Maka Ghaniashvili, Emzar Jgerenaia
Since August, in all over the world, financial-economic crisis is raging. Like 10 years ago, even today the events are developing with the chain reactionbecause of the US’s Sub Prime European Banks (Swiss and German) are experiencing huge losses.
There is a liquid deficit in England, which ended with a suspicious bankrupt of America’s Mortgage Market’s giants (Freddie Mac and Fannie Mae and Lehman Brothers). Their case is being studied by FBI. Economic crisis spread to Russia too. Economic fall down in Russia became alarming and equalized the 10 year ago days of the Black August. What is happening now in the world? Is this a cyclical repetition of 10 year ago crisis or just the new era of the so called “Financial Bubble”? May be everything is the result of Russia-Georgian and Russia-World opposition? Where is the beginning and where can be the end? In order to analyze events clearly, we give a cycle of articles that fully reveal events taking place in different countries of the world; all these will help the general picture to become more vivid.
Banking Crisis in the USA
Let’s start analyzing events from the USA, where severe Banking Crisis is taking place. Where this Banking Crisis is come from and was it possible to eradicate it in that way not to cause the bankrupt of banks? In the USA the bankrupt of Lehmon Brothers’ largest investment bank, fall to thinking the members of the financial market. Problems aroused in the second largest investment Bank -Meril Lynch, which’s issue of survival is still under the question. The issue is in the following: in 2007 the famous Banking Crisis that had been fecundated by the massive worsening of mortgage loans, was considered to be a matter of past.
In its side the mortgage crisis was aroused by the decision of the USA’s Federal Reserve System- to increase Fed Fund Rate in order to detain growing inflation (July 2008). The recent increase of Fed Fund Rate is Ben Bernanke’s mistake or innovation will be judged by the nearest future. It is the fact that from 2005 to the second half of 2007, Federal Reserve System was fighting severely against inflation. As the Increase of Fed Fund Rate is the most effective policy in the developed World for fighting against inflation ( very often this policy is called as Hawkish Policy) , that’s way it is natural that Federal Reserve System was hoping to cope with the inflation. Everything happened so; it is true that inflation didn’t drop to desired level, which was caused by the price increase on energy resources, but it really decreased. The growing Fed Fund Rate Policy has a negative influence also on economic growth. Directly Fed Fund Rate caused the so called “cooling” of economy, but here Federal Reserve System exaggerated a little and instead of “Cooling” economy it nearly became “cold”. For example, if economic growth was nearly 4% in 2005, it decreased to 2% in 2007. This “coldness” was mostly reflected on the market of immovable property. Selling index of new houses are used as the best reflection of the immovable property market dynamic in the USA. According to statistics, the growth of Fund Rate badly damaged the budget of average American family, because Americans always buy houses with the help of mortgage loans. In the USA the changeable Fund Rate is very popular.
For example, if we borrow a mortgage loan of 15% in Georgia and it is written 15% in the contract for the next 10 years, in USA in most cases Fund Rate changes. For instance, if an American borrowed the mortgage loan by 4% in 2004, in 2007 he had to pay nearly 7-8%, that’s why his budget was damaged and he couldn’t cover the loan in the bank. Such cases were for thousands in the USA. Selling index of new houses fell. Mortgage Crisis hit the immovable property market – the banks brought out to sell hypothecated immovable property that caused more price fall of it in the USA. In short, the mortgage crisis became unavoidable. At this time Federal Reserve System made a sharp announcement that it was starting a new policy of Fund Rate decrease and the basic Fund Rate of the country decreased from 5% to 2% in several months. Fund differentiation is the category that has a great influence on the exchange rate. When Federal Reserve Bank decreased the percent at this time dollars exchange rate devaluated, that’s why devaluation of dollar towards Euro is connected with above mentioned policy. (see the tables 1 and 2)
The most interesting is the middle and the last period of 2006, when Fund Rate was constant, but dollar still continued devaluation. This happened because from that period the Federal Bank was making oral announcements on possible start of Fed Fund Rate decrease tendency. These announcements have such strength on the market that dollar devaluation started earlier than real decrease of Fed Fund Rate. In spite of these actions, Fed couldn’t manage to avoid banking crisis. It is true that improved such short-term economic indexes as NFP (index of growth of employees in non-farming sector), selling of new houses, GDP’s growth rate and so on, but still banking crisis took place a bit later.
