Central Bank Cuts Key Rate to 10%
September 13, 2008
National Bank of Georgia (NBG) reduced its key interest rate from 11 to 10% citing increased business risks and liquidity crunch, the NBG’s monetary policy committee said in a statement after an extraordinary meeting on September 10.
The central bank reduced the rate from 12 to 11% on August 20.
The committee said in the statement that bank activity has slowed down “significantly due to increased business risks and the ongoing liquidity deficit.”
“It is expected that the existing environment will cause banks to manage their risks conservatively in the medium term, reducing the banks’ ability to expand their operations aggressively,” the statement reads.
Source: Civil.Ge, September 2008
www.civil.ge/eng/article.php?id=19495
Loan to Georgia Illustrates Asian Dismay With Russia
September 13, 2008
The executive board of the Asian Development Bank, representing countries from Japan and China to Turkmenistan and Uzbekistan, unanimously approved a $40 million loan to Georgia at the lowest possible interest rate on Friday, the latest sign of Asian dissatisfaction with Russian military action there.
Juan Miranda, director general of the bank’s Central and West Asia Department, said that the loan had been scheduled for board consideration on the Friday before Russian troops moved into Georgia a month ago. But the Russian military action strengthened support at the bank for helping Georgia, he said.
The 32-year loan carries an interest rate of just 1 percent for the first eight years and 1.5 percent for the remainder of the loan, making it a soft loan on preferential terms.
The loan was so popular with the 12-member board that if it had not already been on the most generous terms available from the bank, “we would have softened it,” Mr. Miranda said.
The bank is also studying the possibility of making an emergency loan to Georgia to help it cope with budget problems after the brief war with Russia. “The month of August was not a very good month for tax collection,” in Georgia, Mr. Miranda said.
Russia’s military incursion into Georgia has alarmed other Asian countries that also have potentially separatist regions and do not want a big power to align itself with any of these regions.
The presidents of the Shanghai Cooperation Organization, a Central Asian security group in which Russia and China both play important roles, did not back Russia’s military action at a meeting in Dushanbe, Tajikistan, on Aug. 28. The organization chose instead to take a neutral stance and urged Russia and Georgia to resolve their disagreements peacefully.
China has been wary of separatists in Tibet and in the western region of Xinjiang and has been leery of projecting military power abroad for fear of attracting a hostile reaction. China expressed “concern” about the Russian action in Georgia a day before the Shanghai meeting, but Beijing officials have mostly avoided the subject since.
China names one of the 12 directors of the Asian Development Bank and has considerable influence over which loans are approved. The Chinese directors have had a policy over the years of not commenting to the news media on bank matters, and the Chinese office at the bank had no comment Friday on the loan.
Indonesia, which reluctantly let East Timor become independent in 2002 and reached a peace agreement with separatists in Aceh on the island of Sumatra only after the devastating tsunami in December 2004, has also been wary of Russian activities in Georgia. Indonesia was among the members of the United Nations Security Council that called for an immediate halt to hostilities during last month’s conflict.
Russia has been seeking membership in the Asian Development Bank since 1997. It has been blocked by the United States, which has been wary of any increase in Russian influence in the region. The bank does not proceed on the admittance of new members until a consensus has emerged on the board.
The United States, China and Japan each name a director to the board. The other members, including 17 European nations, share representation by the remaining nine directors.
Georgia, the newest member of the Asian Development Bank, joined last year. The loan approved Friday is for the Municipal Development Fund of Georgia, which in turn will relend the money to municipalities to pay for sewage works, clean water supplies and other basic services.
Source: The New York Times, September 2008
www.nytimes.com/2008/09/13/world/asia/13asia.html?_r=1&oref=slogin
Georgia Rejects Goods of Russia in Favor of Ukrainian Product
September 13, 2008
In the wake of the military clashes with Russia, Georgia intends to halt import of Russia’s consumer goods, shifting to the product of Ukrainian make, GUAM General Secretary Valery Chechelashvili announced in Kiev. GUAM is a regional organization comprising four ex-Soviet states - Georgia, Ukraine, Azerbaijan and Moldova.
