The Cabinet Reshuffles, but the Economic Team is Left Intact
08 May, 2015
The Cabinet Reshuffles, but the Economic Team is Left Intact
The Cabinet of Ministers of Georgia is undergoing reshuffling, with the currency crisis and economic slowdown in the backdrop. However, it seems that the ministers currently comprising the economic team will keep their posts. Prime Minster Irakli Gharibashvili, who has to name candidates for the new Cabinet, has already put the same old faces forward. This has angered both the opposition and a significant number of economic analysts, who think that the economic team should be changed first and foremost. They
argue that the currently active economic team has led the Georgian economy to stagnation and thus must be removed from the scene.

“The economy hasn’t been in such a poor state for 15 years now, and responsibility for it lies precisely on the economic team.”

“I strongly believe that replacing the current economic team needs to be at the top of the agenda. Otherwise, these Cabinet shuffles will be meaningless,” says Dietrich Muller, a financial and investment analyst, in an interview with Georgian Journal. “As a matter of fact, the economy hasn’t been in such a poor state for 15 years now, and responsibility for it lies precisely on the economic team. The national currency has depreciated by 30 percent since November of 2014. It is still going down, and the government is responsible for that. Yes, there were external shocks [that cut our exports, money transfers and investments] but these shocks were fairly predictable. The government had to react adequately, but it did not. If this inefficient team will keep their places in the new Cabinet, there is no reason to expect the economic situation to recover. The lari will most likely slip down from the current index of 2.3 GEL per 1 USD to 2.5 and even 3 GEL.
Demur Giorkhelidze, an economic analyst, is convinced that not only the economic team, but the entire government is responsible for the lamentable picture of Georgian economy.
“Impressive results could’ve been achieved within the last two years – if the government had been oriented towards results, that is,” he said. According to him, overall economic initiatives of the government weren’t that bad, but their implementation was wrong. For instance, the cheap loans program, which was aimed at boosting agriculture via preferential loans, failed to live up to expectations. The state is subsidizing the credit rates to beneficiaries, but the program itself is implemented by banks. This is a mistake, as both Giorkhelidze and Muller believe.
“In fact, this cheap loan program was far more profitable for the banking sector rather than to farmers. The reason is the false pseudo-liberal approach of the state not interfering with business. Therefore, the program is being implemented not by the state, but by commercial banks instead. This is a mistake, since this program carries state interests, yet it’s banks and not the state who choose who gets preferential loans subsidized by the state budget.
Of course, the state cannot dictate to commercial banks who to disburse credit to, but when it comes to strategic state interests, it can provide loans to those whom the banks aren’t interested in. Unfortunately, in our case the money that was intended to help develop agriculture ended up subsidizing the banks’ interest rates. Banks are gorging themselves on money, while the economy is decaying. This is a result of poor regulation,” Giorkhelidze said.
However, Vakhtang Charaia, Director of the Center for Analyses and Prognosis, believes the Cabinet’s current economic team was not weak, but the external factors were simply unavoidable.
“The current economic team is far from weak. The problems come from abroad. In 2008, after the short-lived war with Russia the international community gave a four-year financial support to Georgia that amounted to 4.5 billion USD. Commensurately, around a billion used to enter Georgia every year until 2012. In 2012, when the new government came, the financial aid had run its course, which has complicated things. The external factors aggravated the situation. I doubt anyone could’ve done better,” he said.
Mr. Muller disagrees with Vakhtang Cha­raia, believing the effect of external shocks could have and still can be mitigated. Internal factors can also be quickly brought under control, he claims.
“The Russian-Ukrainian conflict, which has dealt a major blow to Georgian exports and money transfers, started a year ago. The oil prices started dropping in summer of 2014 and the U.S. Federal Reserve announced that it was ending the quantitative easing, making it obvious that the dollar would start getting stronger. The National Bank of Georgia had to provide an adequate reaction to all these events, but it did not. The ministers blame the NBG for incompetence, claiming that its Governor Giorgi Kadagidze is an ally of the National Movement party and is blackmailing the government. But if they think this is true, why did not they remove him from his post in a timely fashion? Why did the government not take proper actions to mitigate the imminent risks the external factors posed? Now the economic situation is going through a crisis and it needs a creative team to find solutions. The team that has failed to prevent this crisis in the first place cannot possibly hope to fix it,” Muller concludes.
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