Since 2007 stocks of large banks were cheapening rapidly on the stock exchange. During this period investors felt the possible difficulties and were selling their stocks. The peak of price fall on stocks was in the middle of September, when the index of Dow Jones fell by 4.5%. In spite of the fact that large banks are experiencing difficulties, small and medium size banks are not touched by it yet. The most part of the USA’s banking system is composed of such banks. Moreover, bankrupted bank Lehmon Brothers is an investment bank and as it is known, investment bank is more risky than an ordinary commercial bank. The customer, who entrusts his money to the investment bank, in advance recognizes the risk that this money is put in much more risky asset than the bank deposit is. Because of these factors small and medium banks haven’t been touched by crisis yet. The USA has received an unprecedented decision, when it made an announcement of assigning 700 billion dollars. According to the secretary of Treasure, Henry Polson, this money should be used for buying hopeless loan portfolios from the financial Institutions, in other words with this action the State took itself the credit risk. Also unprecedented is the bought of the largest Insurgency Company AIG’s 79.9% of stocks by the State. With this action the State tries to act earlier on the Insurance Market, before market crisis will be spread to it. After the spread of this information index of Dow Jones extremely increased and returned to the level of pre crisis period. The experts ask the question – have we turned to the State regulated market economy? Maybe we were (the West is considered) and didn’t express. Will such State intensive interference cause the abolishment of market equilibration or give worse result? On the other side such a deep economic crisis becomes the matter of National Security of the USA. If the world leader country manages to come out of this situation it will stay as a Super Power and main player of the World market. Today the faith of the USA is being decided and it is not only the matter of the Wall Street. However, it can be said that the faith of the Free Market is being decided.
In spite of the USA’s banking crisis, which was considered as the end of the Wall Street Era by the experts, more interesting is the collapse of such rapidly growing market as was Russia’s. Here the main factor really is the war of Russia-Georgia, the decision of the West and mostly of the USA to shake badly Russia’s economy and create the field for spending money. There is no other way to suppress Russia’s Imperialistic ambitions.
Russia’s Economic Crisis
From where did everything start? Since June of 2008 the index of stock exchange continued falling. The falling of index was provoked by the so called case of “MECHEL”, when Putin made the negative announcement about one of the Russia’s largest company’s manager. At that time everyone considered that in spite of recent economic progress Russia still stayed devoted to the forced action, which in case of need could be used, even in private business, without thinking. The falling of Russia’s stock exchange index starts from this period. In a month the index fell for 8%.
Today many experts notes that what is taking place on Russian stock exchange is the result of the war led against Georgia, which made Russia as an aggressor and potentially the state appeared in an International Isolation. If before the war Russian stock exchange was falling in a stable way, after the war this falling became extremely alarming. The catastrophic fall of index took place in a day, on August 8, when it fell by 6%. (See the Table # 3)
Since the West made an announcement about possible isolation, stock exchange reacted on it with a rapid fall. It was also added with the decrease of oil price that worsened the financial condition of “Lukoil” and “Gazprom”. Rush selling of stocks on the exchange was fastened when the representatives of Russian government started speaking about capital flow out from the country and using of Stability Fund. If we observe the dynamic of the stock exchange, it was after the August 16 when they started speaking about exact figures and the capital flow out from the country. Then on Tuesday, after opening trade index started to fall rapidly. (See the Table #4). The next rapid fall was fixed after the recognition of Abkhazia and the so called South Ossetia. The important fall was on August 25, but when Medvedev signed the decision of the State Duma, on August 26 the stocks cheapened more. On September 1 to this was added the information spread from the side of Europe, as if, it is possible to establish sanctions for Russia. In spite of the fact that it did not take place, this information was enough to provoke investors, who sold the stocks of Russian companies and on September 2-3 the index fell rapidly again.