Ukraine will be the leading trading partner of Georgia. It ranks the third or the fourth now, after Turkey and Azerbaijan. But the role of Ukraine will be growing; it will completely substitute for the economic relations that Georgia had with Russia, Newsru.com reported with reference to Chechelashvili.
Through the help of the United States, the EU and Ukraine, Tbilisi will re-establish economy as soon as possible. The worth of Ukrainian-Georgian economic relation will soon reach $1 billion, Chechelashvili was sure.
For Georgia, economic aftereffects of the war are grave. The Economy Ministry has downgraded the outlook for the GDP growth from 12 percent to between 5 percent and 6 percent. But the size of the humanitarian aid is impressive. Chechelashvili said Washington appropriated $1 billion, the EU gave
€130 million and Ukraine provided 100 million hryvnias.
Given this statement of Chechelashvili, the destiny of Russia’s assets in Georgia provokes speculations. Russia’s business owns quite a number of assets there, LUKOIL-Georgia, for instance, covers up to 25 percent of diesel fuel and petrol retail and Bank VTB (Georgia) is one of the leaders of Georgian banking sector with its 14 branches and 13 service offices in all regions of the country. Itera-Georgia supplies gas to 103 enterprises in Georgia, including 38 regional gas distribution companies, in nine of which it owns majority stakes. What’s more, Russia hasn’t halted gas supplies to Georgia and the fuel transit to Armenia via Georgia.
Russia had been the fifth biggest trading partner of Georgia before the South Ossetian war. It had followed Turkey, Azerbaijan, Ukraine and Germany in terms of the trading turnover.
Source: Kommersant, September 2008
www.kommersant.com/p-13215/Georgia_Russia_goods_reject/
Abkhazia Now Craves Investors’ Recognition
September 12, 2008
Abkhazia is looking to attract investors with sandy beaches, 220 days of sunshine every year and an airport that once served as a backup landing pad for the Soviet space shuttle.
“We are ready to talk to any country, organization or firm,” Abkhaz leader Sergei Bagapsh said.
Abkhazia and another republic, South Ossetia, broke away from Georgia following the Soviet collapse. Abkhazia has lived in poverty and oblivion after winning de facto independence in a 1992-93 war against Georgia, with no county agreeing to recognize it.
GEORGIA: POST-WAR TBILISI WORKS TO PROP UP INVESTOR CONFIDENCE
September 10, 2008
One month after war broke out with Russia, Georgian officials and foreign business executives are maintaining a cautiously upbeat outlook on the investor climate in the country.
Foreign direct investment has fueled Georgia’s recent economic boom, and allowed the government to manage its growing trade deficit, and to finance ambitious development programs. In 2007, the country received $1.6 billion in outside investment (more than 40 percent more than in 2006) and posted a 12.4 percent economic growth rate.
Before the conflict with Russia, the government estimated that Georgia would receive close to $2 billion in foreign direct investment for 2008. Now, with economic growth expected to fall by nearly half, officials hope that strong support from Georgia’s allies in Washington and Brussels will help contain the damage to investor confidence.
In a country like Georgia, where job growth outside of the capital has been patchy at best, losing a steady inflow of investment would have significant political and economic consequences. Vakhtang Lezhava, Georgia’s deputy minister for economic development, reports that, so far, investors have proven resilient. While he noted an investment “pause” in some sectors, like real estate, Lezhava stressed that overall there is little evidence of a mass exodus of Georgian investors. “Investors showed cautiousness, but we cannot say this [investor flight] is a trend,” he said.
Convincing investors that Georgia remains a solid business environment is a “big challenge” for the government, he added. To encourage those investors with outstanding projects in Georgia, a recent presidential decree established a governmental commission to help see those initiatives through to completion, he said.
While Lezhava declined to put a dollar amount on investment lost due to the war, at least one real estate deal worth $20-25 million fell victim to the fighting. Burlington Capital Group, an American investment developer based in Omaha, Nebraska, rethought its plans for a real estate development project after fighting between Georgia and Russia broke out on August 8. [For background see the Eurasia Insight archive].
“The war has certainly brought an immediate halt to our investment review of Georgia. However, there have been ongoing concerns within the investment team about the viability of investments in Georgia,” Alec Guroff, a senior investment officer with the firm, told EurasiaNet via email. Ongoing tension between Russia and Georgia makes it “difficult” to “project long-term growth” in the country, Guroff added.
