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Georgia proudly gets itself smothered in debt2009-03-26 16:28
Tbilisi is rejoicing at the latest tranche from the International Monetary Fund (IMF), which will protect the country's economy from the upheavals of the global crisis. Georgia's level of external debt will now rise by a further $187 million. But the repayment deadline is far off: it will be another president who will have to pay back all these billions with interest.
The International Monetary Fund has given a positive assessment of Georgia's economic policies, reported the Business Georgia website. An IMF spokesman, Edward Gardner, emphasized at a press conference in the State Chancellery: "As part of its economic programme, all the planned targets for the end of 2008 were successfully reached by Georgia's government".
Obtaining $187 million during the crisis is a significant achievement. This is the view of Georgia's Finance Minister, Kakha Baindurashvili, as GHN reports. "The Georgian government precisely met all the promises which were made as part of the first tranche, which in these conditions of international economic crisis is a very important and very good thing," the minister praised himself and his colleagues at this same press conference.
He was seconded by the vice president of the National Bank of Georgia, David Amaglobeli: "It's not only financial support, but also a recognition that our microeconomic policies have been carried out successfully".
The banker promised that the funds obtained by Georgia would be used to replenish the country's international reserves. Therefore, the reserves will increase from $1.3 billion to $1.5 billion. Why the country needs to take credit, which is not spent but rather invested in US dollars, and in fact increases due to interest, is impossible for the ordinary person to understand. But that is how the economists from the International Monetary Fund have ordered the money to be used, and they have not transferred the money to the Georgian government, but to the National Bank. "The IMF is recommending that the Georgian government should set aside this loan in order to be prepared for any turn of events on the economic and financial markets, and use these funds if any unexpected problems emerge," Gardner said at the press conference. It is obvious that Amaglobeli and Baindurashvili could not disobey this recommendation.
The IMF tranches cut both ways. If they are used to replenish the reserves spent during the war in South Ossetia, this will, of course, give a certain guarantee of stability which should win back potential investors' trust in Georgia. Because the money does not go straight into the economy, it does not drive up inflation. In an emergency, it could be used to prop up the national currency exchange rate. However, at some point the debt will have to be repaid, by which time it will have increased several times over.
But how much is the pride felt by the ruling regime a result of the fact that funds were entrusted to them, and not to somebody else? After all, Baindurashvili said that the Fund refused to grant aid to certain countries like Ukraine, because they did not approve of their economic programmes.
The IMF opened a credit line for Georgia on the wave of international sympathy towards the country, which was left thoroughly broken and shattered by the South Ossetian war. In September 2008 the Fund's council of directors promised to provide 477.1 million stand-by SDRs (an imaginary currency unit adopted for transactions with the Fund), which is worth $750 million. Georgia received $250 million straight away, and the rest was divided into a further five tranches. This money, given on credit, must be used within a year and a half. It will have to be paid back in 3.5 to 5 years time.