NBG will not spend reserves to strengthen Lari

President of the National Bank of Georgia (NBG), Giorgi Kadagidze, is denying he or the bank acted inappropriately and says comments by ex-Prime Minister Bidzina Ivanishvili are slanderous.

Kadagidze publically responded to Ivanishvili’s accusations that he, Kadagidze, had taken "wrong actions” in order to avoid the currency crisis, and called on the Government to immediately stop the slander campaign against NBG.

The NBG president said while defamatory comments should not be made about him personally, he was not bothered by this – he was more concerned that such statements would negatively affect the image of the country.

"As long as I am the president of NBG and my team runs the Bank, the country will not face financial instability,” Kadagidze said.

Yesterday billionaire tycoon Ivanishvili said NBG could relinquish more of its reserves in order to save the national currency, the Lari, from depreciating further against the US dollar. In response Kadagidze said he would not spend money from the reserves to strengthen the Lari as the country faced "fundamental economic problems” and spending the reserves would be counter-productive.

"I do not want people to think that spending money from the reserves is the way out from this problem. Georgia’s currency reserves is our asset, which is the main guarantee of Georgia’s financial stability,” Kadagidze said.

"Our consistent policy to accumulate and manage the reserves is recognised by all international organisations, including the International Monetary Fund. To replace exports, tourism and transfers by the reserves is the wrong economic decision and will offer no results.”

The NBG president was "confused” why Ivanishvili made his statement yesterday, as positive changes regarding the strengthening of the Lari was "already obvious”.

"Unfortunately the Lari depreciated by 30 percent and it affected imports as well. Accordingly, we expect imports to be reduced which will reduce the negative impact on the exchange rate, will decrease demand on foreign exchange and the Lari will start to strengthen more,” Kadagidze said.

In the past Kadagidze said he had warned the Government’s economic team about a possible currency crisis, but the Government did not pay proper attention to his caution.

"Earlier in 2013 NBG forecast the country would experience about half the economic growth the Government estimated Georgia would have in 2014. During several meetings with the Government’s economic team we warned the Government that unequal spending would have a negative effect on the exchange rate and would cause problems. Our forecast came true and we saw budgetary pressure on the currency exchange rate in 2013,” Kadagidze said.

"To avoid currency devaluation and to balance the situation, NBG provided several million USD intervention. And in February we spent $120 million USD from the currency reserve,” he added.

"In August 2014 during the touristic peak season we could not accumulate currency reserves and we mentioned the first signs of export decline were evident. NBG introduced these challenges to the Government’s economic team. However, they claimed there were no fundamental challenges,” Kadagidze said.

The Bank president said NBG would continue cooperating with the Government now and in the future, despite the defamatory campaign against NBG from the Government’s side. Kadagidze also expressed hope that in future his warnings will be given more attention.