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Zura Japaridze Proposes To Fix Gel Exchange

An Interview with MP Zurab Japaridze, the New Political Center founder

– What is your opinion on reasons and grounds that have inspired the GEL exchange rate devaluation for the last year?

– The government refers to external factors. Naturally, the government is responsible for this failure, because they consider Georgia to be a country frozen in a static state around which changes are taking place: if these changes around us turn out positive ones, the country will live better, but if these factors turn out negative, the problems will shake the whole country. This is an absurd approach and archaic thought about economic policy. I have personally talked about the necessary measures and steps for 3 years. We have met the crisis phase unprepared and we are carrying out the inappropriate policy opposite to the real needs. The government made the first mistake when it abolished the planned taxes instead of their reduction. We could use our economy in positive mood in this crisis period. This is possible by carrying out a reasonable policy. What do I mean? Amid the surrounding crisis, capital leaves the space around us. We could create good conditions to drag this capital to our country.

– Do you think a separation of the bank sector supervision functions from the National Bank will bring positive effects?

– I hope everybody realizes the separation of the bank sector supervision functions from the national bank has no relation to the GEL exchange rate. This is an absurd decision. From the very beginning, this was clear that the Authorities have taken  a politically motivated decision that has already brought its effect. Negative signals were sent to all due destinations. There is a way out and this way out is of vital importance. What should we do to tackle this problem? I have introduced an initiative to the Georgian Parliament regarding this issue. We are facing problems and many risks that hinder an inflow of investments to the country, whilst investments represent an only way to quickly grow the economy and get rid of the current poverty. There is no alternative way, because Georgia is a poor country and the domestic investments are unimportant. There are many risks for making investments in Georgia. The main risk comes from Russia. Our lands have been invaded and no one knows how Russia will conduct in the near future. The second challenge is related to the government’s unreasonable policy for the last 3 years. All investors guess this government is unforeseeable and unpredictable. The third risk is related to currency risks for the last 2 years. In this period, the Georgian GEL has become a fully unreliable currency. Our ordinary citizens do not trust the national currency. Neither I nor my neighbors nor  my family members trust GEL, because no one knows what will happen tomorrow. And how investors will be confident in GEL? Therefore, first of all, we need a reliable currency and the solution consists in fixing the GEL exchange rate in relation to USD or EUR or other reliable currencies. GEL should be fixed and neither investors nor our citizens should be afraid of whether the GEL exchange rate is 2.5 or 2.37. Moreover, we should introduce a free currency regime and Georgian citizens should be entitled to take salaries in any currency, not in only GEL obligatorily, including they should be able to receive pensions in USD. Our citizens should be able to buy products and all sorts of goods in USD and EUR in the same way as bank deposits are saved in USD and vehicles are sold in USD. This is an only instrument to neutralize currency-related risks and there is no other alternative. After February the National Bank administration will be reshuffled by the parliament’s majority that has staffed this useless government. So, you can imagine all the turmoil after that.

– What is your prognosis about the 2016 coming election period in terms of economic situation?

– I am not sure something reasonable may take place under the ruling of this government. I cannot imagine this government will take reasonable steps tomorrow. Moreover,  a Georgian proverb says: Better to Have the Head Broken than the Name Ashamed. These Authorities have already disgraced their name. Neither investors nor Georgian citizens trust them. Expectations as if investments will be drawn to Georgia and the economy will start working, USD inflows will grow and the GEL rate will strengthen are vain illusions and somebody may dream of these fortunes, but I think these expectations are unrealistic.

What is the solution to this situation? The solution is clear and specific: First of all, expenditures should be cut, expenditures should be cut in billions. The state budget should fundamentally shrink. The government should cease wasting money. For example, the Economy Ministry spends 200 million GEL, the Energy Ministry spends 125 million GEL. And are there any results of the performance of the Economy Ministry and the Energy Ministry while investments inflow to the power sector catastrophically falls? We waste 325 million GEL every year in this way. Secondly, investors should have a reliable and strong currency in Georgia. Currently we are facing the currency crisis, turmoil and the solution consists in the above-mentioned – the GEL rate should be fixed in relation to EUR or USD and the country should introduce a free currency regime. Kakha Bendukidze has lobbied these approaches. Regretfully, a different position was prioritized by the then Authorities and Kakha could not implement this policy. Seemingly, Kakha was foreseeing the country could enter similar crisis period. Today we should take these steps immediately if we genuinely want to somehow liven up the economy. I expect the situation to go worse. Regretfully I expect the current currency crisis will turn into a credit crisis and this will bring catastrophic outcomes to the country.