All state funds under one umbrella
17 April, 2014
All state funds under one umbrella
ll state funds of Georgia will be united soon under a new financial institution which will focus on financing big projects that are important to the state. Ex-Prime Minister Bidzina Ivanishvili had already announced creation of a state development bank on the basis of the unification of all state funds. However, the authorities are not certain so far whether or not the new institution will be named as a bank or will remain a fund, Minister of Economy and Sustainable
Development of Georgia said. Officials cannot provide precise details of the new institution until the project is completed. What is clear so far is the general concept of the new financial institute: it will finance long-term development projects and innovations that are not very attractive commercially but appear to be important to the state. It cannot disburse credits to commercial banks or receive deposits. The institute will be regulated by separate legislation and is expected to be operational by the end of this year. The reform project is already underway and will be submitted to the government for discussions in the near future, Kvirikashvili informed on 10 April.
The restructuring of the Partnership Fund of Georgia, handling state assets of strategic importance and aimed at attracting and supporting investments in projects of similar importance, gave impetus to this idea. The PF was set up in 2011 to promote investment in Georgia by providing a maximum of 50% in co-financing (equity, mezzanine, etc.) in projects at their initial stage of development and leave it within 3-7 years from the investment. It co-financed few projects so far out of which three have already been completed [one livestock breeding farm Kalanda, two hotels in the regions Hotel Gino Wellness Spa and Hotel Royal Batoni], while eight projects including infrastructure and energy generation are awaited. Some are already under construction, others are still being researched.
Last spring the Georgian government decided to rebrand the PF into a sovereign fund to make it more effective, however, as the process progressed the reform ended recently in the consolidation of all funds. Georgian economic analysts believe the PF was not effective and also a redundant structure which duplicated functions of the Ministry of Economy such as managing state assets, while the state initiated Investment Fund aimed at the attraction of foreign investments. Besides, Georgia is too small to have that many funds as it has today, they say.
As a matter of fact there are three state-controlled funds in Georgia at the moment. Therefore Ditrikh Muller, co-founder of Georgian Investment Group+, approves of the consolidation of all funds into one financial institution so it will be more effective, especially if it will act as a state development [bank co-investing projects and leaving them after successful exploitation] and will not clash with the interest of commercial banks.
“As to the mandate, this cannot cross with the banking system. This institute should finance long-term development projects that require long-term capital and which projects banks do not finance as a rule,” Kvirikashvili promises.
“Commercial banks in Georgia cannot and do not finance long-term projects, therefore such a bank of financial institution is very much relevant here; to give an impetus to economy and development,” he told Georgian Journal. “I even would approve if this bank would issue securities to boost the securities market and develop investment tools. You know today you hardly find a long-term deposit at Georgian banks; people put money in the banks for a year as a rule. This new state development bank might kindle the securities market too.”
Levan Kalandadze, an economic analyst, believes neither the development bank nor the Partnership Fund may attract investments in the Georgian economy because interested investors find it more profitable to invest elsewhere, other than a state fund. He finds it reasonable to hand over the PF to the Investment Fund instead.

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