US embassy cable - 05YEREVAN1627

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