With the worst calculations, after the war of Russia-Georgia, Russia has lost 80 billion dollar foreign capital. Investors are leaving Russia one by one with the fear of geopolitical shake and credit danger. This has already caused catastrophic reduction of the Russia’s economic growth index. The condition of the stock market is seriously reflected in country’s economy. In the beginning of September, during 3 days, Russia’s stock exchange has lost nearly 12%. The fall of fund index began from the beginning of summer and during 3 months it reached 30%. The capitalization of Russian Industry’s Raw Material reduced nearly by 1/3, as for Russian Ruble it devaluated by 23% during the last several weeks. In spite of catastrophic fall of prices, investors are not in a hurry to buy the devaluated stocks. On the contrary, every player tries to get rid of devaluated stocks of Russian Companies. It is clear for them that the rapid growth of Dollar rate and the reduction of oil price, caused by recessive processes of the World Economy, will by all means collapse Russia’s Stock exchange, which is full of energy companies. The first signal for the international investors that made them leave Russian market, was the prognosis of Monetary Fund published at the end of July, according to it Russia’s economy is burned and there exists no preconditions for its growth. This was followed with Russia’s expel from the Great 8, because of warfare in Georgia and procrastinated procedures of receiving Russia in World Trade Organization. Situation was tensed by the announcement of European Central Bank’s president Jan Jak Trishe who published the prognosis of reduced economic growth. At the end of August even the World Bank responded to the Russia’s Fund Crisis and made the prognosis that by the end of the year the price on oil would reduce to $80. This information became one more stimulus for investors to direct investments from Russian market towards growing rate of dollar. Only during the first 2 weeks of Russia-Georgia war, 20 billion dollar capital was taken away from Russia. Russian speculator companies accompanied international investors and began to set in motion the mechanisms of Stop-Loose and Margin-Call, which means selling of devaluated stocks in order to avoid huge following loss. Especially the stocks of oil producing, industrial and state companies devaluated. To this was added the announcement of the World Bank, which declared Russia’s business environment to be worsened and the economy of this country not match the World Standards. In an annual report “Doing Business 2009” in the rating of desired countries for doing business Russia occupied the 120th place among 181 countries. Except foreign factors and the state of war, non-successive and co-wrecking policy of 2 opposed groups (Ministries of Finance and Economy) who are standing in the head of Russia’s economy, favored to deepen the crisis on the stock and monetary exchange. Minister of Finance, Liberal Kudrin’s group had already prepared a plan of anti crisis measures by August 8, where one of the most important points was the reduction of taxes. According to the plan, social taxes and the VAT were to be reduced, simultaneously was growing the rate of refinancing of the Central Bank in order to stop the process of inflation. Fund market received this plan positively, but after the meeting of Russia’s Minister of Economy and Putin this plan failed. The representatives of Law Enforcement Agencies, who were backing the Russia’s Minister of Economy did not receive Kudrin’s plan so the level of VAT stayed unchangeable. Only on the third day of the market collapse, on September 4, the information was published that the VAT rate would be reduced for the oil producing companies. But this information appeared to be late for the players of market. Experts also announce that liquid crisis had reached Russia, crisis that already had been in Europe and in the USA. Liquid Crisis makes problems for those businessmen who have invested capital in the stock exchange.
Experts acknowledge that the tendencies of slow down in European economy had their distinct bit in the fall down of Russian economy. But in everything they still blame Putin’s government. After the complicated situation with TNK-BP, when Putin clearly backed Russia’s side, with this action, experts declare that Putin helped to hamper Russia’s economic development. His hasty words cost Russian stock exchange billions of dollars. Oil Company TNK-BP, which belongs to the British BP and Russian private investor (Alfa Access Renoval- AAR), was paralyzed for a couple of months because of existing disagreement in the council of management. Russian investor did not like the way of American Bob Dudley’s management, who was invited by BP. Because of deepened disagreement, Russian shareholder blocked the working permission for the foreign workers. Among them was Dudley, who after this incident governed the company from abroad. In this argument Russian government distinctly took the side of Russian shareholder. Russia’s Tax and Immigration Services helped openly the AAR.