Deputy Economic Development Minister Lezhava stressed that “no major investors or big players” have pulled out of projects in Georgia as a direct result of the recent conflict. Burlington Capital Group had not made any financial commitments at the time of the conflict.
One foreign executive believes that the war’s impact could have been far worse. “Of course, the conflict has impacted both current and potential investors, but not as negatively as one might have expected,” Luc Caltrider, the general director of TBC Broker, a brokerage firm connected with TBC Group, a financial services firm partly owned by the European Bank for Reconstruction and Development, said in an email interview. “I do know of some investments that have been postponed, but, generally, most of the people we have spoken to have not pulled out yet. They are in the ’watch and wait’ mode.”
Professionals like Caltrider anticipate that investors will continue to be cautious for at least the next six months. A reassuring sign would be the complete pull-out of Russian troops still in Georgia. [For background see the Eurasia Insight archive].
David Lee, the managing director of mobile communications company MagtiCom, noted that foreign companies are apt to follow the lead of Washington and Brussels. If the United States and European Union maintain a strong assistance commitment to Georgia, investor interest in the country is likely to remain strong.
Both Washington and Brussels have pledged to help Georgia rebuild after the war, although details about how the funds will be used remain vague. On September 3, the United States announced a $1 billion economic aid package, and the European Union has pledged assistance that could include trade agreements and new, simplified visa regimes. There are also plans for a EU-sponsored international conference on Georgia’s reconstruction in October.
“It is clear that the support from the United States of America is very high. It does appear that the Americans intend to provide all the resources necessary to ensure that the Georgian economy is not affected in the long term,” Lee said.
Spelling out plainly Georgia’s market connection with the West should be part of the reconstruction plan, he added. “What would be good is if Georgia could show a clear path to its inclusion in European markets,” Lee stated.
Deputy Economic Development Minister Lezhava highlighted the importance of international support to boosting investor confidence. The recent displays of support from the United States and Europe are “very difficult to overestimate” in terms of the message it sends to investors, he noted.
The pledges coincide with a proposed 18-month $750 million outlay from the International Monetary Fund to promote economic stability. A mission from the World Bank, Asian Development Bank, European Bank for Reconstruction and Development, the European Investment Bank and the United Nations arrived in Tbilisi on September 8 to assess “the most pressing” recovery needs in areas ranging from agriculture to housing.
“There are [three] things [needed] for investment: you need developed infrastructure, you need business climate and you need confidence,” Lezhava continued. “We will continue to invest as much as possible in the infrastructure. ? We need to work on confidence.”
Source: Eurasianet.Org, September 2008
www.eurasianet.org/departments/insight/articles/eav090908a.shtml
Key Rail Bridge to be Repaired by Sep. 10 - Official
September 2, 2008
A key railway bridge blown up on August will be repaired by September 10, Irakli Ezugbaia, the head of state-run Georgian Railway, told Imedi TV on Tuesday.
Meanwhile, an alternative route bypassing the bridge was, he said, in operation.
The railway bridge was destroyed on August 16. The Georgian authorities accused Russian troops of blowing it up, but Moscow denied any involvement.
Source: Civil.Ge, September 2008
www.civil.ge/eng/article.php?id=19371
Weekly Market Watch - 25-31 August 2008
September 1, 2008
Stock and Bond Markets
Last week the Galt & Taggart Index (GTI) rose by 0.18% to 481 in GEL terms on a trading volume of GEL 9,388. Five different stocks traded on the Georgian Stock Exchange with four blue chips among them: Bank of Georgia (GEB, Buy, unchanged), Galt & Taggart Capital (GTC, Buy, unchanged), Telasi (AEST, Sell, unchanged) and People’s Bank of Georgia (AMB, up 23.44%). Blue chip stocks accounted for 63.46% of the total weekly trading volume.
Last week Bank of Georgia ’s global depositary receipts (GDRs) fell by 3.1% on the London Stock Exchange (LSE: BGEO) to US$ 12.6. Total of 532,963 GDRs traded on LSE last week.
