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Friday, 28 October 2016


Farewell to lari?

25.05.2009  |  21:25

2822.jpegPrime Minister's Advisor Nona Karalashvili took up the idea of now dismissed Kakha Bendukidze on cancellation of lari and transfer to euro and dollars. Georgia Times tried to find out whether it is feasible and good for Georgia.

The Georgian government is seriously discussing cancellation of lari as an incentive for investors. As stated by Nona Karalashvili in her interview with Liberal journal the transfer to euro and dollars will mitigate the risk of financial losses connected with the national currency rate fluctuations.


"It will not be a problem for lari as this process is already underway. All big purchases - apartments, cars - are made in dollars or euro. After the reform lari will remain a secondary currency and can be completely withdrawn from calculation with time. For example the International Monetary Fund recommended such a reform not only to Georgia but to the Eastern European countries, - Karalashvili reminded.

In April after the IMF advised some countries to start using euro in order to overcome the crisis Georgia's ex state minister for reforms Kakha Bendukidze considered this option ideal for Georgia too. "The recommendation to the Eastern European countries to switch over to euro will be useful for Georgia too, - he announced. - If the circulation of euro in our country becomes legal it will make us closer to the European Union, our alliance will be stronger and will attract more tourists and European investors". Bendukidze in his interview with Kommersant radio gave an example of Montenegro with the 2,5-fold increase in economy growth and the 3-fold reduction in the inflation rate. This state started using euro without acceding into the European Union and without coordinating its decision with the European Central Bank. "As due to that issue of money is not allowed in Montenegro the country feeds on foreign proceeds, tourism in particular. Besides, this is the reason why there is no Central Bank in the country; - Bendukidze listed the advantages of cancellation of the national currency.

Naturally the bankers got alarmed for the fear to lose control over money flows. According to the National Bank of Georgia (NBG) the national currency allows carrying out independent monetary policies being protected against negative processes on the global market. Ex NBG President Nodar Javakhishvili said in an interview with Kommersant radio that he didn't understand what reforms the Prime Minister's First Advisor was speaking about and what possible withdrawal of lari from circulation meant. "Prime Minister's advisors are bad at economics and international norms. Who gives them the right to declare euro or dollar a national currency? Or maybe they think only their desire is enough?", - he remarked with sarcasm.

Deputy Finance Minister Dmitry Gvindadze condemned lari cancellation too. He stated it was a long and complicated process involving consultations with international organizations and financial institutions. The Deputy Minister assured the journalists the issue of national currency transformation into a secondary currency would not even be considered.

It will be remembered the IMF experts believe the transfer to euro will help the countries affected by the crisis to settle their external debts in foreign currencies that grow bigger because of devaluation of national currencies. This argument is very urgent for Georgia. By April 30 the country's external debt reached 4 billion 628 thousand lari with this figure not exceeding 1.5 billion lari last year, Kommersant radio reports. According to the experts by the end of 2009 the country's external debt will be equal to 30% of the country's GDP. However the Ministry of Finance sees no danger here. "We cooperate only with official donors, financial institutions whose funding is in the form of grants or on favorable terms. We will start discharging this debt in 2019 and I hope the financial crisis will be conquered by that time", - Gvinadze comforts himself.

Most experts questioned by Ekopalitra newspaper quoted on Business Georgia site also believe the transfer to euro is ill-timed. David Aslanishvili, Investment Group of Georgia founder stated that transfer to other currencies is possible when exports are higher than imports, when local production is strong. "Even Poland, a EU member state, has not switched over to euro and they find it acceptable as it would cause advance in prices and increase in unemployment rate", - Aslanishvili emphasized. He reminded that when the EU countries started using euro they had high standards of living and high salaries; their budget deficit was below 3%. As for Bendukidze's argument about reduction in investment risks, Aslanashvili believes it will hardly lure investors to the country. "Attraction of investors here is agreed with state officials and has nothing to do with acquisition of shares and public offers. In a situation when the investments are zeroed and there is no free financial resource on the global market it's impossible to attract an investor by currency change", - he believes.

Aslanishvili's colleague, Levan Surguladze, Caucasus Financial investment company director is basically in favor of euro/dollar free circulation. But he also thinks it mustn't involve total replacement of lari - only transactions in euro.


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