On September 4 sides managed to come to an agreement. The 50% share of BP was saved. Dudley is to leave his position before the end of the year and another candidate presented by BP will change him after the approval of the new candidate from the Board of Managers. In spite of the fact that nowadays conflict is settled, BP will always have a fear that the same situation may take place, even more there still exist difference of opinions between BP and AAR and the last one will always have a hope of Russian government’s support. This topic was a compromised resolve of BP’s case, a kind of contribution that had been paid to Britain by Russian side after the war against Georgia, in order not to doom Russia completely, after the war the same gift received France for “TOTAL”. We think that in this way Premier Putin somehow calmed down Europe. Will this be enough for the European policy makers? Putin’s threat towards “MECHEL” is added to the case of BP. Exactly “MECHEL”’s issue at the beginning of July caused Russia’s stock exchange to experience a loss of 60 billion dollars. It is true that both arguments are settled, but the improvement of Russia’s business climate has not followed even after the agreement among TNK-BP’s shareholders and not after the Court’s favorable decision for “MECHEL”. After these events there will always exist a fear of persecution and suppress among foreign investors from state’s side.
But still the greatest damage, on the stocks of Russian companies, was caused by the war- they experienced a loss of nearly 300 billion dollars. The prognoses of Russian experts complicate conditions more and more- according to their prognosis; in the summer of 2010 the evacuation of Mega polis’s citizens should take place because of natural gas shortage. For that period of time the gas shortage would be 33 billion cubic meters and every year by adding traditional substitute 27 billion tons of black oil would be necessary to use. For example, the case of “Sajuz Invest” that at first was carried out for privatization but later disappeared from the list, the arrest of mobile cell operator-“Euro set’s owners, anti terrorist operations in Ingush and Dagestan and the information of leaving Khodorkovski in jail. The tendency is oppressed by the action of inner investors who are trying to make the process of their assets exportation abroad irreversible. During the Russia-Georgia war “Norilski Nikkel” has exported the 20% of its assets in offshore zone. Will Russia have the enough strength to turn this process for its sake? Especially at the time when according to inquiries Russian market is considered to be the worst and the most risky in all over the world. It has taken the last place in the rating after Peru, Vietnam and Pakistan. The State started speaking openly about the existing economic crisis in Russia and tries to take effective measures against it. On September 17 Russia’s stock exchanges were closed for 2 days. This decision has been taken since the stock exchange index reached the lowest point. In order to overcome these difficulties President Medvedev assigned 500 billion Rubles.
Experts are drawing parallels between the events of 1998. At that time deep financial crisis overwhelmed Russia during which stocks devaluated terribly. Only in 1998 Russia’s stock exchange lost 118 billion dollars, from which 57 billion came on the value of shares, 31 billion – on foreign debt and 30 billion came on the denominated Ruble. In danger appeared the accumulated and lend foreign investments with the number of 200 billion dollars. Russia is on the verge of repeating the exact crisis. Let’s discuss the 10 year-ago events broadly. Exactly what happened 10 years ago and what parallels can be drawn between the World’s ongoing economic cataclysms?
Epicenter- the 4 Tigers of Asia
The economic crisis of 1998 started on the markets of Asia and touched the economics’ of the World’s developed and developing countries. Everyone remembers the Black Days of August in Russia- the failure of the Ruble and the serious stagnation of Georgia’s economy. Exchange rate of the Lari towards the Dollar and main currencies fell; economic growth during years could not reach to the level of 1997. Economists have been analyzing this process for a long time and still are studying the cause-effect connection between the tempos of Asia’s rapid economic growth, increase of investments and the direction of the issues of their sterilization towards the common problems of market warm up. Nowadays the analysis of these issues before the next stagnation is vitally important. The researches of the last years obviously confirmed that the formal or real cause of that crisis was the decree of balance in the supply-demand law that took place in Korea and completely in Asian market, or the cause was the corrections that time made in the law of supply-demand. During fundamental analysis economists and businessmen have not taken those facts into consideration.
