Macroeconomic Impact of the Financial Crisis on Armenia

Abstract

As a small, open economy with a small export sector, Armenia has experienced a large amount of stress from the financial crisis. The government exited a peg-like exchange rate regime after a drain of foreign reserves. The loss of reserves was put to loss of revenues from mining exports, but can also be put to the effects of global financial crisis on remittance inflows. Worldwide, the World Bank expects remittances to fall from US$305 billion in 2008 to$290 billion in 2009. In this paper I explore the effect of global crisis on the loss of reserves supporting the monetary system. Bank balance sheets expanded rapidly and, though small relative to GDP, accepted many assets tied to real estate. Banks� asset-liability mismatches have their root cause in changes to the flow of hard currency brought on by the crisis.Armenia; financial crisis; monetary policy; exchange rates