Who is responsible?
20 March, 2015
Who is responsible?
The Lari Devaluation Saga Misses the Responsibility Chapter

What has led the Georgian national currency, the lari, to more than a 30 percent decline in value and who bears the responsibility for that? – These were two key questions the special unified parliamentary committee hearing was expected to find answers to on March 12. But as analysts say, the parliamentary discourse fell far from the expectations, becoming a political blame-game instead of an attempt to find a reasonable solution.

Some
analysts think that the NBG itself participated in currency speculations, since it is a commercial organization that profits from disbursing re-financing loans and currency trade.


“Today we will have all answers concerning the National Bank of Georgia,” said Giorgi Kadagidze, Governor of the NBG, prior to the committee hearing involving two parliamentary committees [The Budget and Finance Committee and the Sector Economy and Economic Policy Committee].
However, the questions that have been pestering society since November remained as unanswered as ever, says Dietrich Muller, a financial market analyst, in an interview with Georgian Journal.
“First of all, Parliament’s reaction to the devaluation of the lari was too delayed. It should have inquired what was going on long ago because the NBG was behaving strangely for the last two years. Secondly, MPs looked very incompetent and completely unprepared for such a serious issue, asking ridiculous questions and were more interested in settling political scores rather than digging deep into economic details of the issue. Thirdly, they did not set up a special commission to find out what stands behind this sharp devaluation of the lari, which is fully within the Parliament’s competence. After all, the NBG bears direct responsibility before the Parliament and not the government,” Muller claims.
The fact that the sharpest drop (23 percent) of the 30-percent devaluation of the lari occurred in just one month puts the professional skills of both the NBG and the economic team of the executive power under a big question mark. Everyone agrees that the external macro-economic factors such as dwindling investments, money transfers and tourist inflow plus the strengthening of USD have dealt the currency a major blow; however, many analysts also point out the internal factors, such as the currency market speculations and inadequate monetary policy of the NBG plus completely uncalled-for illiberal steps of Georgian government.
The parliamentary committee called upon both the NBG governor and the government to shed more light on the lari soap opera, but MPs failed to ask major and much-needed questions and ended up simply recommending the NBG to continue its monetary policy and keep prices stable.
Tardy, completely incompetent and ineffective – this is the opinion of the committee hearing most analysts share. The NBG is an independent body and only the Parliament is mandated to demand the internal information about the currency market trade and traders in order to disperse all questions about its suspicious behavior; however, it didn’t do so.
“The NBG, the executive power’s economic team as well as the Parliament are all responsible for depreciation of the lari, but we should differentiate between the fundamental, strategic responsibility and the operative responsibility,” says Soso Simonishvili, an economic analyst. “A hundred percent of the responsibility for everything that has been going on since November lies on the NBG. Of course, there were objective external reasons, such as a decrease in investments and money transfers, but this decrease was insignificant and could not deal our currency such a catastrophic blow if not for the strange policy of the NBG. The National Bank of Georgia acted not in favor, but against the lari. Instead of pumping money out, NBG issued big volumes of GEL in the middle of the crisis, thus adding fuel to the fire. And don’t even get me started on its failure (or refusal) to use the full kit of monetary policy tools.“

The parliamentary committee called upon both the NBG governor and the government to shed more light on the lari soap opera, but MPs failed to ask major and much-needed questions and ended up simply recommending the NBG to continue its monetary policy and keep prices stable.

As a matter of fact, when the lari reached its peak of depreciation in January, the NBG doubled its lari reserves twice by issuing first 450 million and then 260 million GEL. Besides, in November-December, when the currency’s downfall began, the NBG never stopped giving out short-term [7-day] refinancing loans to commercial banks that generally are used for import-export operations and speculations, analysts say. The total volume of these loans exceeded 3 billion GEL within these two months. How this money was spent is a mystery, because the NBG does not disclose insider information voluntarily and the MPs neither demand it from Kadagidze nor set up any special commissions to find answers to questions that float in the air lately.
Some analysts think that the NBG itself participated in currency speculations, since it is a commercial organization that profits from disbursing re-financing loans and currency trade.
“I believe that November, December and January were the months where obvious currency speculations took place, but I do not have the facts to back this up. Nobody but the NBG has access to the documents denoting the banks that participated in the currency trade and things the money given to them by the NBG through loans was spent on. NBG is an independent body and nobody except the Parliament can demand all data and documents concerning the currency trades and traders, but the Parliament failed to do its duty. Moreover, in its conclusion the committee hearing approved the NBG activity and basically told it to carry on,” says Paata Sheshelidze, President of New Economic School, in his interview with GJ.

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