Financial crisis first showed itself in the East Asia. It started in Thailand in the July of 1997. The National Bank of Thailand refused to regulate the national currency and to it followed the devaluation. Devaluation later experienced the National currencies of Filipinas, Indonesia, Malaysia. Crisis continued in Hong-Kong and spread to the South Korea too. Till 1997 Korea, Thailand, Singapore and Hong-Kong were considered as the World’s fastest growing economics’, they also were called as “4 Asian Tigers”. It is natural that the world’s economic vector was passing here. Rapid growth of economics’ and the high standard of profit was the litmus that mostly attracted foreign investors. The boom ended in 1997 and the main cause of it was not a corrupt ional scandal, as analysts of these countries use to say, but only one thing- excessive supply of investment. Let’s discuss the example of Korea, when the import of financial capital on the market exceeded the demands of local market. First of all market could not manage to bear the excessive investment, much more investment has entered the country than its economy was able to cultivate and fully use, economy over boiled. Second, financial obligations oppressed economy so much that debt service became the main sphere and it hampered economic growth. Third, it appeared impossible to sterilize investments optimally and the fourth, provoked consumption, in other words, artificially created consumption became the delayed-type action bomb, after explosion of which the crisis started. The crisis of liabilities and liquid deficiency was the red line of these actions, which started in 1997 and in 1998 spread to all over the world.
The Financial Crisis of 1998 in Russia and Spreading of it in Other Countries
The crisis, which began in august of 1998 and disordered Russian economy, financial and banking system, bankrupted thousands of enterprises and hundreds of banks, was one of the deepest crises in the world history. Because of this economic crisis, the rate of Russian Ruble has fallen thrice and the prices went up. Financial crisis in Russia was not all of a sudden and the way for it has been paved for almost a year. The intensity of the crisis was mostly determined by abnormal policy of Russian government.
Reasons of Crisis: The budget of Russia was remarkably scarce at that time. For the last two years, the state had been increasing the responsibility of issuing obligations, which were realized as in the domestic market, in the world market as well. The main goal was to attract credits and to strengthen national currency. Overpaying attention to such kind of policy brought bad results. Only in 1997, the cost of emitted obligations was more than 15 % of Gross Domestic Product. State debt services and paying some of them off needed extra emission, which implied forming a financial pyramid, increasing percentage rate of state obligations, which would probably result deep crisis. Using obligation emission as the resource of budget supplementation, more and more resembled a dangerous game. The Ministry of Finance was obliged to increase the expenses in order to pay the debts off. The balance between the income and the service of expenses was getting less and less useful for the central budget. The Russian Government had spent 20 billion dollars for such services, and it was more than 5 % of Gross Domestic Product and equaled almost half of the state budget. Therefore, emitting obligations gradually began getting senseless from 1997.
In the second quarter of 1998 the bringing of investments by foreign investors reduced 5 times. This caused the worsening of Russia’s taxation balance. Reduced the realization of stocks, to this was added the date of payment that came to the third quarter of 1998. The crisis coincided to this period. The devaluation of ruble became inevitable.
The reduced demand on Russian stocks was caused by the distrust of foreign investors towards the obligations taken by Russia’s government. It is true that government took measures in July of 1997 in order to improve conditions and decided to lead a strict monetary policy, to abolish scarce enterprises and subsidies for regions, to disband the monopolies and oligopolies, to reduce budgetary expanses and to increase budgetary incomes, but collided with the huge difficulties and failed completely. To this was added the spending of gold reserves by the Central Bank in order to stabilize the rate of ruble. The situation was worsened by the price fall on the main exporting products of Russia oil and gas. The reduction of Budget naturally followed to this. In 1997-1998 the oil supply on the World markets increased and the prices reduced nearly to 40%. Russia’s oil export reduced twice. According to the data of the International Monetary Fund, because of price reduction the loss in Russia on oil composed 2, 8 billion USD.
