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Georgian Officials Warn Against Panic as Currency Slides
Georgia’s government and central bank have moved quickly to calm market fears about the downward descent of the national currency.
The lari is normally stable but fell from 1.75 to the US dollar to 1.92 or 1.98 to the dollar on the commercial bank exchange market as of December 11.
Such was the run on the lari that many currency exchange kiosks stopped selling American dollars.
National Bank chairman Giorgi Kadagidze gave a press conference on December 5 saying the depreciation was partly due to the global strengthening of the US currency, but also the result of market panic in the country.
“There is no threat to this country’s financial and macroeconomic stability,” he said. "Other processes are mainly due to panic-trading.”
Kadagidze urged banks, businesses and ordinary Georgians not to rush to sell their laris.
“Gamblers and others who exchange money on impulse generally end up making a loss,” he said.
But he acknowledged that there would be innocent victims, among them people who had dollar loans and wages in laris. Many Georgians take out loans either in dollars or indexed to the US currency, as do traders who buy goods abroad.
Marina Nikolaishvili, who owns a small retail outlet in Tbilisi, is one of them.
"I took out a bank loan in dollars, and the monthly repayments are already costing me 100 laris more than a month ago. I am paid in laris, and the exchange rate is still falling. Where am I to get that extra money? If I can’t repay the loan, the bank will seize my assets.”
Many analysts note that the lari’s fall coincides with the slump in value of the Russian ruble, which has been hard hit by declining oil prices, and also by Western economic sanctions.
Despite the political estrangement between the two countries, Georgiais still influenced by the fortunes of its northern neighbour, not least because of the money sent home by labour migrants working there.
Zurab Tkemaladze, a parliamentarian from the governing Georgian Dream coalition, told reporters that external conditions were a major factor in the lari’s fate.
"One needs to take the situation in Russia, Armenia and Ukraine into account,” he said. “Everything is interconnected, so we can’t just say we’ll take certain measures and things will right themselves. It’s natural for currency fluctuations and economic circumstances in neighbouring countriesto have an impact on us.”
Finance Minister Nodar Khadurisaid on Georgian TV that the people expressing alarm at the lari’s fall were themselves aggravating the problem.
“I don’t agree with the experts. I am prepared to meet experts who are concerned about the budget and show them figures to convince them that their comments are not helping the exchange rate to strengthen. They are sowing panic among the population and this too, unfortunately, is contributing to the lari’s decline.”
Other economists argue that the Georgian economy is relatively insulated from developments in Russia. Together with opposition politicians, they blame monetary and fiscal policy errors for the lari’s current woes.
Paata Sheshelidze, chairman of the New Economic School, believes government intervention designed to prop up the exchange rate is to blame.
"Sadly, the National Bank is not a sufficiently independent institution to run itself according to market principles,” he told IWPR. “As a result of wrong-headed economic policies, production is not growing, and foreign investment flows are falling. The economy is not bringing in enough revenue for the government to meet its obligations.”
Sheshelidze said the vagueness of official statements suggested the government had been quietly selling off currency reserves or even printing money, with depreciation the inevitable consequence.
Opposition parties are demanding the resignations of all cabinet ministers with economic portfolios.
As the lari’s slide continues, Georgians are worrying about the effect this will have on the cost of living.
The national statistics office says that in November the average price of foodstuffs was 6.2 per cent up on the previous year, while healthcare was 4.8 per cent more expensive.
The general mood of uncertainty prompted an intervention from Bidzina Ivanishvili, the billionaire who masterminded Georgian Dream’s victory in 2012 and served as prime minister until he decided to step back from politics.
"There’s no panic-trading, the economy is stable, the lari’s exchange rate is fluctuating, and the dollar is strengthening in many countries, Georgia too,” he told reporters on December 4. “The finance minister and others have explained it. Everything is fine and the government is doing a good job.”
Tina Jvania is a freelance journalist in Tbilisi.
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