Economy
In January-June 2008, Georgia ’s foreign trade turnover reached US$ 3.97bn, up 43.6% y/y. The negative balance of trade of Georgia widened by 40.8% y/y to US$ 2.37bn.
In January-June 2008, Turkey remained the major trading partner of Georgia with the trading volume amounting to US$ 569.8mn. Trading volume with Turkey accounted for 14.3% of the total foreign trade turnover.
In the reporting period, Azerbaijan was Georgia ’s second largest trading partner after Turkey , with the turnover reaching US$ 402.4mn (10.1% of the total foreign trade turnover).
In January-June 2008, Ukraine was the third largest trading partner of Georgia with the trading volume amounting to US$ 379.5mn. Trading volume with Ukraine accounted for 9.5% of the total foreign trade turnover.
Other key trading partners of Georgia include: Germany (US$ 283.3mn – 7.1%), Russia (US$ 236.3mn – 5.9%), the USA (US$ 222.5mn – 5.6%), China (US$ 172.6mn – 4.3%), the UAE (US$ 172.1mn – 4.3%), Bulgaria (US$ 141.3mn – 3.6%) and Italy (US$ 100.7mn – 2.5%).
In January-June 2008, Georgian exports rose by 47.9% y/y, and imports rose by 42.5% y/y.
Ferroalloys, scrap of ferrous metals as well as copper ore and concentrates remained the largest export categories. Georgia exported US$ 141.6mn (rose by US$ 89.6mn y/y) worth of Ferroalloys and US$ 82.3mn (grew by US$ 31.3mn y/y) worth of scrap of ferrous which accounted for 17.6% and 10.2% of all exports, respectively. In the same period, copper ore and concentrates exports rose to US$ 73.4mn (up US$ 28.4mn y/y), or 9.1% of total exports.
Traditionally oil and oil products accounted for the largest share (12.7% or US$ 401.4mn, a US$ 173.2mn increase y/y) of imports. Motor vehicles were the second largest import category - US$ 360.5mn (up US$ 193mn y/y) or 11.4% of total imports. Grain accounted for 1.6% or US$ 49.6mn (down US$ 3.7mn y/y), of all imports.
Banking Sector
According to the data released by the National Bank of Georgia in 7M08, assets of Georgian commercial banks grew to GEL 8.9bn, up 51.67% y/y. Total shareholders’ equity rose to GEL 1,852mn, up 69.43% y/y. Total loans increased to GEL 5.67bn, up 52.15% y/y, while total deposits rose by 34.5% y/y, to GEL 4.13bn. In 7M08, total banking sector net income increased to GEL 88.97mn, up 28.94% y/y. The leading Bank by total assets was Bank of Georgia with GEL 3.02bn in assets. The Bank of Georgia also accounted for 61.21% share of Georgian banking sector’s net income with the net income of GEL 54.46mn, according to NBG’s data.
FX Market
Last week GEL/US$ exchange rate fell by 0.21%. The weekly turnover on the Tbilisi Interbank Currency Exchange (TICEX) was US$ 20.1mn, US$ 29.1mn less than in the previous week. The National Bank of Georgia’s (NBG) net sales were US$ 15mn.
Source: Galt and Taggart Securities, September 2008
Georgia August Dollar Sales Surge Amid Russia Crisis
September 1, 2008
Georgia’s central bank sold more dollars in August than in any other month in at least nine years as the former Soviet republic sought to support the lari amid its five-day war with neighboring Russia.
The $187.2 million that was sold amounted to almost 13 percent of Georgia’s $1.5 billion reserves, according to central bank figures. The sales were the highest since the National Bank of Georgia started to compile data on foreign-exchange interventions on its Web site in January 1999.
Allegations that Georgia attacked Russian peacekeepers and citizens in the breakaway region of South Ossetia spurred Russia to send in forces on Aug. 8. The conflict, condemned by the U.S. and Europe, prompted the National Bank to cut its benchmark interest rate to 11 percent from 12 percent and Standard & Poor’s and Fitch Ratings to lower Georgia’s credit ratings.