During Crisis Russia’s government had led the following measures:
Along with the devaluation of the Ruble the demand for currency sources was growing. In opposite of this Russian government introduced extra customs duty with the number of 3%. This limited the import.
The Central Bank increased the spending of currency sums in order to preserve the exchange rate of ruble. Only from the 31st of July till the 7th of August the Central Bank spent 1.7 billion dollars. At that period shortened Russia’s reserves of gold and currency with the number of 17 billion dollars that nearly composed the 8% of reserves of the Central Bank.
The Central Bank extremely complicated the purchase of currency by Commercial Banks and demanded from them transferring of ruble beforehand instead of currency. This made several Banks to become insolvent, along with this demand for currency sharply restricted. This was followed by an opposite reaction from market’s side, the price of currency and the price of imported goods raised and the operations on the stock exchange froze.
Commercial Banks were temporarily prohibited to pay debts of credits taken abroad. Due to the financial crisis investors have lost the confidence in state. The Central Banks was forced to close the inter-bank currency exchange; the state partly canceled its obligations.
Because of weakening the national currency, factually the dollarization of Russia’s economy took place. Measures taken by the state did not appear enough to avoid crisis.
Only after the price increase on oil became possible to reinforce Putin’s government and to heel the ulcers of the Chechen war. Afterwards Putin expressed a desire to become the member of the “Great 8” and once more the West made a mistake- Putin was forgiven the genocide of Chechens and the violation of private property rights. In exchange for they received the state monopolies: “Gazprom”, “VTB”, and the Conservation bank also companies managed by Putin for the instrument of expansion. The government of Russia had no plan to come out from this crisis, the same is happening now.
Russia’s Financial Crisis and Georgia
The Financial Crisis of Russia spread in those countries which were closely integrated with Russian economy. Financial Crisis influenced the countries of Caucasus, though the serious fell of national currency exchange rate towards leading currencies in 1998 only happened in Georgia. Experts consider that this was caused by inner factors and Russia’s crisis played only an oppressing role.
After the Financial crisis that started in Russia in August of 1998, the change of national currency rates in the countries of the former Soviet Union happened differently. From August 25 of 1998 till December Russian Ruble devaluated with 167,3% towards USD, Belarus Ruble devaluated with-114,6%, Moldovian Lay-78%, the Ukrainian Grivna-52,7%, Khirgizian Somi-47,8%, Georgian Lari – 37,8%. Insignificant devaluation experienced Kazakhian Tenge and Uzbekian Summ by- 7-7%, but Armenian Drahma by 3,7% and Azerbaijan ruble only 0,5% that came into correspondence with the pre crisis tendency. Turkmen ruble and Lithuanian Lit stayed unchanged, Latvian Lat and Estonian Krona became solid, correspondingly by 5% and 7%. So the positive currency tendences existing before Russia’s economic crisis were preserved in Baltic countries and Turkmenia, but negative- in Belarus ( Belarusian ruble devaluated fastly before crisis). Situation slightly changed in Uzbekistan, Kazakhstan, Armenia and Azerbaijan. Serious problems aroused for the currencies of Moldova, the Ukraine, Kirgistan and Georgia, that reflected in the currency failure. This happened in a period when Russia was the first trading partner for Armenia, on Russia came the 14% of Armenia’s import and 33% of export. For Azerbaijan, Russia after Turkey was the second trading partner on the side of import ( 17%) and also the second trading partner after Iran on the side of export ( 17,6%).
