C.Bank Chief Responds to ‘Slanderous Campaign’, Calls to Stop ‘Blame-Shifting’ over GEL Fall

President of the National Bank of Georgia, Giorgi Kadagidze dismissed ex-PM Bidzina Ivanishvili’s criticism of the central bank as “deliberate slanderous campaign” and said that “blame-shifting” in the current situation harms already weakened national currency lari and country’s economy in general.

In a written statement on February 26, ex-PM Bidzina Ivanishvili said blaming government for depreciation of the Georgian currency lari (GEL) is groundless and accused the central bank and its president Giorgi Kadagidze’s “inaction and wrong actions” for, as he put it, “crisis.”

He claimed that the central bank did not intervene sufficiently to help stop sharp fall of GEL and suggested that the central bank should have sold more U.S. dollars from its reserves. After Ivanishvili’s statement was released, some government members and representatives of the GD ruling coalition also voiced criticism of the central bank.

Central bank’s reserves stood at USD 2.61 billion as of end-January.

USD 120 million was spent from reserves as of February 24 – at the time GEL had 29% of its value lost against U.S. dollar since early November, when it started depreciation.

Late on Friday afternoon GEL strengthened 3.7% to 2.1654 per U.S. dollar after gaining 0.6% a day earlier.

“We are not making political comments regarding various attacks on the central bank and we are not going to engage in political debates in the future either, but as we are facing a deliberate slanderous campaign against [the central bank], we deem it appropriate to remind you chronologically about the position we have been voicing over the recent period of time,” President of the National Bank of Georgia, Giorgi Kadagidze, said at a news conference on February 27.

He said that in early 2013 the central bank warned that 6% growth forecast was too optimistic and it required downward revision.

“Instead of heeding our arguments, we received the first wave of slander and accusations of sabotage,” Kadagidze said, adding that central bank’s forecast turned out correct and the growth in 2013 was only 3.1%, half of what the government was initially expecting.

“Starting from the summer 2013 we have been stating for multiple times at closed-door or public meetings that uneven spending [from the state budget] had a negative effect on currency’s exchange rate and represented a problem for lari; again our forecast turned out to be correct and by the end of 2013 there was pressure on lari and in order to prevent depreciation we had to intervene by selling several hundreds of millions [of U.S. dollars],” Kadagidze said.

At the time central bank’s currency reserves declined from USD 3.1 billion in October, 2013 to USD 2.82 billion by the end of December, 2013.

“At the time we took this decision because the problem was caused by one-time factors and not by fundamental reasons,” he said.

Kadagidze said that in the summer, 2014, when “we failed to accumulate currency reserves even in the peak of tourism season” and when first signs of declining exports emerged in August, “regrettably arguments of those representatives of government’s economic team prevailed who argued that everything was alright and there were no fundamental problems whatsoever.”

“Instead of heeding our arguments we [the central bank] again received torrent of paid [newspaper] articles and attacks from newly emerged ‘experts’,” Kadagidze said.

He said that the Georgian central bank’s policy of handling currency reserves is hailed by the international financial institutions among them by IMF.

“Filling gap, created by declining exports and remittances, with currency reserves is not only a wrong decision, but also counterproductive and fruitless,” Kadagidze said.



“We cannot afford mistakes in this regard,” he said. “We have made mistakes for multiple times in 1990s and we are not going to repeat the same mistakes now.”

“I want to reassure the population that there is no threat to country’s financial stability as long as I and my team are in charge of the central bank,” said Kadagidze, whose seven-year term in office expires in February, 2016.

He said that timing of Ivanishvili’s statement on February 26, when GEL gained a bit, was also “incomprehensible”.

“This cascade of [criticism] is even more surprising now, when situation took the trend towards stabilization and… lari has trend towards strengthening,” he said. “We do not expect situation to go towards worsening.”

“I want to call on the government and ruling coalition representatives to stop attacks on the National Bank; such attacks harm not personally me, but country’s economy; it has negative effect on investors’ mood and is counterproductive,” Kadagidze said.

“There is no time for blame-shifting and there is no time for looking for a scapegoat,” he said.

Kadagidze also said that the central bank will continue to cooperate closely with the government. “We have no problem of communication” with the government, he added.