We have to make a choice between two options: we must either ostensibly implement our budget or put a great deal of money in circulation or refuse to implement the budget and save GEL – Levan Kalandadze
- In the present state of affairs, when GEL and Georgia’s economy is totally reliant on the USD and in light of the present situation in world economy, depreciation of the Georgian currency must not surprise us in the slightest. However, could you explain to us what kind of an impact the ongoing events in world economy can have on the GEL value?
-- Naturally, the allegations saying that only internal factors have resulted in the devaluation of GEL do not ring true. Around 760 per cent of Georgia’s economy is dependent on foreign economy. Even as much as 70 percent of the products in our consumers’ shopping baskets is imported from foreign countries. Accordingly, the ongoing events in the world market have an impact on the prices of different products as well as the present status quo in the country.
As for external factors, only some of them have resulted in the devaluation of our national currency. Generally, GEL value is dependent on the relationship between GEL and USD as well as their proportions. Recently, the flow of American currency in our country has substantially reduced. Moderate investments and the fact Georgia has failed to become an attractive country for foreign investors has produced these repercussions.
In addition, as you know, many Georgians are leaving the country to make a better life for themselves abroad and support their families in the process, this obviously, has a major effect on the balance between USD and GEL. The financial support they send back has also substantially decreased.
Plus, a balance between export and import has had a negative influence on the value of GEL. Today, the Government alleges that the number of exported goods has increased and this apparently is auspicious for us. In order to maintain GEL stability, we need to ship more goods from the country and increase export. However, imported goods still dominate the exported products in number, and this naturally means that the country loses more dollars than it gains. Thus, the balance of payment is downright negative and in the wake of this more and more U.S. dollars flow from our country.
Along with external factors, all aforementioned components have a major influence on the GEL value. On top of that, the current goings-on in the foreign states have negatively impacted our national currency. Naturally, some internal issues also influence this process. With these words, I implicate the policy of the Finance Ministry. However, allegations that one particular factor has resulted in the depreciation of GEL is not really close to the truth. External factors have played a rather paramount role in this process.
- How big is a chance that this process will prove to be inconsistent?
- Our pursued policy and their determination to make this policy aim-oriented is of truly paramount importance today. Therefore, the country’s future is dependent on their ability to foresee the risks that impede the markets of our neighbor countries as well as their desire to shape their policy to these risks.
A tendency of reducing the price of oil is by all odds a positive process since this means that on the one hand, a lower amount of currency will flow from the country and this on the other hand will have a positive influence on a payment balance. The reducing oil price is in direct coloration with an increase of business activities in the country. This from its part is directly linked to budget income.
- Considering the present status quo in world economy, how reasonable do the steps of the National Bank seem? Plus, in your opinion, what kind of measures should our financial bodies adopt in order to control the process of GEL depreciation and to prevent the situation from aggravating even further?
- Some monetary policy mechanisms are in the hands of the National Bank today. In my mind, we cannot hold this or that body, including the Finance Ministry, National Bank or the Ministry of Economy, accountable for the ongoing process in the country that is leading to a drop in the GEL value. All state institutions are obliged to take their share of responsibility when it comes to this issue. In other words, we must hold a collective government body that is the Government of Georgia accountable for all negative tendencies in our economy. Even the constitution of Georgia provides that the Government is responsible for the ongoing negative developments in the country.
The National Bank has already intervened in the current developments twice. For the first time, it allocated 40 million GEL to keep the currency stable and this was definitely a right decision and for the second time it sold 40 million USD to get the desired financial fallout; this was a wrong decision though. Anyway, if not for the measures adopted by the National Bank, the value of GEL would have dropped even further.
The National Bank must pinpoint its target and must make correct decisions in this time of uncertainty. This is of crucial importance for us today. If the National Bank and the Finance Ministry fail to coordinate smoothly, all anti-inflation measures will definitely prove ineffective. If the National Bank carries out foreign exchange intervention and the Finance Ministry keeps increasing the amount of GEL flowing through the market, these inconsistent steps will result only in dissipation of the foreign exchange reserves.
- In one of your interviews with the InterPressNews News Agency, you once declared that if the Finance Ministry pursues its spending policy that aims to put excessive GEL into circulation and to only formally implement the budget, the instruments of the National Bank will prove to be ineffective. Could you tell us what does “a formal implementation of the budget mean”? Or why are the present authorities implementing the budget only formally today when we are suffering from economic stagnation?
- Formal implementation of the budget means that they calculate the amount of funds needed to be withdrawn from our budget per month beforehand. For instance, in December, this year, we have to spent a specific amount of financial resources; however, in order to implement the budget officially, the Finance Ministry will put in circulation twice the amount money that is needed. This means that if we have to spend 700 million GEL for example, and if in order to implement the budget, we need a billion and half GEL, the Finance Ministry will put a billion and half laris in circulation and this in turn will result in a steep increase in the amount of money within the market. An increase in the amount of GEL obviously results in a decrease of the demand on GEL.
We must make a choice from the given two options: we must either refuse to implement a budget by putting a lot of money in circulation or implement a budget and save GEL. Extremely woeful is the fact that no one is held accountable for the depreciation of GEL today.
- Minister of Finance Nodar Khaduri has summarized the results of the Ministry’s past two-years of work. How would you evaluate the steps taken by the Ministry during this period of time?
-- Regarding this issue we can say that the measures adopted by the Ministry for two years have resulted in the budgetary gap in 2013; the same will probably happen in 2014 as well.
-- In your opinion, what kind of a situation is the economy of Georgia in today? Why has the Georgian Dream Coalition failed to live up to the people’s expectations? Plus, what could you say regarding the Government’s pursued economic policy?
- If we use medical terminology, the Georgian economy is suffering from a serious ailment at this point in time. We have numerous weak points; however, we also cannot deny that the Government has brought many good initiations to the table. The problem is that they failed to properly implement these initiations. Therefore, as a result of this our economy has been infected with different disorders. Consequently, if we fail to make the correct diagnosis, we will obviously prove unable to rectify the situation and heal our economy.In my opinion, the government has resources to improve the situation; however, it needs political will to do this.
We have made really harsh mistakes – our finance-economic policy was more politicized than built on rational economic calculations. Thus, we must put this issues of purely political character on rational economic rails that will, from its part, result in the revitalization of our investment climate. Only in this way, can we make Georgia attractive for investors. We will achieve this objective only if we draw a definite line between our economy and politics.
- How would you assess Ukrainians’ decision to grant high posts to Mr. Kvitashvili and Zghuladze?
- Frankly speaking, I’ve heard nothing regarding Zghuladze; as for Kvitashvili, I do not see anything alarming in their decision to give a high post to this man. However, how successfully this man fulfilled his responsibilities in Georgia is a horse of an entirely different color. He has obviously made a number of fatal mistakes, clearly though, the fact that a Georgian is granted the post of Minister in Ukraine is more positive than negative. Moreover, if you ask me, talks regarding a presumable decay in Georgian-Ukrainian relations are nothing good for us or this country.- Rumors float round that you may be one of Ivanishvili’s co-anchors on his program “Society of 2030.”Have these rumors anything to do with the truth?
- To tell the truth, it’s something new for me and I have heard of these rumors for the first time today. However, if similar programs center on economic policy, I’ll get involved in them with great pleasure, and it does not really matter whether I will a co-anchor or be a guest. However, they have not held consultations on this issue with me thus far.Koba Bendeliani
InterPressNews
