Long money poses non-transparency risks
01 May, 2014
Long money poses non-transparency risks
The so-called long money project launched this year by the Georgian authorities in order to provide the economy with long-term credits is swathed of non-transparency. The project is based on the emission of state Treasury Bills with a volume of GEL 200 million in 2014. Because only banks are allowed to participate in the securities auction in Georgia, banks will buy these state securities while the state will deposit the raised money at the purchaser banks under a single major
condition: the state deposits should be disbursed on long-term credits only. Also, banks are required to pay in deposits 1% higher rates than the interest the state pays them for T-Bills. Otherwise, the state gives the banks a loan under 1% whereas it does not restrict them to charge the targeted credits as high as they would like.
Minister of Finances Nodar Khaduri dubbed this intricate money-lending scheme as the “long money,” projected to ease the life of the money-deficient Georgian economy because banks shy away from long-term crediting for high risks. Sector pundits believe this intricate scheme will rather ease life of the banks than of the businesses because the banks are not restricted in how they dispose the money. Besides, Ministry of Finances (MoF) does not disclose any details on the controlling mechanism that should monitor whether or not the state deposits are spent on the targeted long-term credits. Neither is it going to elaborate on what sanctions are foreseen if the contracted banks break the promise and use the projected money at their own discretion.
“This mechanism offers a new instrument to banks to transform short-term resources into long-term ones. The state does not interfere in the commercial activity of banks,” MoF commented to Georgian Journal. “Inasmuch as a bank is a commercial organization oriented on profit, it is in its interest to disburse long-term credits to witness more incomes.” To other publications Khaduri reported that this is a commercial secret of banks. Analysts believe this kind of loose control and non-transparency unties the hands of the banks and they seem the obvious winners in the project: they secured 1% credits while they can disburse them as high as 12%-30% as they would normally charge business credits and enjoy a 12-30-fold higher profits correspondingly.
GEL 100 million has already been issued since this year that is equally divided on 2-year and 5-year T-Bills. The 2-year T-Bills raised GEL 43 912 100 under the interest of 6.8%; the 5-year T-Bills made 43 917 000 with the coupon rate of 10.073%, the MoF informs. 12 banks participated in the auction and a total of GEL 87 829 100 has already been deposited back to all the participating banks, however, their names are withheld under secrecy. All what is disclosed is that the banks pay 1% higher as projected or 7.8% and 11.073% for the 2-year and 5-year deposits respectively.
As GJ calculated from the already deposited GEL 87,829,100 the state receives around GEL 3 074 092 profit. As for the banks we can only conjecture the profit. If the banks disburse loans for instance at 12% they gain roughly GEL 5,524,169 or almost double of the state’s profit during the project period. On the other hand, instead of disbursing risky credits in Georgia banks may invest money abroad in more secured profitable projects and witness huge profits while the Georgian economy will remain as money-hungry as ever, analysts believe.
“I believe there is some corruption deal behind this queer long-money-scheme because details are closed and each side seems free from responsibility,” Ditrikh Muller, co-founder of Georgian Investment Group+, said. “It is too difficult to track down how the deposited money will be used.”
Soso Archvadze, an economic analyst cannot understand why the state acts like a corporation and keeps details in secrecy. “The state budget money circulation must be reported minutely to the public and no commercial secret can back up this non-transparency the MOF practices in this long money story,” he said. “Society must press the MOF on transparency from the very outset.”
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