The National Bank of Georgia (NBG) and the charges against it are still relevant. After ex PM Bidzina Ivanishvili criticized the NBG President, members of the government’s economic team and representatives of the parliamentary majority also disapproved the NBG activities. It is interesting only several experts had blamed the NBG President before Ivanishvili’s criticism and the government members had tightly cooperated with the NBG. Opponents are accusing Giorgi Kadagidze of several faults – steps taken against Cartu Bank in 2011 to 2012, representatives of the Prosecutor’s Office employed at NBG, delayed steps for preventing the GEL exchange rate devaluation, sabotage, operation on behalf of the United National Movement (UNM).
In response Giorgi Kadagidze summoned a briefing saying a deliberate slanderous campaign has started against the central bank and he called on the government to cease attacks on NBG.
“I urge representatives of the Authorities, representatives of the Government and members of the ruling political coalition to immediately cease attacks on the National Bank; Similar attacks, first of all, hit the state economy, not me. These attacks make negative affect on investors and are counterproductive,” Kadagidze said.
Despite this address, accusations are being still voiced against NBG. Some experts and some members of the government are accusing the NBG president of sabotage. Deputy Minister of Regional Development and Infrastructure Nodar Javakhishvili has even said the UNM has bribed the IMF Head. As reported, the IMF representative in Georgia Azik Sadikov has positively assessed the NBG activities.
“Contraction in foreign trade has hit the GEL. These external factors may to be considered as long-term factors. Therefore, it was impossible to avoid the GEL exchange rate depreciation. Resistance to this process would be counterproductive and Georgia would lose its currency reserves”, Giorgi Baqradze, an advisor to the NBG President, told CBW in response to all accusations.
NBG and Cartu Bank
– A police raid seized USD 2 million and EUR 1 million from a Cartu Bank cash delivery van in the center of Tbilisi on October 18; the armored van, transporting cash from the Bank of Georgia’s headquarters, was also confiscated. The Interior Ministry said the seizure was related with a criminal investigation into alleged money laundering case. Cartu Bank, owned by billionaire and oppositions leader Bidzina Ivanishvili, said that seizure was politically-motivated and represented a “political revenge” against Ivanishvili.
– The National Bank of Georgia (NBG) has no relations with this case. Law enforcement structures have investigated the fact. According to my information, none of these organizations have been found guilty.
– In October 2011, amendments were made to the Tax Code and the law on enforcement of enterprises. As a result, banks lost the right for becoming a primary mortgager. As a result, only Cartu creditors turned out liable to the state and all the mortgaged assets were handed over to the state. Thus, Cartu Bank could not any more satisfy the standards and the NBG appointed an interim manager in Cartu Bank. In 13 days the interim manager issued 50 million USD loans to 4 companies and Cartu Bank’s liquidity potential was almost annihilated.
– These legislative amendments were adopted by the parliament of the previous convocation. I personally consider these amendments to be incorrect and disapprove them, but this is a subject of political suggestions. In various countries different models and approaches are practiced regarding the sequence of mortgagers. As to the interim management, an interim manager at Cartu Bank was not appointed by NBG. The decision was taken by the court after the bank refused to pay an 80 million GEL fine. The court abolished the decision as soon as the bank covered the sum. As to these four concrete loans, I do not know the details. According to my information, these loans were not issued at all, because the old management came back to Cartu Bank. At the same time, I would like to note a loan issuance is a basic direction of operation of any bank.
Prosecutor’s Office staff at NBG
On April 10, 2012 amendments were made to the Law on National Bank, under which the NBG Board could employ individuals without educational background in finances and economics. As a result, the NBG Board involved two persons from the prosecutor’s office: Vazha Jankarashvili (worked in the prosecutor’s office in 1983-2012) and Nikoloz Gongliashvili, a deputy head of the Financial Monitoring Service in 2008-2012. Gongliashvili has also taken part in arresting Israeli businessmen in 2010.
– This is also a certain myth that is often used to speculate with public opinion and to persuade the society NBG has hired employees from the Prosecutor’s Office. First of all, the NBG Board consists of 7 members. Only one of them is a lawyer, who has worked at the Prosecutor’s Office on money laundering prevention issues and NBG finds his experience and qualifications very important, because one of the directions of NBG implies a control and supervision over execution of international obligations in terms of money laundering prevention in the finance sector.
It is also fault assertions as if the NBG board must be staffed with only financiers. Apologists of similar approaches should probe into the international practice: a part of the developed countries demand qualifications of a financier or a lawyer for the board membership, while the German and Czech legislations set no restrictions in this respect. The Dutch legislation requires that the board be staffed by members of different professions.
– Is Giorgi Kadagidze a protégée of Zurab Adeishvili?
– This question is just ridiculous.
USD Withdrawal in 2013-2014
– In 2013 to 2014 NBG withdrew 115 million USD from the economy. Before November 2013 NBG seized over 0.5 billion USD. After November the GEL devaluation started. NBG was forced to return 220 USD and later additional 100 million USD. NBG noted currency reserves were to be replenished, while the mandatory reserves exceeded the norm five times. The NBG reserves are over 900 million USD.
