Pre-crisis overture?

The start of November has put new challenges before national currency the lari (GEL). It has started falling against the dollar again. To stop this the National Bank of Georgia has sold more than USD 100 million, which has not completely halted the slide but has at least considerably slowed it down.

The immediate lari fall was created by increasing demand on the USD, in which USD 23 million was demanded on November 3 and the same amount on November 5, whereas no sellers of USD were registered at the Tbilisi currency exchange. The considerable currency deficit is also a reflection of a number of other factors. Foreign investments have almost stopped coming into the country, the tourist season practically ended after the beginning of August and almost no exports were made.

Some economic experts think that the artificial preservation of the GEL rate with National bank intervention will result in the speedily exhaustion of Georgia’s hard currency reserves, undermining the country’s economy. Some experts think that the promised allocation of USD 4.5 billion in international aid will rescue the situation, but this suggestion has raised certain skepticism. This money will enter Georgia in small trenches over 2-3 years and will, or rather should be. very carefully targeted.

It has long been speculated that the GEL’s stability against the USD has been artificially maintained, and it is argued that what is happening today is the consequence of this previous artificial strengthening of the national currency. Further downward movement in the rate could cause extra agitation and panic which could have very serious consequences.