CENTRAL BANK CLARIFIES NEW CURRENCY LAW, INVESTORS

UNCLAS SECTION 01 OF 02 YEREVAN 001627

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EINV EFIN EAID KTDB AM
SUBJECT: CENTRAL BANK CLARIFIES NEW CURRENCY LAW, INVESTORS
DOUBT ENFORCEABILITY

REF: YEREVAN 1342

THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT
ACCORDINGLY.

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SUMMARY
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1. (SBU) On July 26, the Central Bank of Armenia (CBA)
published clarifications of the new currency law (reftel).
The clarifications state that the law is not retroactive and
detail certain exceptions to the law's requirement that
prices be quoted in Armenian drams. Edith Khachatourian,
local attorney and President of the American Chamber of
Commerce of Armenia (AmCham),told us that she and other
members of the business community doubt that the
clarifications are legally enforceable because they were not
published as an official, legally binding, interpretation of
the law. End Summary.

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NEW CURRENCY LAW COMES INTO FORCE
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2. (SBU) On June 28, a new currency control law came into
force (reftel). According to the new law the prices for all
goods, services and property must be fixed in Armenian
drams. Commercial banks, credit organizations and airlines
are also required to state their fees in drams. Members of
the business community, including the AmCham, believe that
the new law is ambiguous and requested clarification from
the CBA. On July 26, the Central Bank published a series of
clarifications on their website and in local newspapers.

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CBA CLARIFIES NEW CURRENCY LAW PROVISIONS
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3. (SBU) The primary clarifications are listed below:

-- The law is not retroactive;

-- While prices generally must be quoted in drams, they can
be quoted in foreign currency in agreements related to the
export of goods and services or sale of property if the
purchaser is a nonresident legal entity or private
businessman and the purchase is not made in cash;

-- Airlines must quote prices of aero-navigation and other
services in Armenian drams with the exchange rate given in
brackets;

-- RA residents may make gifts of foreign currency to other
residents. For gifts of property, however, the price must
be quoted in drams;

-- Prices cannot be quoted as foreign currency equivalents
payable in drams; and

-- Banks and credit organizations may calculate loan and
deposit interest rates in foreign currency but must pay the
interests in drams.

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ARE THE CLARIFICATIONS ENFORCABLE?
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4. (SBU) Edith Khachatourian, local attorney and AmCham
President, told us that many local lawyers and business
people are not relying on the CBA clarifications because
they doubt their enforceability. In Armenia, official,
legally binding interpretations are normally published as
such in legal journals. The CBA clarifications were
published on the CBA website and in local newspapers. Their
legal status is therefore uncertain.

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COMMENT: NEGATIVE IMPACT ON FOREIGN INVESTORS
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5. (SBU) The impact of the new currency regulation remains
unclear and this uncertainty may deter foreign investment.
While the clarifications published by the CBA address many
of the concerns raised by the business community, they are
only marginally useful because it is not clear that they are
legally enforceable. The new legal requirements, that
capital investments must be made in drams and that prices
for goods and services must be quoted in drams without a
foreign currency equivalent, have the potential to
significantly change the investment climate in Armenia.
Without further clarification, this new law is likely to
negatively impact foreign investment.
EVANS