“The ruble tanked during all this, so imagine what would have happened to the lari” without the dollar sales, said Vladimir Osakovsky, an analyst in Moscow at Milan-based UniCredit SpA, the bank with the largest assets in eastern Europe. “The stable currency provided an anchor of financial stability amid the crisis.”
The central bank’s actions, which included the sale of $12.9 million on the day of Russia’s incursion, helped limit the lari’s loss against the dollar to 0.1 percent last month, Osakovsky said in an interview.
Stability `Important’
Georgia’s stocks and bonds slumped during the conflict. The 7.5 percent 13-year government security slid, pushing the yield 147 basis points higher to 9.94 percent. The yield jumped to a record 10.75 percent on Aug. 11. Bank of Georgia, the only stock listed outside the country, tumbled 32 percent, the biggest monthly drop since it started trading in November 2006.
The dollar sales by the National Bank, led by Governor David Amaglobeli, 32, amounted to about 15 percent of all the currency in circulation in Georgia, according to Osakovsky.
“In Georgia, people look at the exchange rate as an indicator of the whole economy, so it was important to keep it stable,” said Archil Mestvirishvili, head of the central bank’s macroeconomics and statistics department in the capital Tbilisi. “If the demand for currency was larger than supply we intervened.”
The lari, which is managed by the central bank to limit the impact of its fluctuations on the competitiveness of exports, was little changed at 1.4099 per dollar on Aug. 29.
Russia’s ruble, which in August had its worst monthly decline against the dollar since March 1999, fell 0.1 percent to 24.6762 today. The nation’s central bank lets the ruble trade freely within a band against a basket made up of dollars and euros. It lost 1.7 percent versus the basket last month.
Georgian economic growth will probably be 9 percent this year, down from 12.4 percent in 2007, Amaglobeli said Aug. 21, nine days after President Dmitry Medvedev called off Russia’s military operation. Russian peacekeepers remain in the Georgian port city of Poti and in the separatist regions of South Ossetia and Abkhazia, whose independence Russia has recognized.
Source: Bloomberg, September 2008
www.bloomberg.com/apps/news?pid=newsarchive&sid=a7_a8mN_O1Xw
Russia Cut Import of U.S. Poultry
September 1, 2008
Russia excluded 19 enterprises of the U.S. from the list of poultry importers starting from September 1, 2008. The given reason was poor quality of the product.
Residual arsenic powder, salmonella, colibacillus as well as other microorganisms that are dangerous to health had been repeatedly found in excessive quantity in the poultry imported from the United States, said Russia’s agricultural supervisor Rosselkhoznadzor.
According to the RF Agriculture Minister Alexei Gordeev, crossing out 19 poultry suppliers of the U.S. won’t affect the market. Under the ministry’s forecast, “the 2008 output will surge by over 300,000 tons vs 2007.” The quotas on poultry and pork import to Russia could be reduced by hundreds of thousand tons, Gordeev said earlier.
The response of Washington was tough. Joseph Biden, who is the vice-president candidate in the United States, said that, by imposing the ban, Russia manifested its unpreparedness to follow trading rules.
Source: Kommersant, September 2008
www.kommersant.com/p-13149/Poultry_import/
Russia Is One of 10 Biggest Creditors of the U.S.
September 1, 2008
Russia ranks the eighth in the list of the U.S. creditors, according to Finance magazine. The RF share in the U.S. state debt was 2.5 percent ($65.3 billion) as of June 30, 2008.
Japan ($583 billion) and China ($503 billion, less the debt to Hong Kong and Macao) are the key creditors for the United States, accounting for over 40 percent of the state debt on aggregate. What’s more, the debt to China goes up by 25 percent a year.
Other major creditors of the United States are Britain, Luxembourg, Hong Kong, Switzerland, states of Caribbean offshore zone and the oil-exporting states, including Venezuela, the United Arab Emirates, Ecuador, Iran, Iraq, Kuwait, Oman and others.
With the private sector taken into account, the U.S. foreign debt totaled $13.77 trillion as of early April, while the country’s GDP is projected to equal $14.4 trillion this year. The U.S. foreign debt didn’t exceed $6.95 trillion in 2003.
The share of foreign governments in the U.S. state debt widened from 52.6 percent in 2003 to 73.9 percent in 2007.
Source: Kommersant, September 2008