– Along with economic growth, NBG prioritizes a collection of international currency reserves as one of the important tasks and functions. But this goal should not be achieved by withdrawing foreign currency from the economy in automatic regime. As to the international reserves norm, the world practice knows various indicators as benchmarks of this macroeconomic indicator. The most used practice relies on the volume of imports of three months.
Assertions as if the reserves exceed the norm 5 times are unsubstantiated and ungrounded. As to the excessive reserves of over 900 million USD, seemingly, we are witnessing problems with logics and arithmetic. If we multiply the January imports (538 million USD) three times and exclude the existing reserves from it, we genuinely receive 800 million USD (and this is close to 900 million USD), but, first of all, this indicator implies the imports of goods and services and when talking about 3 months, we imply the average annualized indicator, not some concrete month. Therefore, if we take into account these factors and the fact the averaged monthly imports of goods and services were about 800 million USD in 2014, and then we will see that the currency reserves by the end of 2014 would suffice to cover imports of only about 3.1 months.
– In early 2013, Giorgi Kadagidze said the 2013 growth forecast was optimistic and it should be reviewed. NBG asserted unbalanced spending would negatively affect the exchange rate. In August first signs of exports contraction appeared. The question is why NBG withdrew USD from the turnover amid such expectations?
– NBG and the government carry out monetary and fiscal policy on the ground of concrete macroeconomic parameters that are agreed with the International Monetary Fund (IMF) and that is published on the IMF website. This agreement is signed by the Prime Minister of Georgia, vice Prime Minister, the Economy Minister, the Finance Minister and the NBG President. Net international reserves are considered as one of such macroeconomic indicators. These reserves were accumulated in line with this document in 2013 and at the end of 2013 the real reserves exceeded the plan by only 20 million USD. It is worth noting this indicator is only one of the many other macroeconomic indicators and monitoring of only this parameter cannot outline the genuine reality and picture. All macroeconomic parameters should be simultaneously analyzed to see the real picture.
– Is it expedient to increase the monetary rate, when mandatory currency reserves are over 900 million USD or it is justified to sell USD and make the market interventions?
– I have noted the figure of 900 million USD is the result of problems with arithmetic.
Allegations about Delayed Reaction
– Nana Keinishvili, MP from the Georgian Dream coalition, accuses the National Bank and UNM of the GEL exchange rate devaluation. “This problem was created artificially. This is a group, which involves the UNM members and NBG has also played a certain role in this process”.
– We hope all these absurd accusations were dismissed during the IMF mission visit to Georgia.
Nodar Javakhishvili about NBG
– Deputy Minister of Regional Development and Infrastructure Nodar Javakhishvili asserts there are signs of sabotage from the National Bank. What was the benefit from boosting the turnover by 350 million GEL? In 1990th the National Bank has done the same. They used to give loans unreasonably.
– Nodari is a government member and we do not make comments on government members, but it should be noted Mr. Nodari is famous for his acute imagination. The scale of his ideas are clearly shown by one of his unique initiatives for introduction of tourism quotas.
Coordination with Government
– Giorgi Kadagidze asserts NBG has coordinated all steps with the government, with the economic team of the government. Previously, the economic team members used to repeat the same. After Ivanishvili’s statement, they also started criticizing the NBG. If all the problems were discussed in the working process and no pretences existed before, why have these accusations attacked the NBG so unexpectedly?
– Previously, no problems have existed with communication between NBG and the government. NBG represents Georgia’s main fiscal agent and we jointly with the government have shared and keep sharing information and considerations in everyday regime. Georgia’s economic policy is determined by the Georgian government, not NBG. The central bank functions have been strictly determined by the state constitution – provision of stability of prices and financial stability. And we have been fulfilling both functions with success and this achievement has been recognized by various influential international organizations.
Official Exchange Rate Determination Method
– Under the current system, exchange rates are determined at the interbank currency exchange. Ordinary citizens and commercial entities are not authorized to participate in trading sessions. Market analysts assert the closed market system grants exclusive opportunity to the players to make some speculative decisions. Large companies are suffering by speculative exchange rates. According to the established practice in the developed world, major and comparatively smaller companies can invest in any currency on the currency market. This practice enables to save costs on conversion and to have an access to optimal rates.
– Technical details of currency trading sessions such as clearing, netting and so on would be boring for the newspaper readers. Therefore, I will not go into the details. I would just say that currently trading sessions are carried out on the Bloomberg platform that was introduced at NBG with the technical assistance of US Government. This platform represents a transparent system for currency trading sessions and the world’s leading countries apply it at the interbank trading sessions. This project of NBG turned out very successful and for the last 2-3 years representatives of central banks of about 20 countries (Moldova, Tajikistan, Kyrgyzstan, Surinam, Botswana and so on) have visited us by the World Bank (WB) recommendations.
– At the news conference Giorgi Kadagidze has talked about ordered articles, unprofessional analysts and about deliberate slanderous campaign against him. Who is interested in conducting such a campaign and may be this campaign appraised as a revenge for Cartu Bank?
– Similar attacks are periodically discerned against NBG. We do not plan to waste time on probing into the reasons and interested bodies. NBG has been executing the constitutional duties with high sense of responsibility and professionalism to serve the nation and the country.