Armenia’s currency, the dram, lost 22 percent of its value over the course of a single day March 3. The decline followed a decision by the Armenian central bank to halt its currency interventions in exchange for a $540 million loan from the International Monetary Fund (IMF). The devaluation has generated consumer panic, with many stores in the country closing for the day and others seeing long lines as the prices of certain products, like butter and gasoline, rose more than 30 percent during morning trading alone.

Whenever a country that has maintained a fixed currency for years decides to let its currency float, large crashes in the currency’s value are not uncommon on the first day, as long-ignored distortions are allowed to unwind. And Yerevan has not been spared by the financial crisis sweeping the globe, making the dram’s decline steeper. Armenia’s troubles are compounded by the fact that along with Belarus, it is among the last countries from the former Soviet Union to adjust from a centralized economic system. Much like Belarus, Armenia simply has not made the necessary transitions and reforms required to function as a viable, independent state.

Geographic disadvantages hobble Armenia’s economy from the outset. Armenia is a tiny, landlocked country in the Caucasus Mountains. Even if Armenia did have access to the sea, it has virtually no natural resources of value — and therefore nothing to export to the big powers in its neighborhood, like Russia and Iran. Armenia’s border with Turkey is closed, and its border with Georgia is partially closed. Yerevan also has a nasty longtime rivalry with its neighbor, the richer and more populous Azerbaijan. The two countries have fought numerous wars over the still-disputed territory of Nagorno-Karabakh. To survive, Armenia needs a great power sponsor to sustain it economically and provide military support if push comes to shove.

Russia — and before it, the Soviet Union — traditionally has filled that role. That Armenia still exists as an independent country is no small accomplishment, one attributable largely to Russian aid. Russia provides Armenia with essentials like food and energy, and has recently promised to give Yerevan a “stabilization loan” of $500 million to help it cope with the recession. But this help, of course, does not come without strings attached. Russia has more than 5,000 troops stationed in Armenia and has been discussing deploying even more as part of its Collective Security Treaty Organization rapid-reaction force. Russia uses Armenia to project power in the region and to flank pro-Western Georgia, with which Russia fought a war in August 2008.

This Russian aid has cost Armenia dearly, as Yerevan has had to sacrifice much of its independence in exchange for assistance from Moscow. Russia essentially owns all of the strategic energy, rail and telecommunications assets (among many others) in Armenia. Moscow has consolidated its influence by taking control of any piece of infrastructure that could help Armenia break away from Russia’s grip, including a natural gas pipeline connecting the country to Iran.

The only other significant source contributing to Armenia’s economy also comes from abroad, in the form of remittances from Armenians working outside the country. At 800,000 strong, these workers comprise more than 25 percent of the country’s population, and their remittances account for a hefty 20 percent of Armenia’s gross domestic product. Armenia traditionally was the No. 1 recipient of aid per capita from the United States, which is home to a large Armenian diaspora and a powerful Armenian lobby in Congress (deemed by many as even more influential than the Israeli lobby there).

But Washington now provides more support to energy-rich Azerbaijan, while aid to Armenia has slowed. Remittance flows have dropped by almost 25 percent since this time in 2008, according to the IMF, and foreign direct investment — largely dependent on Russia, which is facing its own economic problems — has slowed along with it.

The country is clearly seeing its already-meager sources of money dry up. This reality forced Armenia to stop its currency intervention in order to acquire more outside financing, thus causing the drastic single-day currency drop.

Ultimately, Armenia at some point may have to abandon its increasingly devaluing currency. Yerevan would then need to use an alternative currency to achieve any semblance of economic stability. Due to its large-scale dependence on Moscow, this alternative currency could well turn out to be the Russian ruble. Though this outcome is hardly certain, Yerevan without a doubt is in a tight spot.