In October of 1995, from the adoption of Lari, the exchange rate of it towards UDS till October of 1998 was somehow stable. From September 5-6 ( Saturday-Sunday) of 1998, the exchange rate of Lari sharply fell in exchanges and now 1 USD was exchanged to 1,82 GEL. On September 7, the National Bank of Georgia accomplished the intervention of nearly 3 million UDSs and temporarily managed to stop the exchange rate. ( 1 USD- 1,35 GEL). But the deficit of USD was obvious. Despite of growing interventions, from September the tendency of GEL’s devaluation became irreversible.The market exchange rate of GEL, as usual was higher than the rate fixed on the inter-bank exchange. This gave the possibility of largescale speculation. Commercial Banks engaged in speculation process intensively. The formation of rate difference in Monetary exchanges and in inter-bank exchanges, made it profitable for the Commercial Banks to purchase currency and then realize it in thier own monetary exchanges. This appeared be more profitable than the delivery of risky loans to enterprises. On its side this had a negative influence on crediting enterprises, because even more poor resources were given out by the Commercial Banks, on one hand to cover the budget expanses(as a loan), on the other hand participated in a monetary speculations.
Budget-tax crisis finally was reflected in a budget dificit. It became necessary from the side of the National Bank to finance the additional expanses of state. The reduced number of foreign sources that were planed to finance the budget deficit had a serious influence on the quality of dificit financing, also on delivery of dollar to the monetary market.
From the beginning of 1998 till the 4th of December The National Bank of Georgia on Tbilisi inter-bank monetary exchange sold 102,4 million USDs and purchased 10,3 million USDs, the pure intervention during this period of time composed 92,1 USD. The monetary reserves of the National Bank reduced to 64,5 USDs. From December 4 the National Bank stopped interventions on the Tbilisi iner-bank monetary exchange.
After 3 years of GEL’s exchange rate stability towards USD in December of 1998 government was forced to make the devaluation of it. The main causes of the devaluation of GEL were budget-tax crisis and growing deficit of foreign trade balance.The government and the National Bank could not manage to put down the speculative agiotage, which became one of the sources of reserves exhaustion. Along with the Russia’s factors, according to specialists, the main reason of Georgia’s Crisis of 1998 was the weakness of former government and its inability to manage budget incomes even in a minimal level.
It was obvious that Georgia could not escape from this crisis without the help of international institutions. So our country appeared in the list of countries( along with Azerbaijan, Armenia, Moldova, Khirgistan and Tajikistan), to which in December of 1998 International Monetray Fund and the World Bank expressed its support and gave a financial aid. Though the Former President of the National Bank, Nodar Javakhishvili has an opposite view, he thinks that The Monetary Fund and the World Bank closed thier eyes on the behavior of Georgia’s government and Several Commercial Banks, which artificially provoked the speculative agiotage during the crisis of 1998, in order to receive the extra superprofit.
What pararells can be drown between the events of 1998 and ongoing economic cataclysm in the world today? Is this the repetition of cyclic phenomenon or the beginning of a new stage? It is obvious that the new economy has born. In the world the crisis will continue even in 2009, Russian economy will demage seriously, because on the market of goods the prices on the basic exports will fall, also the oil prices. The crisis will reduce consumption in the world, herewith it is possible to change the style of doing business and even players on the world market. The big examination is expected for the Russian strategic interests, as for Russian-Chinese Alliance. Today the world peace and democracy has the only danger – Russia with its illogical government and Imperial intentions with China. All the other issues are their made-up. Not only the future of Georgia but also the future of the whole mankind depends on this danger and is read so – the world against Russia and it is immposible for the West to loss this war. Time will come and independent Chechnia and Ingushia will create, but history doesn’t remember an independent Abkhazia, except Lavrov’s sick memory.
It’s true that today we depend on Russia less than in 1998 and this financial failure will not transfer to us, but it is:
1. In the constructiion business, the participation of Russian capital was important and it left, so the construction stopped;
2. Important share of investors was Russian capital and it stopped, also the khazakhian among them, which made an influence on the monetary exchange rate;
3. Russia prepares an obvious Transport-Railway blockade for Georgia and on the market some products are less.
4. Because of destroyed communications and frightened investors component parts of business are lost. Even a poor export is falling.
5. Georgia’s problems of banking sphere and money shortage are braking business development and reducing consumption on the market;
That’s why we have to learn as from the experiences of 1998 crisis, also from the current crisis in the world. It is neccessary to lead special unti-crisis measures from the side of government. Before the world helps us, we have to aid ourselves.