Will GEL become stable again?

“The Government gives us gifts with one hand while robbing with the other”

Georgia’s national currency keeps depreciating. According to the National Bank’s exchange rate, $1 equals 1.9962 GEL today and dollar has already exceeded 2 GEL in commercial banks and currency exchange booths.

BPN discussed this issue with Roman Gotsiridze, head of the Economic Development Center.

-The devaluation of GEL has entered a new phase; the process is getting out of control. The government claims that along with other factors, reduced remittances from foreign countries have also resulted in a weakened GEL. Does this argument seem credible to you? In your opinion, what has actually caused an alarming depreciation of the GEL?

- First of all, I should emphasize that by mentioning foreign factors, we are just trying to gloss over the government’s faults and justify its irrational policy.

It’s without question that foreign factors do influence a country’s economy; clearly though, these factors are not of decisive importance. Even the Russian-Georgian war of 2008 and the World Economic Crisis did not have any major impact on our currency.

Today, our economy is like a hopeless patient who is circling the drain. A worsening investment environment, internal political problems, hopelessness and an ineffective government – these factors have led us to this crisis.

Some crucial changes in our economic system are what have caused a drop in the value of GEL twice in two years. A market-oriented economy has transformed into a social oriented one. This can sound good; however, the results of this process are always destructive. Obviously, a clear testimony to this is our budget that has systematically been depleted by so-called incentive expenses: subsidies, different business programs, land-poor farmer support projects, harvest insurance, Universal Health Insurance, free books, social assistance programs, universal benefit vouchers for both - the haves and have-nots…

Now they want to pass another ludicrous law banning employers from hiring foreign specialists without first discussing the use of Georgian specialists. I cannot deny that this initiation seems good at first sight, but the problem is that they failed to find Georgian welders while building Baku-Tbilisi-Ceyhan pipeline, for example.

All these initiatives seem rational only if we don’t go into detail and refrain from analyzing them thoroughly.

Believe it or not, in just two years, we managed to negotiate the challenges in our healthcare system, something that the U.S. has tried to cope with for 200 years. We have done this thanks to loans, however. Plus, our people have paid a heavy price for the benefits the state budget has offered them. GEL depreciation and boosted prices on everything have led some inpiduals as well as private farms into hardship.

All this leads us to one logical conclusion: our government is giving us gifts with one hand while robbing with the other. Accordingly, low-income Georgians are the ones who suffered more damage in this process than others. Inflation always devastates those who should, by all rights, benefit from government projects.

You have already seen what such a reckless policy led Greece and Cyprus to. They have channeled more than 50 billion into Greece’s budget via different sources, and today they are going to kick this country out of the Eurozone.

In 2013-2014, their failure to meet the budget resulted in the GEL’s devaluation, while in December their move to put almost a billion GEL into circulation served as catalyst for this process. A massive public backlash as well as already mentioned foreign factors added fuel to the fire, resulting in the second phase of the GEL’s devaluation.

By all rights, the GEL should stabilize soon and after that we could face a “breakthrough” or “some frozen processes.”

A lot depends on the government’s readiness to cope with some pressing challenges and resolve the issues such as decreased export, investments, money transfers etc. However, claims that decreased remittances resulted in the devaluation of the GEL are a bit over the top, since this problem emerged only three months ago.

In addition, it would also be interesting to know why whenever they define a negative foreign factor as a cause of this situation, they refuse to mention positive factors as well.

Oil steadily dropping in price globally definitely has a positive effect on the country’s economy. This will also help them keep foreign currency circulating inside the country.

- Is our government capable of preventing GEL from depreciating again?

-The government will find it troublesome to deal with some fundamental issues because of its “New Economic Policy” (NEP) that is a real problem generator. In this state of affairs, the government and the National Bank can both stabilize the situation by controlling the cash flow.

However, how we’ll manage to resolve the deficit in currency or how we will reassure foreign investors to invest in Georgia remains a mystery. What makes our country more attractive than others? Frankly speaking, Georgia has lost its attractiveness, and we must do something about this.

- A steep drop in the value of GEL prompted a countrywide backlash last year while this year, we have been left with the impression that our people have gotten accustomed to the GEL’s volatility . Could this be true?

- I can’t agree with this. Our people still hope that it will become stable again. This process has not yet resulted in flagrantly inflated prices; however, it has already damaged our importers. Tell me, what can the public do now? Take to the streets? One thing I can say for certain is that this process will backfire on the Georgian authorities.  

- Can you predict what will happen in the future? Will anything change?

- The GEL is expected to stabilize in the near future. In summer, the situation is expected to change for the better; then December will come again and if they manage to meet the budget, we will be able to be optimistic about the future again.