GEORGIAN LARI CLIMBS UP
Manana Vardiashvili
Georgian Business Week
4-9623-759dfa3f2056
March 16 2009
Georgia
The government remains optimistic
Nukri Javakhishvili, 38, took a loan from a Georgian bank 10 months
ago when 1USD stood at 1.40 GEL. He says the credit became a heavy
burden now as he has to pay 1.70 for it.
"If the lari slips further the prices on the market will go up. I am
not sure whether I will be able to pay back the loan. I am not sure
either whether I will have this job," Nukri told GBW adding that his
company had already cut his pay.
Georgian people have been carefully watching the devaluation of the
Georgian currency after November 7, 2008 when GEL dropped 25 points
in just a day from 1/1.40 USD to 1/1.65 USD. Because of the dramatic
fall experts even dubbed the day as Green Friday.
The NBG then opted to follow the policy of creeping devaluation. As
a result, the Georgian lari, like many other foreign currencies in
the world, goes down gradually.
People’s confidence in the national currency is also changing. Bank
customers are now more inclined to keep their savings in dollars:
statistics as of February 1, 2009 show that the deposits in USD jumped
9.3 percent to 76.2 percent in a year despite the fact that the banks
were paying higher interest rates on deposits placed in lari. Average
weighed interest rate on deposits in foreign currency was 8.9 percent
while it was 11.2 percent for those in the national currency.
Georgian depositors started to favour the Euro as last year’s results
show: while a year ago, by February 1, 2008, 76.1 percent of deposits
were placed in the American dollar and 23.2 percent in the Euro,
the dollar’s share shrank to 74.6 percent in a year while the Euro
climbed to 24.9 percent.
The Georgian lari dipped 3 points two weeks ago to 1.70 GEL which
marks the sharpest drop after the Green Friday of 2008.
Analysts say that the devaluation of currency is a problem for
many countries in the world and ensues from the global financial
meltdown. Many countries had to resort to reserve funds to keep the
currencies stable. But the government started to reduce their efforts
of intervention into the currency markets as experience showed great
costs to the national budgets.
For instance, the Russian ruble lost one third of its value in several
months. Millions were injected from the Russian currency reserves and
gold fund to keep the rate at 1USD / 23 ruble. The Russian government
then decided to let the ruble slip further, then cut its reserves. The
Russian ruble is currently traded at a rate of 1/35.11.
Times have been hard for the Armenian dram as well as it devaluated
21.82 percent against the USD. The Armenian currency plummeted after
the Chairman of the Armenian Central Bank Artur Djavadian said that
‘the National Bank of Armenia is back on track for a floating exchange
rate.’ As a result, the dram fell from 1USD/305 to 1USD/370 dram. The
Armenian Central Bank forecasts that this year one American dollar
will be standing somewhere between 387 to 440 dram.
Azerbaijan has the same concerns. The Azeri media cites experts
saying that the Azeri National Bank will have to spend 2b USD from
its reserves to stabilize the currency. Experts note that the crisis
is likely to begin in autumn. Statistics show that the Azeri National
Bank has already invested 700m USD but it is not a risky move as the
country’s currency reserves stand as high as 17.18b USD.
Georgian analysts blame the deficit for the devaluation. That the
Georgian lari remained stable since 2004 should be credited to
growing FDI.
But the situation changed in the aftermath of the August war and
the world economic crisis: the dwindling foreign capital failed to
compensate for the deficit of the currency balance. Banks started
to sell less and buy more currency. The NBG spent 300m USD from its
reserves to curb inflation. Then instead of creeping devaluation,
the lari dropped in just a day.
The NBG now states that the lari will remain stable as the central
bank took some preventive measures against devaluation in November
last year.
"It’s impossible to make short-term forecasts of the lari rate when
there is a floating exchange rate. The supply and demand on the
market define the exchange rate and therefore we expect that the rate
can follow either direction," a spokesperson for NBG told Georgian
Business Week.
Asked whether the NBG plans to use currency reserves to fix the
exchange rate, NBG said: " Georgia currently has sufficient currency
reserves. In the last five months of last year we really made big
interventions which were necessary to maintain financial stability. But
we have reduced intervention this year."
Independent expert Nodar Khaduri casts doubt on NBG’s optimism:
"In the last week, the Georgian lari weakened 3 points from 1/1.67
USD to 1/1.70 GEL." According to him, the NBG is opting for creeping
devaluation and the Green Friday scenario is unlikely to reoccur.
As the FDI and foreign remittances are declining, donor assistance is
something which can buttress the national currency unlike the Armenian
dram or Russian ruble. It is believed that the USD 4.5b financial
aid which will be provided in the next three years is enough to cover
the deficit, should they come in a timely manner.
"I believe that the GEL will finally be fixed at 1/1.80 rate – in
the best case. But if our government fails to secure the pledged
assistance, forecasts about the Georgian lari will be dismaying,"
Khaduri added.
From: Emil Lazarian | Ararat NewsPress
