World is preparing for fight, while Georgia is celebrating victory

Aleksandra Laliashvili

Two meetings of financiers have been held in Nov-2009 – summit of the Ministers of Finances of G-20 countries in Saint-Andrews (Scotland) and presentation of National Bank of Georgia and Georgian commercial banks for journalists.

Main subject for discussion at both meetings was global financial recession and its outcomes. However, the aim of gathering for these meetings was quite different. Ministers of finances of G-20 countries are mourning over the world and are seeking the ways to overcome recession day and night. However, Georgian bankers are already celebrating – global financial crisis and its demolishing results are consigned to oblivion.
Despite big controversies in opinions, Ministers of finances of G-20 countries have come to one common idea: states are induced to continue support of private sectors of economy for some time. Participants of the summit declare in joint statement that financial and economic conditions are improved, but recovery is rather uneven. They express concern about high level of unemployment. It has been noted that it is necessary to design common rules of “play” and to make a deal between banks and society.
The US Secretary to the Treasury, Timothy Geithner, declared – “It is too early to start to lean against recovery. The classic mistake in past crises was to put on the brakes too quickly.”
If one trusts the words of Mr. Geithner, Georgian government has made a cascade of mistakes. Our government is used to wishful thinking, manipulating by Department of Statistics and other insecure data, cheap shows. Considering all the above mentioned, Mr. Kadagidze’s announcement about the end of economic crisis in Georgia is not surprising.
In the beginning of November, the president of National Bank, Giorgi Kadagidze, together with the managers of Georgian commercial banks held a meeting with journalists and gladenned 290,000 black listed people in Creditinfo, thousands of jobless people, 900,000 living beyond the margin of poverty and 600,000 waiting to gain this status that economic crisis is over and established tendencies are encouraging.
Earlier before, government representatives were declaring the end of crisis. Georgian government hopes that the country finishes 2009Y with better showings than this is expected by many experts or international institutions.
The president of National Bank of Georgia presented arguments for proving his conclusions and witnessed the representatives of the banks. “Together with representatives of banking sector we have discussed main macroeconomic showings. Commercial banks completed Deptember with consolidated profit. This is the first profitable month for the banks over the last thirteen months. Our monetary reserves reached historical maximum and liquidity of banking sector is unprecedentedly high. Only these three showings are clear proof of crisis completion. Today, our main challenge is to restore past growth pace of the country, to be more precise, 2007Y and first quarter of 2008Y. – declared the president of NBG. Monetary market has been considerably stabilized. Interventions of NBG are close to zero”.
Giorgi Kadagidze declared that after August deflation, annual 3% inflation is anticipated in the end of this year. He also noted that despite some decrease in budgetary expenses in 2010, they remain at high level. On its part, this ensures fiscal simulation of economic activity.
The president of NGB is making “encouraging” prognosis – Current account deficit will be appreciably decreased and makes up 13%.
Improvement will be noticed in such economic showings as trade and export. The data of incoming monetary transfers of Georgia was decreasing over the months, but this indicator started increasing in September and reached its maximum of the year. The pace of trading reduction is slowed down also; improvements are especially noticed in export. Tendencies of immovable and movable property markets are encouraging also and the situation is becoming stable. The agency pass-throughs of Georgia have restored their emission price that indicates high degree of confidence of foreign investors. “We have made these prognoses in summer. This became possible due to right and well estimated economic and monetary policy” – declared the president of the bank.
He emphasized that GDP growth in 2010Y will be at least 2% that indicates the reduction of downgrade pace (2009Y forecast -4%; 2010Y forecast 2%).
Executive director of Association of Banks of Georgia, Giorgi Tsutskiridze fully agrees with this opinion. According to Mr. Tsutskiridze, positive changes in the sector were anticipated, as the banking sector has overcome the most dangerous critical period yet in the end of 2008Y and beginning of 2009Y. Everything depended on the time when the country’s economy would start to recover from recession. Despite skeptic evaluations of the part of experts, we have repeatedly mentioned that increase of overdue banking debts should not have been a basis for making unequivocally pessimistic prognoses, as the volume of bad debts has not exceeded 4.5%. While temporary losses of the banks were caused by backup of loans and restructuring of the part of the debts.
Leading commercial banks are talking about end of the crisis. General Director of Bank of Georgia, Irakli Gilauri positively evaluates country’s macroeconomic picture and declares that the tendency of economic growth will cause reduction of interest rate both for credits and deposits. The strategy of Bank of Georgia is reduction of interest rates and increase of credit portfolio” – declared Mr. Gilauri.
General Director of TBC Bank, Vakhtang Butskhrikidze has positive attitude towards current macroeconomic situation of the country and declares that “This will positively influence activities of commercial banks”. He noted that TBC Bank has activated issuing of loans to physical bodies and at the same time the bank has considerably decreased interest rates. “We are also considering to activate corporate loans” – said Mr. Butskhrikidze (
Optimism of the government is not shared by the majority. Together with Georgian experts, foreigners are expressing their skepticism also. For instance representative of British HSBC Bank in Georgia Guy Louise reckons that there is a risk of plunging into recession again. Another reason of such assumption is that the number of individual entrepreneurs at Georgian markets is still decreasing. Profitability of advertising campaigns of large business has fallen too. As regards commercial banks, despite their statements, their credit activity has not increased considerably and activity of foreign investment attraction is quite low. World’s leading economic experts forecast beginning of second stage of crisis that concerns Georgia as it is a developing transition economy. Inter alia, simultaneously with the statement about crisis overcoming, it appears that the number of overdue debts is still increasing. Records of overdue loans increased by 81,055 units after Oct-16 and made up 286,900 records at the end of the month. And this is another proof of existing problem.
We believe, but the facts speak another
According to the decree of parliament of Georgia, financial police will be re-established in Georgia, from Dec-01. The new law implies separation of investigation department from revenue service and it will be formed as an independent, powerful service. The president is assigning the head of the department. Prime Minister was assigning the head of financial police in the past. Revenue service will be developed as a civil institution and will be administering the taxes and oriented toward taxpayers. Investigation service will bear police function as the government reckons it reasonable to develop these services as two separate structures.
Experts suggest that broadening of the rights of investigation service was defined by budgetary crisis. Government is not denying that stringent administering will mobilize more funds in the budget. Therefore, it appears that this was a pure political decision that is connected with the goal of increasing tax revenue in the state budget. The government is bearing quite a number of social obligations and thus it is necessary to mobilize huge funds in the state budget. However, the question is that how far it is justified to establish new police mechanism, moreover under the conditions of financial crisis, when every state tries to simplify its taxation administering, instead of establishing more stringent rules.
The head of the country keeps up with the head of national bank in optimism and makes classic “Geithner’s” mistake after mistake. “Georgia has overcome the sharpest period of economic crisis” – declared the president at the governmental outgoing meeting in Kakheti, on Nov-11-09. “Economy is becoming stable and activity and revival is felt in quite a number of sectors”, – said the president and also noted that confidence of investors is restoring. “For instance, our interest rate of Euro Fund has decreased from 23 percent to 7.” The president emphasized that new factories are opened daily, sales of motor cars is increased and real estate market is becoming more operative. The price increase on apartments in Tbilisi and Batumi is observed. At the same time, the president is sure that financial sector is fully healthy, reserves of the national bank are twice as more as over last year; the number of deposits in the banks has reached its maximum over the past years. “Now, recovery of private sector from lethargic sleep is of considerable importance” – reckons the president of Georgia.
P.S. Maybe awaking from lethargic sleep is not a bad idea for the government of Georgia itself?!