explain the dram's appreciation, which, she claims, is artificial. "How can the national currency appreciate, when there is no production, when we import three times more than we export?" Tadevosian asked. "It is obvious this is artificial, because if there were a real depreciation in the dollar, the prices for imported goods would drop instead of increase."

"The price increases were a kind of privilege," commented political analyst Stepan Safarian, secretary of the opposition Heritage Party's parliamentary faction. "[I]mporters receive a magnified profit because of both the dollar depreciation and the increase in prices. It turns out that their profit doubles or triples."

Meanwhile, some of Armenia's 530,000 pensioners, always viewed as a political weathervane, say that, despite a January 1 pension increase, they're struggling to keep pace with the price hikes.
"I used to get 9,000 drams ($29) [per month]. I will get 16,000 ($52) now, but I could buy more with my low pension half a year ago than with my high pension now," commented retired teacher Nina Hovsepian, who termed the decreased purchasing power "simple pre-election cheating."

What such opinions will mean for the February 19 election remains unclear. Opposition members contend that the price hikes will somehow provide the governing Republican Party of Armenia with more cash, which it can use to influence the election's outcome. Party leader Sarkisian has not responded to such assertions.

All nine presidential candidates regularly address the issue, though their proposed solutions vary. Sarkisian emphasizes improved tax legislation to encourage free competition and, conceivably, further economic growth and higher salaries.

Deputy Parliamentary Chairman Vahan Hovhannisian, representing the Armenian Revolutionary Federation Dashnaktsutiun, part of Armenia's governing coalition, argues that monopolists should be punished and that a genuinely free market would lead to lower food prices. At the same time, Hovhannisian argues for tighter regulation of the currency market to minimize damage done to ordinary citizens by the fluctuating dollar rate.

Similar promises can be found in speeches by former Parliamentary Chairman and leader of the Rule of Law (Orinats Yerkir) Party Artur Baghdasarian.

Varuzhan Hoktanian, deputy chairman of Transparency International Armenia, an observer organization for the elections, though, urges caution. Amid Armenia's election frenzy, he notes, detecting the true connection between the campaign and inflation "requires a serious economic survey."