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Georgia Plans Reform Drive to Cope with Economic Crisis

Georgia plans a reform drive including privatizations, budget cuts and restructuring of foreign currency bank loans to contain the country’s economic crisis, officials said on Wednesday.

The former Soviet republic’s economy has been battered by a plunge in the Russian rouble and the conflict in Ukraine. Declining foreign investment and lower exports and remittances are also contributing to a rising current account deficit.

Central bank chief Georgy Kadagidze said Georgia’s banks may restructure the dollar loans that make up the bulk of their portfolios to help soften the impact of a 30 percent fall in the lari currency over the past year.

Banks have been asked to present a plan within a week on how to deal with customers with dollar debts and lari income. This might involve “prolonging the maturity of loans or other restructuring in order to reduce monthly payments”, he said.

“We told commercial banks to present such plans and to be flexible in their approaches,” Kadagidze said.

More than 60 percent of Georgian banks’ loan portfolios are denominated in foreign currency, according to VTB Capital.

Economic Development Minister Georgy Kvirikashvili said the government planned to sell some state-owned buildings and a presidential residence on the Black Sea.

“I think we’ll be able to mobilize $300-$350 million within two-three months from privatization of these buildings,” Kvirikashvili told reporters.

Finance Minister Nodar Khaduri said the government would revise the 2015 budget and cut some administrative costs.

Kvirikashvili told Reuters on Monday that growth this year could be only 2.0-2.5 percent rather than the 5 percent forecast.

The central bank has sold $120 million so far this year to support the weakening lari and has raised its refinancing rate to 4.5 percent from 4 percent.

On Wednesday, the central bank set the lari’s official exchange rate for Thursday at 2.2635 per U.S. dollar, compared with 1.7542 at the start of November.

The lari’s decline has begun to curtail imports but the central bank has enough reserves to secure financial stability, Kadagidze said, adding the bank expects the lari to stabilize soon.

The bank’s reserves were $2.610 billion on Jan. 31, down from $2.699 billion at the end of 2014, with January’s $89 million decline partly due to foreign exchange-denominated debt repayments.

Georgia’s exports in January were down 30 percent year-on-year, mainly because of a fall in exports to Russia and Ukraine. Imports fell by 1 percent.

Remittances from abroad were down 23.3 percent from a year earlier to $75.5 million.